What's Behind that $15 Martini?

[beans]

Geesz. The $15 cocktail was just beginning about three years ago when I kept visiting friends in Miami/South Beach. A trend in the more expensive cities witout a doubt.

So what explains the hefty price tag? Customers have gotten more sophisticated, say spirits makers, and they're willing to pay more for luxury brands. When hard liquor consumption plummeted in the late '80s, hard spirits like Scotch and then vodka reinvented themselves by creating a market for super-premium brands that emphasized clean flavor and a smooth finish, much like fine wine.

* * * * * * *

"We're selling lifestyle, not vodka," says David van de Velde, president of Luctor International, importer of the highly regarded Van Gogh vodka from Holland.

Further down, our friend Gary Regan is quoted:

Cocktail expert Gary Regan is a bit more charitable. ...He says a lot of the higher prices "have to do with the realization that better ingredients make better cocktails. We're drinking less, but we're drinking better quality." That quality, he says, extends from the liquor itself to the fresh fruit juices and even the unusual garnishes that bartenders are using these days.

True.

Full Wasington Post article can be viewed here.

Cheers!

[slkinsey]

Interesting article. I wonder how much the rise in price also has to do with the fact that cocktails are, on average, quite a bit larger than they used to be.

I found this passage interesting as well:

A Tanqueray martini at the Red Robin Gourmet Burgers Restaurant near Dulles Town Center is about $5. In the small Hudson Valley town where [Gary] Regan lives, about 55 miles north of New York City, locals get a top-shelf martini for $8. "In Manhattan, it'd be twice that much, but then, so would the rent," Regan notes.

[KatieLoeb]

Our martinis here at Rouge have a four oz. pour of Gin/Vodka. That's 1/6 of a bottle! Belvedere costs 27.99 in PA + 7% tax per bottle. That comes to a unit price of 28.89 per bottle. Call it $29 even and divide by 25.4 ounces in a 750 ml bottle. That's $1.15 per oz. Multiply times 4 and the drink costs us $4.60 to serve. If liquor cost of goods were even at 25% then we'd have to price that cocktail at $18.40 to keep our costs in line. We currently charge $12. That's a freakin bargain.

It's generally more cost effective to order vodka or gin "up" because there's only a price modifier of $1-$2 for that over the base price of a "shot".

I think I need to examine our pricing structure tomorrow...

[Lan4Dawg]

now this is going to date me but when I started working in the restaurant business in d/t Atlanta (1978) bar pricing was $1.00 for well brands, $1.25 for call, & $1.50 for "super call". Super call was JWB, Pinch, Crown, Glenlivet, Glenfiddich, certain liqueuers, and cognacs (that was all we had b/c that was all we needed. We had three vodkas--well, Smirnoff and a new product called Stolichnaya). Martinis had a $0.25 bump b/c they were 2 ounces instead of 1 1/2 and it was 2 for 1 at happy hour which ran fr/ 5-7pm and after 11.00. We did add $0.25 per drink on nights when we had a live band as an "entertainment charge".

Now if you do some quick figuring we have raised drink pricing by approximately ten times since 1978--figuring a call martini @ $1.50 then and $15.00 now. Not even gas prices have risen 10x since then. Housing prices have risen but not by that much.

Even if you talk about alcohol pricing alone there is no excuse for such a dramatic increase in pricing. A bottle of JWR in 1978 cost me about $10. The same bottle costs about $18.00 today (& that is at a discount liquor store). That is a tremendous price increase but nothing like the cost increase of drink pricing. Even the cost of a six pack has not increased that much. I used to purchase an import at $3.99/6 and now that same brand costs $5.99/6.

How do you explain such a dramatic price increase?

[NulloModo]

I've never worked in a bar setting, but if liquor is supposed to run 25% of costs, that means you are running a 75% markup on all of your drinks, and by retail standards, that is exhorbitant. I realize that there are lots of taxes, wages, and etc to cover, but still, 75% is way too huge. This is one big reason I just don't buy drinks unless some special is going on. I can make a decent drink for far cheaper with friends at home or somewhere BYOB.

