Wine markups in the UK

[malcolmwilliamson]

There is advice on restaurant wine pricing which considers consumers' expectations and different approaches at http://www.caterersearch.com/Articles/2005...e-mark-ups.html.

[britcook]

Britcook,

what you're really talking about is a fragmented industry, with few barriers to entry. 

there are people who absolutely know what they're doing: David Page, Nigel Plats Martin, Sir Terrence, Jeremy Corbin etc.

and there are people who do not.  But the fact remains, the failure of the industry is as much down to the participants as it is to the inherent risks of small business.  When you add some of the odd customs and idiosyncracies of the restaurant business, then it becomes even easier to see the traps and pitfalls for inexperienced or deluded entrepreneurs.

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Can't dispute any of that, but even people who "absolutely know what they're doing" can fail and even of those that do succeed very few of them reach millionaire status without TV and book tie-ins, so the customer is not being ripped off (at least not deliberately) even if it feels like that.

[Basildog]

I can't help thinking that we are focussing on too small an area, maybe we need to step back and look at the whole picture. Now if all restaurant owners were swanning around in chauffeur driven limousines because of their outrageous markups on wine there might be good reason for an outcry, but in truth restaurants fail on a regular basis, often costing their owners large amounts of money. Even St Gordon of Ramsay is not immune to failure, and you have to admit he does know a thing or two about running a successful restaurant. In catering ingredient costs are on average around 30% of selling price and to stay in profit (give or take a few percentage points) you have to get that return. Wine is just another ingredient, albeit one that you don't have to do a lot with, and therefore selling it for 3+ times its cost is no different to anything else you sell. The market seems to be a little distorted in the UK because of the high initial cost of the wine (punitive tax regime) and the reluctance of the good ol' British punter to pay a reasonable price for the food. The restaurateur has to turn a profit to stay in business and so he has to take his profit where he can find it, and sadly for us it is usually on the wine, after all putting, say, an extra £10 on a bottle will have less of a visible impact on the diner than will putting the same on the main course.

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Right on! Most sensible thing i've read all day

I,m currently swanning around in a £600 Polo!

[Scott]

Britcook,

what you're really talking about is a fragmented industry, with few barriers to entry. 

there are people who absolutely know what they're doing: David Page, Nigel Plats Martin, Sir Terrence, Jeremy Corbin etc.

and there are people who do not.  But the fact remains, the failure of the industry is as much down to the participants as it is to the inherent risks of small business.  When you add some of the odd customs and idiosyncracies of the restaurant business, then it becomes even easier to see the traps and pitfalls for inexperienced or deluded entrepreneurs.

←

Can't dispute any of that, but even people who "absolutely know what they're doing" can fail and even of those that do succeed very few of them reach millionaire status without TV and book tie-ins, so the customer is not being ripped off (at least not deliberately) even if it feels like that.

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I don't know if I agree with that, the corbin's, page's, plats-martin's etc. are not tv or celebrity types.

I think you're referring to the chef types, and you're probably right when it comes to them. but lets not forget someone like Gary Rhodes, who aside from his tv/book deals, works for Restaurant Associates and collects a mighty fat fee for no risk.

but I also think you've hit the nail on the head, between the functional, members of the industry (corbin et al) and others who participate with less knowledge than might be required - in an unforgiving industry.

look at someone like Martin Lam - spot on restauranteur who gets everything right. whether it's on the floor during service, or in the pricing and value proposition to the customer. I always used to think the food over priced, until someone pointed out that wine is charged fairly, the food is charged fairly, staff are paid and treated appropriately - everything is open and as it should be.

for me, it comes to down to how few people really know what it takes. look at all of us, and our criticisms of the conran restaurants... who's right?

Edited August 1, 2007 by Scott (log)

[rjs1]

'......Rather than the 300% mark-ups of many restaurants we simply add £10 and VAT to the cost price. So the better the wine the better the deal. Where else can you get a bottle of Persimmon Viognier 2006 for just £18?...'

I sold this wine (03 vintage) for £13.50 three years ago. It cost £4.07 ex VAT so that was at a margin of 65% and cash profit of £7.42. The 06 costs £4.69 list (they may get a discount).

Unfortunately it isn't a very good wine, imho.

[naebody]

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In catering ingredient costs are on average around 30% of selling price and to stay in profit (give or take a few percentage points) you have to get that return. Wine is just another ingredient, albeit one that you don't have to do a lot with, and therefore selling it for 3+ times its cost is no different to anything else you sell.

