DUBLIN – Forest fires in Australia.
Heavy rains in Spain.
Hailstorms and heat waves in France and Italy.
Plus a cumulative 60% tax increase in the past twelve months.

No, these are not signs that the apocalypse is upon us.

They are just the factors affecting how a bottle of wine makes its way to your table – and what it costs when it gets there – when your table is within the city limits of Dublin, Ireland in particular.

Ireland has the highest taxes on wine in Europe — 60% on every bottle, thanks to two increases in the past year. That means that a bottle from the Côtes du Rhône called Les Deux Cols costs €4.25 at wholesale in France, but €10.50 at wholesale in Ireland. And that’s even before the respective VAT rates of 19.6% and 23%. For consumers, it gets worse, because that calculation is before the 70% markup (standard in Dublin and London) that restaurants usually take before including it on the wine list they hand to guests.

As a consumer, it’s hard to feel like anyone’s got your best wine interests at heart even though, as a newcomer to Dublin, I have been very surprised and impressed by restaurant wine lists and especially by the selection at wine bars (not to mention the food that goes along with the wine, which I found to be especially good, as at Fallon & Byrne on Exchequer Street).

Wine in Ireland, in other words, isn’t cheap no matter where you buy it.

So I was interested to find a wine bar that states publicly and openly – on table tents at every table, nonetheless – that the pricing system for wine in Ireland “is broken so let’s fix it.”

That’s the crux of the manifesto at ely restaurant group and its three Dublin locations, ely wine bar, ely bar & brasserie, and ely gastro bar.

“We don’t believe that margins should automatically follow increases in cost,” the manifesto goes on to say. “With that in mind, ely has absorbed the 2013 [tax] increase, has changed how it buys its wines and restructured its margins.”

For anyone interested in the economic landscape of the wine industry, it’s a statement worth noting, worth thinking about, and worth finding out more.

ely restaurant group was at the forefront of the wine bar movement when their first venue opened back in 1999, and they’ve been “belligerent” (to use co-owner’s Erik Robson’s word) about holding fast to listing “not expensive but rather expressive, engaging, and rewarding” wines, even during Ireland’s very difficult recession.

Understanding Robson and his group’s approach sheds light onto which wines are available on their lists, and why they’re available, and how to get the most out of the list every time you walk through the door.

Second Thoughts on First Growth Bordeaux

You may have heard about the consolidation of importers and distributors within the alcohol industry, especially small- to mid-size companies that succumb to the pinch of too high costs and too little volume.

The consolidation is happening around the world, but in Ireland Robson estimates that some 30% to 50% of importers have gone out of business in recent years. It had gotten so bad that some countries stopped exporting wines to Ireland because they weren’t sure if they’d get paid, given the likelihood of the importer in Ireland being out of business in six months’ time.
Though they still see Ireland’s high taxes[/entity] as an obstacle, exporters’ confidence in the island’s economy has improved significantly in the last one to two years. The upside at the time, however, for savvy restaurateurs and retailers was the opportunity to buy up stock from importers who went out of business.

“For a period there every week we’d get lists of stock from businesses that had just gone bust,” Robson said. “I bought Stags Leap ’05 and ’06 because I got a really good discount on them, and passed it onto American business travelers who said they’d never buy it at home.”

During that period Robson also bought a lot of second-growth Bordeaux, including 20 cases of Château Leoville Barton ’98. It normally sells for around €100 a bottle, but he sold it for €59 and still made a profit albeit at a slightly smaller margin. The same wine is available elsewhere in Dublin, but it isn’t moving at the higher price.

Right Place, Right Time

From their opening in 1999 to subsequent expansions into other venues, the group has been influenced and shaped by Ireland’s waves of economic swells and contractions.

At the beginning of the Celtic Tiger, Robson said, expats returned to Ireland, bringing back their experiences in places like London and the US where they drank wine with their meals instead of the ubiquitous-in-Ireland Guinness beer. It was a wave of 20- and 30-somethings who wanted to learn about wine, who had the internet and a growing selection of wine courses to help them.

That’s right when Robson and his wife Michelle opened their first wine bar, with a focus on wines by the glass. “Our customers wouldn’t have to commit to a €60 bottle of Burgundy,” Robson said, “but they’d give a €15 glass of it a try.”

By the time they opened their second venue in 2004, the caliber of customer improved again. During the week they shared some of their client base with Restaurant Patrick Guilbaud, Ireland’s only two-star Michelin restaurant at the nearby upscale Merrion hotel.

“On Tuesday nights we sell the highest value wines,” Robson said. “We get a lot of business travelers, who might be on expense accounts. Early in the week we tend to sell our better wines, while the weekend tends to be about volume.” At their peak, the weekend essentially started on Wednesday.

The group had opened their third venue by the time the recession hit. The impact was immediate. “We were doing more than 200 for lunch,” Robson said. “That number dropped to 50, and they weren’t drinking. It lasted three years, and we’re only now recovering.”

They’re well-positioned to do so. Today, fifty percent of their trade is walk-in. The ely gastro bar is pivotally located in a long-developing technology hub on the Docklands, with a newly opened hotel, a theater, and offices for Google GOOGL +1.07%, Facebook, LinkedIn LNKD +1.44%, and State Street STT +0.07% financial nearby.

Know What’s Worth It, And What Isn’t

Before the tax increases, the least expensive bottle on Robson’s list cost €26. After the increases, the price would have jumped significantly. It was hard to maintain their margins, Robson said, plus the wine itself – in his opinion and in the opinion of the producer itself – wasn’t worth more than €26.

Ely’s answer? To keep selling the wine at €26 (though, with taxes, it would normally go for €30/31) and not restock it long-term. They take the hit on individual bottles, but make it up in volume.

For me ely’s list strikes the right balance of easily recognizable bottles, combined with “reach” or unusual bottles such as Pinot Gris from Slovakia and Godello from Spain. At a time when even second labels from some top Bordeaux producers are too expensive, Robson said they “have to start looking outside our comfort zone, like when we started. We went and sourced interesting wines from smaller producers. You can get similar wines elsewhere but you can come in here and try something new all the time. It’s the value-quality ratio that’s important to us.”

They’ve also changed their formula for what’s on offer. When they started, they had just 3 or 4 beers on draft, for example; now there are 23 or 24. They’re flexible about their inventory, because they don’t need to have twelve months’ continuity. For wine, they continually add small amounts of interesting, unusual wines in addition to the expected blue-chip offerings.

“We grew up with Nescafe, but now we know espresso,” Robson said. “We aren’t going back to Nescafe, even if we have fewer espressos.”

Follow Cathy Huyghe on Twitter @cathyhuyghe.

Source: Forbes.com