[KatieLoeb]

I've never worked in a bar setting, but if liquor is supposed to run 25% of costs, that means you are running a 75% markup on all of your drinks, and by retail standards, that is exhorbitant.  I realize that there are lots of taxes, wages, and etc to cover, but still, 75% is way too huge.  This is one big reason I just don't buy drinks unless some special is going on.  I can make a decent drink for far cheaper with friends at home or somewhere BYOB.

Actually the cost of goods runs even lower in a corner "shot & a beer" joint. And they're serving the really low end well stuff usually. Even at a "cheap" bar you're paying about $4 for a well vodka (say Popov or Banker's club) and mixer (say a vodka/tonic). A 1L bottle of well vodka costs about $7. There's 33.8 oz. in it. That means it costs approx. .21/oz. for that vodka. Two oz. is a standard "shot" pour for a highball drink. At $4 the cost of goods comes to 5.25%. Who's ripping you off now?

Draft beer cost runs in the single digits in many places.

If you figure that I work in a place where the "well" liquors are Absolut, Bacardi, Maker's Mark and Cuervo Gold, AND we have some costs that the corner shot & beer don't have but that add to your pleasure like nice glassware (that breaks - OFTEN), linen cocktail napkins, flower arrangements on the bar, etc. I think your high end experience at my bar is a bargain by comparison.

Oh yeah - and this ain't retail. The equations for "retail" and the equations for food and liquor/wine sales have as much to do with each other as fish and bicycles.

I'll say it again. This is why so many restaurants and bars fail. No one thinks about the myriad costs involved that have picked your pocket before you even had an opportunity to consider them.

[herbacidal]

I've never worked in a bar setting, but if liquor is supposed to run 25% of costs, that means you are running a 75% markup on all of your drinks, and by retail standards, that is exhorbitant. I realize that there are lots of taxes, wages, and etc to cover, but still, 75% is way too huge.

The reason why retail businesses need that larger markup ie higher gross margin is because far, far, far more of their monies are spent on the upkeep, overhead, etc. than on the product, which is different than any other business.

Let me tick off some of the possible monthly expenses for a somewhat standard restaurant with bar, with somewhat reasonable numbers:

liability insurance, lightbulbs, trash pickup $100, false credit card charges,

telephone bill $150, ties for waitstaff, linen napkins, silver polish, kitchen uniforms

Here's money spent before any money is taken from a single customer:

chairs, electrical wiring, putting up walls, big non-electrical sign $500, utensils, painting walls with pretty things or a nice color, $500 for additional containers and doodads to pass health inspection

Here's some additional things the owners might spend money on depending on the place:

re-upholstering furniture, refrigerator repairman $200, potpourri for bathrooms,

interior designer, graphic designer

And of course, that's without:

wages, food and beverage costs, profits for owner(s)

Truthfully, I think 75% is too little.

For the amount of time that restaurant owners go through and the money they get from it, it's ridiculously small. I am referring primarily to the independent owner-operator.

Sorry, I suppose the above is a semi-off topic rant.

The above applies primarily to the restaurant business, but enough of that is true for the bar business too. Especially since these high priced drinks are being sold not in bars, but in the bar parts of restaurants/hotels.

And of course, the other thing is that people aren't willing to pay those kinds of markups for food, but they are for liquor.

In that respect, think of a restaurant's food sales as the loss leader akin to the products mentioned in supermarket circulars, and the beverage/alcohol sales as the higher-margin impulse items that people can't resist.

[slkinsey]

Our martinis here at Rouge have a four oz. pour of Gin/Vodka.  That's 1/6 of a bottle!  Belvedere costs 27.99 in PA + 7% tax per bottle.  That comes to a unit price of 28.89 per bottle.  Call it $29 even and divide by 25.4 ounces in a 750 ml bottle.  That's $1.15 per oz.  Multiply times 4 and the drink costs us $4.60 to serve.  If liquor cost of goods were even at 25% then we'd have to price that cocktail at $18.40 to keep our costs in line.  We currently charge $12.  That's a freakin bargain.

A 12 dollar Belvedere martini of that size would indeed be a bargain. But your example perfectly illustrates the example I was making earlier with respect to the size of the cocktails.

