LEO/LHB Grape Escape: Fair profit or masked bandit?

[Robin Garr]

You got a nice French red for $12 at the wine shop, and sometimes it’s on sale for $9.

Should the wine waiter don a black mask and brandish a pistol when she asks $24 for it?

Read this edition of The Grape Escape in full in the March 24 LEO:
http://bit.ly/winebandit

Robin-

I know we've discussed this before, but the mark up on wines is one of the reasons I seldom order that beverage when dining out, with special occasions occasionally being the exception. That said, at home we enjoy a bottle 4 or 5 nights per week. Then again, my cellar is broader and deeper than many/most restaurants so that makes the decision that much easier. Restaurants are within their rights to charge what they must, and I will exercise my right not "Pay up, drink up, enjoy".
Waiter, another water with lemon please.

'Winger

Just a fair as charging $4 for a beer that cost $1.50.

IF I ever drink wine at a restaurant it's because a) it's a house wine or b) it's a VERY special occasion. It's ridiculous that I can buy a double Johnny Walker for the same price as a good glass of wine at most places. And it's a shame too because other than a few beers, nothing pairs with food(especially a steak,) as well as wine.

Glasses, washing of said glasses, heat, air conditioning, insurance, liquor liability insurance, rent or mortgage, payroll, tables, chairs, linens, flatware, replacing flatware that gets thrown out, marketing, licenses to serve alcohol. Lets see what else? Oh yes in my case being in Oldham County 5% of all alcohol sales goes to the county. This is a tax on my bottom line. That is why it is 3 times whole sale.

Ever wonder what a glass of tea cost to make?

Glasses, washing of said glasses, heat, air conditioning, insurance, liquor liability insurance, rent or mortgage, payroll, tables, chairs, linens, flatware, replacing flatware that gets thrown out, marketing, licenses to serve alcohol. Lets see what else? Oh yes in my case being in Oldham County 5% of all alcohol sales goes to the county. This is a tax on my bottom line. That is why it is 3 times whole sale.

Ever wonder what a glass of tea cost to make?

Will-
I don't think I fail to appreciate the costs associated with being in the food and beverage industry. The point is, at least for me, that wine service fails to deliver an added value commensurate with the premium charged in most situations. But, that is just me.
I never really wondered about the cost of tea or soda. The $2 or $3 profit made isn't enough to warrant my attention. On the other hand, a mark-up/profit? of $30 on a $15 bottle of wine does get my attention and I have made a decision not to play in that arena.
None of this makes either of us right or wrong. We've simply reached different conclusions based up our personal or commercial needs and experience.
Cheers.

Will-
I don't think I fail to appreciate the costs associated with being in the food and beverage industry. The point is, at least for me, that wine service fails to deliver an added value commensurate with the premium charged in most situations. But, that is just me.
I never really wondered about the cost of tea or soda. The $2 or $3 profit made isn't enough to warrant my attention. On the other hand, a mark-up/profit? of $30 on a $15 bottle of wine does get my attention and I have made a decision not to play in that arena.
None of this makes either of us right or wrong. We've simply reached different conclusions based up our personal or commercial needs and experience.
Cheers.

Bill,
I get it. I for one never order a steak out. I know I can cook it at home the way I want it. I always order something that is unique to the venue. And you, it seems, have a great wine collection so buy all means drink it at home. I was just pointing out that it takes a few $$ to open the doors and that is why wine cost what it does.
Cheers back at you my friend.

I think all of us realize that a restaurant needs to make a profit in order to stay in business. But we also feel that their profit should be a reasonable for the services provided. Beverages always seem to be one of the biggest points of contention. Yes, there certainly are costs to serve the product, clean the glass, etc. but that cost is basically the same whether it is for a glass of tea, soda, beer or wine. So why should the markup be a percentage of the price of the product? It doesn't take any more effort to serve a $20.00 bottle of wine than it does a $200 bottle. So why should the restaurants profit be $10.00 in the first place and $100 in a second (using a 100% markup across the board which while not exact is a good approximation)? It seems like the overhead costs for each bottle is approx believe the same for the markup should be close to the same also.

It's an interesting conundrum. I've tried to keep my markup at the Pig rather conservative, and I tried to add an incentive to order wines that are by the glass by the bottle with a discounted bottle price relative to glass price. I'd rather have folks try something new at a relatively modest price than have a bunch of stock sitting around and have to make my list "safe" due to lack of sales. Having said that, it's always going to be a little steeper than at a liquor store. I would like to think that the added knowledge and skilled pairing that I can offer customers via my (very well trained) staff is worth the extra markup.

Also- just re-read Robin's article and wanted to make a couple points-

Wine? They pull the cork and pour. There’s not much value added there.