No it's not. Firstly, it's much more expensive than other ingredients, which has a distorting knock-on effect when we start talking about percentages. Secondly, there is a wide variety of grades and price points offered within the same establishment with negligible wasteage, unlike most other ingredients. Thirdly, the marginal cost of storing and serving wine remains identical across all the grades and price points, unlike most other ingredients. When the wholesale price is discounted, wine is essentially a fixed cost that's being charged at a variable rate.

This is not a question of whether restaurants are profiteering, or whether their business models are sound. This is a case of customer perception of value -- which is surely the benchmark by which businesses should be judged. And if you perceive that you're paying a £20 "location charge" on the house wine, what kind of sucker would be expected to pay £100 to receive an identical service on something further up the list?

In fact, I'm going to take this to the logical extreme. Restaurants are not justified in charging above the recommended retail price for wine. They essentially have the same storage and purchase overheads as small retailers, which are covered by the over-the-counter profit margin, while the cost of service is encapsulated in the "optional" charge that's added to the bill.

Restaurateurs, start your bleating.

Edited August 2, 2007 by naebody (log)

[Winot]

Isn't the problem that UK consumers aren't prepared to pay a reasonable price for restaurant food? If they did, the mark-up on the wine could come down.

[algy]

Isn't the problem that UK consumers aren't prepared to pay a reasonable price for restaurant food?  If they did, the mark-up on the wine could come down.

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Or is the problem that many UK restaurant prices aren't reasonable (when compared to French, Italian or Spanish equivalents)?

[britcook]

In fact, I'm going to take this to the logical extreme. Restaurants are not justified in charging above the recommended retail price for wine. They essentially have the same storage and purchase overheads as small retailers, which are covered by the over-the-counter profit margin, while the cost of service is encapsulated in the "optional" charge that's added to the bill.

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Not necessarily a disagreement but a different point of view. Firstly the small retailer, at least the efficient one, will only stock what sells in enough quantity to justify shelf space, the restaurant has to carry a wider range because at whatever price point they operate, certain wines will be expected to be on the list. And unlike the small retailer the restaurateur will be expected to have wines that are ready for drinking now, i.e. with some age on them. This means carrying a wider range for longer and meanwhile that's dead money tied up in stock. Secondly the restaurateur is in the food not the retail business, wine is something they have to sell as an adjunct to the food but it is not the primary focus of their business. Finally, and probably most telling, a restaurant has to have sufficient profit on the right level of turnover to stay in business. In the normal UK model, whether we like it or not, wine is a significant contributor to this, without this major income/profit source most restaurants as we currently know them would simply not survive. We've probably all seen in the past restaurants opening with a big feature of their "reasonably priced wines" policy, only to find that after a relatively short period those wines are mysteriously no longer quite as reasonably priced. It is unfortunate, but that's the way it is here, due in no small part to our lack of tradition of dining out regularly at decent restaurants. Going out for a meal is still, in many places, a trip to the local chippy or nowadays the Asian takeaway.

[Scott]

Isn't the problem that UK consumers aren't prepared to pay a reasonable price for restaurant food?  If they did, the mark-up on the wine could come down.

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no it's not true.

it's the reasoning and the fear of the industry, it is not something proven in practice.

you're right in that this is the reason trotted out, but where is the evidence?

cheaper food is in reality a bit of honey trap.

[Gary Marshall]

'......Rather than the 300% mark-ups of many restaurants we simply add £10 and VAT to the cost price. So the better the wine the better the deal. Where else can you get a bottle of Persimmon Viognier 2006 for just £18?...'

I sold this wine (03 vintage) for £13.50 three years ago. It cost £4.07 ex VAT so that was at a margin of 65% and cash profit of £7.42. The 06 costs £4.69 list (they may get a discount).

Applying £10 plus VAT accross the list is making a higher margin than saying wines from house to £18 at a sliding scale from 70%-65% and then looking for a £10 plus VAT margin. As such, you would take more money on £18 plus wines but at a lower margin. As a challenge to Mr Gluck, who incidently has stayed at my establishment but failed to recognise the value in this list, where else in the on trade can you get a bottle of Barolo Margheria 1998 from Massolino for £45.

Drives the accountants potty mind you.....

Sure I'm not in London but my costs are not that different.

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entirely agree, i thought of a fixed mark up, but it does only work in your favour if you buy better wines, but unfortunately as i'm sure baker estates/basildog would confirm my experience that at the end of the day you sell more 'house' wine than anything else so the average punter is actually getting 'ripped off ' in daily mail parlance under such a scheme.