Your four ounce martini, given today's ultra-dry "martini" formulation, contains four ounces of gin or vodka. Back in the day, a standard martini pour would be more like 2 ounces of gin or vodka. Let's consider an 8:1 martini on this formula:

$1.15 : 1 oz Belvedere

$1.15 : 1 oz Belvedere

$0.07 : 1/4 oz Noilly Prat

$2.37

At 25% liquor cost = $9.50

At your liquor cost (~38%) = $6.30

This, of course, is at today's liquor prices as well (and plenty of liquors are priced high precisely because that is what makes them sell). Roll the clock back to 1990, and we're talking about a 4 - 5 dollar drink.

[stephenc]

Actually the cost of goods runs even lower in a corner "shot & a beer" joint. And they're serving the really low end well stuff usually. Even at a "cheap" bar you're paying about $4 for a well vodka (say Popov or Banker's club) and mixer (say a vodka/tonic). A 1L bottle of well vodka costs about $7. There's 33.8 oz. in it. That means it costs approx. .21/oz. for that vodka. Two oz. is a standard "shot" pour for a highball drink. At $4 the cost of goods comes to 5.25%. Who's ripping you off now?

Draft beer cost runs in the single digits in many places.

If you figure that I work in a place where the "well" liquors are Absolut, Bacardi, Maker's Mark and Cuervo Gold, AND we have some costs that the corner shot & beer don't have but that add to your pleasure like nice glassware (that breaks - OFTEN), linen cocktail napkins, flower arrangements on the bar, etc. I think your high end experience at my bar is a bargain by comparison.

Oh yeah - and this ain't retail. The equations for "retail" and the equations for food and liquor/wine sales have as much to do with each other as fish and bicycles.

I'll say it again. This is why so many restaurants and bars fail. No one thinks about the myriad costs involved that have picked your pocket before you even had an opportunity to consider them.

The old south street institution. Shot of Jim Beam/Can of Pabst

Pabst runs about 40 cents a can.

A liter of Jim Beam is about 14 to 16 dollars. This comes out to approximately a dollar a shot.

They charge 3 bucks, which comes out to a whopping 46% cost of goods.

I love Bob n Barbaras.

[Busboy]

Our martinis here at Rouge have a four oz. pour of Gin/Vodka. That's 1/6 of a bottle! Belvedere costs 27.99 in PA + 7% tax per bottle. That comes to a unit price of 28.89 per bottle. Call it $29 even and divide by 25.4 ounces in a 750 ml bottle. That's $1.15 per oz. Multiply times 4 and the drink costs us $4.60 to serve. If liquor cost of goods were even at 25% then we'd have to price that cocktail at $18.40 to keep our costs in line. We currently charge $12. That's a freakin bargain.

It's generally more cost effective to order vodka or gin "up" because there's only a price modifier of $1-$2 for that over the base price of a "shot".

I think I need to examine our pricing structure tomorrow...

$30/bottle wholesale? for 750 ml?

This points out the real problem behind this ridiculous pricing: people who pay $30/bottle for something that costs the manufacturers almost nothing to make. I know there's a difference between high- and low-end vodkas, but $30 for grain neutral spirits buys a whole lot of marketing -- love that frosted bottle -- and very little else to differentiate it from from Stoli, Finalandia and the rest.

I think I get Stoli retail for about $30 a 1.5L, so I'd guess that whlesale would run $15/liter tops. This is about $0.45/oz or $1.80 food cost, giving, by Katies reasonable formula, a good-sized $8 drink.

This double digit stuff is for people with more money than sense.

[mrbigjas]

The old south street institution. Shot of Jim Beam/Can of Pabst

Pabst runs about 40 cents a can.

A liter of Jim Beam is about 14 to 16 dollars. This comes out to approximately a dollar a shot.

They charge 3 bucks, which comes out to a whopping 46% cost of goods.

I love Bob n Barbaras.

Yes. Let us give thanks.

[slkinsey]

This double digit stuff is for people with more money than sense.

I would assert that the high price is precisely what makes super-premium vodkas sell. People think, "it costs more so it has to be better." The same is true for many things. Isn't the old saw in the antiques business, "if it isn't selling, raise the price"? Ironically, it works.