Gotta take issue with that. The amount of time and energy put into building a strong wine program with knowledgeable service is a huge factor for any restaurant that wants an emphasis on wine. I've worked at liquor stores and even specialty wine shops, and the time put into wine service at a doesn't come remotely close to the time and energy spent at restaurants. Personally whether I'm managing, bartending, or serving; giving a solid wine experience is paramount for me, so boiling it down to pulling the cork and pouring is oversimplifying I think.

Nevertheless, the standard is simple: Multiply the wholesale price by three (which amounts to doubling the full retail price) to set your wine list price.

We're not the Bristol, mark up wise, but at the Pig, I've tried to be closer to 2.5% to encourage exploration.

The threads on this topic have interested me for some time. Why people pick on wine mark-up vereses other items at restaurants. Afterall, wine (even if the place is charging 3X cost) has the lowest markup in the place. Why aren't people as adamant on say.....pizza, pasta, breakfast items, sushi, soda, "House" brand liquor, etc.. that have a markup of what 500% or more.

How about other business models? Clothing, office supplies, drugs (legal ones too), bottled water, "Professional" consulting fees (throw in doctors, lawyers, accountants, tech support, etc.). What are their markups? $200+ an hour...how is that justified.

So why should the markup be a percentage of the price of the product?

It shouldn't necessarily, but items need to provide enough profit to make things work (pay the bills and keep the place open). I would venture to say that most places have a lower cost of goods; meaning a higher markup; for food, beer and non-alcoholice beverages than they do for wine. Wine carries more risk than these other items. A large list requires an investment in space, inventory, training, cash, etc.. Even if they sell a lot of wine, most items on a large list sell slowly. A side of Salmon can be turned/sold in a night, but a case of wine could take months.

Then there is the availibility issue of many wines. Winery "A" only sells 6 cases of their prized wine to their KY distributor. The distributor then decides who can have some and how much they may purchase. The restaurant then has only a few bottles of that item to sell all year. Do rare items command higher prices?

As I noted up front, I just find the discussion interesting.

Why people pick on wine mark-up vereses other items at restaurants. Afterall, wine (even if the place is charging 3X cost) has the lowest markup in the place. Why aren't people as adamant on say.....pizza, pasta, breakfast items, sushi, soda, "House" brand liquor, etc.. that have a markup of what 500% or more.

How about other business models? Clothing, office supplies, drugs (legal ones too), bottled water, "Professional" consulting fees (throw in doctors, lawyers, accountants, tech support, etc.). What are their markups? $200+ an hour...how is that justified.

I think it is the "value added" factor. While the mark up on pizza, sushi, liquor, drugs, and professional fees is higher, they normally have a value added to the product. I might not have the ability to make a pizza, roll sushi, mix a cocktail, diagnose a medical condition, or write a prescription like a cook, bartender, or Dr. However, I can walk into a liquor store and buy a bottle of wine. If I need advise on parings the wine shop provides it, free of charge. They have similar cash flow and storage issues as a restaurant, but charge far less.

I seldom drink wine in a restaurant because I don't care for "real" wine, not because the high mark up. If restaurants can get 300-400%, more power to them.

[Robin Garr]

This has been a most interesting discussion, and I hope it continues.

I do find myself wondering how effectively I communicated the message I was trying to get across, though, even in short form: The issue here is very much like the issue with server pay and tipping. By long, perhaps irrevocable tradition, the restaurant industry looks to liquor (including hard stuff, beer and wine) as a significant profit center, and there's a well-established formula that most restaurants are uncomfortable departing from because without it, the budget numbers just plain won't work.

In the age of the savvy consumer, and information sharing on the Internet, this is much more of an open secret than it used to be, and some people get irritated. But those of us who like to dine out and feel an obligation to support the local, independent restaurant industry in particular, come to accept the reality that there's a markup on restaurant food and a markup on restaurant wine. I appreciate Jeremy's spirited (heh) defense, but the bottom line, in my opinion, is that only a handful of restaurants actually add real value to the wine through cellaring and service.

The threads on this topic have interested me for some time. Why people pick on wine mark-up vereses other items at restaurants. Afterall, wine (even if the place is charging 3X cost) has the lowest markup in the place. Why aren't people as adamant on say.....pizza, pasta, breakfast items, sushi, soda, "House" brand liquor, etc.. that have a markup of what 500% or more.

I think the one big reason it draws the so much attention is because of the $'s not the %. So what if a 50¢ bottle of soda is mark-up to $1.50, it is still only cost you $1.00 of your pocket. On the other hand take a $40.00 a bottle of wine, even with only a 2x mark-up that it still $80.00 for the same bottle or $40.00 out of pocket! Which one hurts (or helps) the bottom line more?

Maybe I'm oversimplifying the equation and/or stating the obvious, but as long as people are willing to pay, people will be willing to charge.