I think our house wines were £3.75 a bottle sold for £11.95 less vat £10.17, a Whopping £6.42 cash profit and 63% GP 271% mark up, at £10 mark up plus vat it becomes £15.50 (13.75 ex vat) 68% GP and 350% mark up

Also puzzled by glucks comment re avoiding 300% mark-ups, if that persimmon viognier is still as bakerestates says a £4 wine then less the vat on the selling price it's a £15 wine so the gross margin is 73% and the mark up 375%?!

There's also more visibility in wine prices, no-one complains about the price of a bowl of soup but the margin/mark -up would be significantly higher than on the wine.

At the end of the day it's a very imprecise science, and i suspect there's little more to it than what your particular market will stand, so if you find an altruistic/enthusiastic owner out there who fairly marks up his wine then support him, because there'll be plenty of pressure on him to raise his prices!

cheers

gary

[erica graham]

entirely agree, i thought of a fixed mark up, but it does only work in your favour if you buy better wines, but unfortunately as i'm sure baker estates/basildog would confirm my experience that at the end of the day you sell more 'house' wine than anything else so the average punter is actually getting 'ripped off ' in daily mail parlance under such a scheme.

At the end of the day it's a very imprecise science, and i suspect there's little more to it than what your particular market will stand, so if you find an altruistic/enthusiastic owner out there who fairly marks up his wine then support him, because there'll be plenty of pressure on him to raise his prices!

cheers

gary

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We try to do a mix of the two- straight GP mark up on the "lower" end and a cash mark up on the top end, and in between a "suck it and see" admittedly this means that the top end is much better value for money- but we're trying!! WE can't do it any other way as restaurant set costs have to be covered by the GP, otherwise you're shut!!

[bakerestates]

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Restaurateurs, start your bleating.

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bahhhh bahhhhaa............

[Basildog]

Strange..just been reading this at the end of the working day when a guy walks in off the street asking to buy a couple bottles of wine.For legal reason may i just say that i had to refuse him, as i am not licensed for off sales BUT i could have charged him £11 a bottle for some Spy Valley SB that is on the wine list at £19.75. and he might have thought that fair, if he had bought them, which he didn't of course.

[chefmatt]

interesting article here:

http://www.ft.com/cms/s/596dc008-312a-11dc...00779fd2ac.html

[naebody]

http://www.ft.com/cms/s/596dc008-312a-11dc...00779fd2ac.html

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So I'm overcharged to pay for his afternoon tasting sessions and to fund his cellar speculation? I'm bearing a premium in order to benefit from his irreproachable taste? Wow.

Now, I can understand why most people haven't taken the time to read about the economics behind such matters. But for a guy who owns a chain of restaurants to still be trotting out all this the delusional bumwash about food subsidies and glassware costs is terrifying.

It only takes a moment's thought to figure out that cost and prices have little relaton -- I can pay wildly different prices to eat an identical meal if I choose to have it on a weekday lunchtime, a saturday night or a Valentines Day. This is not because the costs involved alter significantly, but because the perceived value of the product changes. The wine list is basically a refinement of this, as it allows restaurants to operate a multitude of price points simultaneously (economists call this targeted pricing). It means you can attract the skinflint, glass-of-house-and-a-jug-of-tap-water people while giving customers who are not price-sensitive the rope with which to hang themselves. You make more money from the latter group than the former, but there's no "subsidising" involved, just as the Valentine's day crowd does not subsidise the lunchtime diners. They just provide differing margins versus empty seats.

The second thing to note about wine is that the restarateur is in posession of all the information, while the average customer has barely any. I'm quite often confronted with a wine list where I don't recognise a single name within my price range, and I doubt that happens unintentionally. Now, keeping your customers in the dark (or information asymmetry, as it's known in economese) may appear to benefit the restarateur. It's doesn't -- what you get is a dysfunctional market where nobody benefits. Why do most people buy the house or the secnd-cheapest bottle? It's because most diners assume they'll be buying a lemon, so minimise their expenditure (those on a date have the same instinct but don't want to look cheap, so buy the No.2).

Sorry to sound like a lecture, but this is relatively important stuff in the scheme of things. Everyone seems to agree that the current restaurant pricing model doesn't actually work very well. As many posters have pointed out, it's a hard business in which to make money, yet the perception among customers remains that you're profiteering. Shouldn't someone in the hospitality industry be looking at ways to fix this?

Edited August 4, 2007 by naebody (log)

[muichoi]

Actually the lists at Mr. Platts-Martin's restaurants offer amazing value, in general.

[malcolmwilliamson]

I have been giving some thought to wine markups and have jotted down a list below of suggestions which, in my mind and experience, justifies them. I have deliberately avoided putting a value on the size of the markup: I believe that will vary according to restaurant location and other circumstances.

For simplicity of expression I've directed my 'advice' directly at restaurant owners. I'm an amateur and don't know the trade beyond working as a barman/wine waiter in Sheringham and Cromer hotels years ago when a student. My perspective is that of a food and wine lover who is far more often impressed by the quality and QPR of the food than the wine when eating out in the UK.

In too many UK restaurants I've eaten at wine appears a poor relation or afterthought to food. The wine training of staff has too often come over as deficient.

In extremes I’ve either not eaten in a particular restaurant, or had one glass or no wine, to avoid being ripped off.

I'm sure there are big gaps/misconceptions in my understanding of restaurant management evident in the list that follows.

1) Given the relative cost of the wine and food on the menu, you as a restaurant owner should ensure that you, plus preferably at least someone else on your staff, are as qualified in wine as you/your Head Chef are/is in food.

2) Put yourself and a member/members of your staff through the WSET Higher Certificate course or similar. When I did my course about half of my fellow students were, like me, there out of personal as opposed to job related interest. The other half were working for wine shops or supermarkets. There was no one from a restaurant. Why, when restaurants are in the business of selling wine and there are far more of them than wine retail outlets? Perhaps mine was an unrepresentative sample.

3) Select your wines carefully. By all means employ the services of a consultant but don't hand the selection totally over to a wine supplier. He will have his own agenda which won't coincide with yours.

4) Avoid listing wine brands that are available in supermarkets, unless you are prepared to price them accordingly. The majority of wine purchased in the UK is on offer in supermarkets/high street chains. A large proportion of your customers will know the BOGOF price of e.g. Hardy's Crest and will expect to be charged accordingly.

4) A short, well selected for food matching purposes, wine list is far more preferable than a long one. Cheaper too in terms of storage space and having money tied up in bottle stock.

Wines have a 'best before' date, some have a 'best after', which are unfortunately not stamped on the bottles. All have a 'best at' range of dates. A long wine list is bound to have bottles well past their drinking windows.

Someone will have tasted all food served to your customers. Can you say the same about your wines?

You wouldn't be seen dead selling out of date or undercooked/unripe food. (On reflection you would.)

5) Describe the wines accurately and without spelling mistakes on your list. Vintages are essential. Make sure you include brief tasting notes. A wine just listed as 'Chablis' invites a price comparison with the customer's last supermarket purchase of that popular choice. Few of your customers will be aware of the different Chablis appellations, growers, drinking qualities and prices.

7) Keep your wine list/menu up to date. You can use a hand writing font to make the list a more varied read. All of this isn't time consuming on a PC. Being presented with a wine list containing numerous crossings out and dual vintages doesn't instill confidence.

If you food menu is online put your wines there too. They're just as important for selection purposes.

8)) If you are selling wines which are stoppered by natural corks (increasingly unlikely from some regions) remember that a sizeable proportion (10 %?) will be corked. Accept complaints from your customers with this in mind. Make sure your supplier accepts returns on the same basis.

9) Your customers (just like mine in school) will have a range of knowledge and experience of wine (education). They have a right to expert advice in return for payment for your wine .

Some will, like my 'parents', know nothing. Some will, like my pupils, totally lack confidence. A few will be more expert than you (me). Make sure that you +someone on your staff have the interpersonal skills to deal with these extremes and with customers in between. Just as I shouldn't be in school management, you shouldn't be selling wine without this confidence that only comes from education and expertise. After all you have these in food.

If I had reasonable confidence that you met the above criteria I would view reasonable markups on your wines as well justified, book to eat chez vous and drink copious quantities of your wine. Unfortunately I can’t say that about a lot of UK restaurants.

[Matthew Grant]

Great Post! I'm sure one of the owners here might point out some flaws but from a consumers perspective it is right on the money.

[naebody]

Actually the lists at Mr. Platts-Martin's restaurants offer amazing value, in general.

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He's better than most, certainly, and I'm sure there are some economies of scale involved in operating five very similar restaurants in close proximity. Yet a bottle of 1996 Château Labégorce Cru Bourgeois Margaux will still cost £60 at La Trompette and £18 at the off-licence across the road. Not my definition of "amazing value".

[muichoi]

Actually the lists at Mr. Platts-Martin's restaurants offer amazing value, in general.

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He's better than most, certainly, and I'm sure there are some economies of scale involved in operating five very similar restaurants in close proximity. Yet a bottle of 1996 Château Labégorce Cru Bourgeois Margaux will still cost £60 at La Trompette and £18 at the off-licence across the road. Not my definition of "amazing value".

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Not my definition of a very good choice, either! It certainly helps to know the retail/auction prices of wines that interest one.

[Scott]

http://www.ft.com/cms/s/596dc008-312a-11dc...00779fd2ac.html

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So I'm overcharged to pay for his afternoon tasting sessions and to fund his cellar speculation? I'm bearing a premium in order to benefit from his irreproachable taste? Wow.

Now, I can understand why most people haven't taken the time to read about the economics behind such matters. But for a guy who owns a chain of restaurants to still be trotting out all this the delusional bumwash about food subsidies and glassware costs is terrifying.

It only takes a moment's thought to figure out that cost and prices have little relaton -- I can pay wildly different prices to eat an identical meal if I choose to have it on a weekday lunchtime, a saturday night or a Valentines Day. This is not because the costs involved alter significantly, but because the perceived value of the product changes. The wine list is basically a refinement of this, as it allows restaurants to operate a multitude of price points simultaneously (economists call this targeted pricing). It means you can attract the skinflint, glass-of-house-and-a-jug-of-tap-water people while giving customers who are not price-sensitive the rope with which to hang themselves. You make more money from the latter group than the former, but there's no "subsidising" involved, just as the Valentine's day crowd does not subsidise the lunchtime diners. They just provide differing margins versus empty seats.

The second thing to note about wine is that the restarateur is in posession of all the information, while the average customer has barely any. I'm quite often confronted with a wine list where I don't recognise a single name within my price range, and I doubt that happens unintentionally. Now, keeping your customers in the dark (or information asymmetry, as it's known in economese) may appear to benefit the restarateur. It's doesn't -- what you get is a dysfunctional market where nobody benefits. Why do most people buy the house or the secnd-cheapest bottle? It's because most diners assume they'll be buying a lemon, so minimise their expenditure (those on a date have the same instinct but don't want to look cheap, so buy the No.2).

Sorry to sound like a lecture, but this is relatively important stuff in the scheme of things. Everyone seems to agree that the current restaurant pricing model doesn't actually work very well. As many posters have pointed out, it's a hard business in which to make money, yet the perception among customers remains that you're profiteering. Shouldn't someone in the hospitality industry be looking at ways to fix this?

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lol. have to respect anyone who introduces George Akerlof's lemon theory

you are quite right on one important thing, and this is not arguable - the anonymity of wine recognition is a deliberate conceit. always has been, at one time generically labelled St Joseph or Chablis did the trick, but the explosion on the high street torpedeo'd the idea of quality of such generic bottlings.

now in order to get past that, obscure lines are often sourced. and the problem isn't the house wines, and reasonably prices the commoditisation is mitigated by a low absolute cost.

however, one thing from Mr Platts Martin (a very knowledgable, and dare I say shrewd operator) interested me:

"Platts-Martin believes, arises from the fact that this narrow focus on how expensive wine is misses the point of why and where restaurant-goers choose to eat. “People book a restaurant because it is a package, as a combination of the food, wine, service and ambience it offers. When they get the bill, although they may look for any errors, they tend not to dissect it line by line. They look at the total, decide whether they had a good time and whether it was sufficiently good value to induce them to return. And that is the rational approach because if the margins were to be reduced on the wine, they would have to increase on the food. The bottom line would simply not change.”

if this were truly believed and shared by the industry at large, then there would be no need for the obfuscation of wine origins and identity.

[Scott]

Strange..just been reading this at the end of the working day when a guy walks in off the street asking to buy a couple bottles of wine.For legal reason may i just say that i had to refuse him, as i am not licensed for off sales BUT     i could have charged him £11 a bottle for some Spy Valley SB that is on the wine list at £19.75. and he might have thought that fair, if he had bought them, which he didn't of course.

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lets be honest though, £19.75 for the spy valley is not a terrible price.

it's when something decent, but widely available like that is charged at £25 - 30.00 that accusations of taking the piss gather.