[KatieLoeb]

This points out the real problem behind this ridiculous pricing: people who pay $30/bottle for something that costs the manufacturers almost nothing to make. I know there's a difference between high- and low-end vodkas, but $30 for grain neutral spirits buys a whole lot of marketing -- love that frosted bottle -- and very little else to differentiate it from from Stoli, Finalandia and the rest.

I won't argue with you here. That's why I drink a more frugally priced mid range vodka at home. But when you're running one of the busiest cocktail bars in a city this size, you have to have what people will ask for by name in their martinis. For us that's Grey Goose, Belvedere, Ketel One and Stoli for vodka and Tanqueray, Bombay Sapphire and Tanqueray #10 for gins. The pricing is set by the PLCB (hint: the "C" stands for CONTROL) from whom I must buy all product, so I have little say in the pricing structure. And as much as I'd love to get the savings by buying 1.75 L bottles, they don't fit in the speed racks and they look kinda cheesey behind a bar. And the 1L bottles have the same problem. In NJ they package 1L bottles specifically for restaurant use. In PA the 1L bottles are only occasionally available so your usage calculations would change from week to week. Too confusing and too innaccurate.

A liter of Jim Beam is about 14 to 16 dollars. This comes out to approximately a dollar a shot.

In PA a 750 ml bottle of Jim Beam costs $18.49 + 7% tax. That's a unit cost of $19.80. That comes to .78/oz. A "shot" is generally 1.5 oz. so that's 1.17. Plus the can of beer that probably costs them around .70 (~$17 case of 24) so the "Bob & Barbara's Happy Meal" costs them close to $2 to serve to you. They're charging $3? Clearly this is not where they're making their money. In marketing terms the Happy Meal could be called the "Loss Leader".

[Busboy]

This double digit stuff is for people with more money than sense.

I would assert that the high price is precisely what makes super-premium vodkas sell. People think, "it costs more so it has to be better." The same is true for many things. Isn't the old saw in the antiques business, "if it isn't selling, raise the price"? Ironically, it works.

I'm pretty sure that your observation and mine complement, rather than contradict, each other. The power of marketing and the drive for status are a potent combination.

stephenc

I love Bob n Barbaras.

This the place with the ancient guys who've been playing jazz there since the late 60's or something? Found that place by happy accident one night. I love it, too.

[slkinsey]

This double digit stuff is for people with more money than sense.

I would assert that the high price is precisely what makes super-premium vodkas sell. People think, "it costs more so it has to be better." The same is true for many things. Isn't the old saw in the antiques business, "if it isn't selling, raise the price"? Ironically, it works.

I'm pretty sure that your observation and mine complement, rather than contradict, each other. The power of marketing and the drive for status are a potent combination.

Oh, absolutely. Although it works equally well on people who don't have a lot of disposable money.

[KatieLoeb]

This double digit stuff is for people with more money than sense.

I would assert that the high price is precisely what makes super-premium vodkas sell. People think, "it costs more so it has to be better." The same is true for many things. Isn't the old saw in the antiques business, "if it isn't selling, raise the price"? Ironically, it works.

I'm pretty sure that your observation and mine complement, rather than contradict, each other. The power of marketing and the drive for status are a potent combination.

Oh, absolutely. Although it works equally well on people who don't have a lot of disposable money.

A fool and his money are soon parted, but seldom by another fool.

[mrbigjas]

In PA a 750 ml bottle of Jim Beam costs $18.49 + 7% tax. That's a unit cost of $19.80. That comes to .78/oz. A "shot" is generally 1.5 oz. so that's 1.17. Plus the can of beer that probably costs them around .70 (~$17 case of 24) so the "Bob & Barbara's Happy Meal" costs them close to $2 to serve to you. They're charging $3? Clearly this is not where they're making their money. In marketing terms the Happy Meal could be called the "Loss Leader".

They pour the shots out of the $22.99 1.75L bottles, and the shots are small--1 oz. shots, I'm pretty sure. They buy the 30 packs of Pabst which are nearly always available, so I think it's less than that. The margin is probably somewhere between what stephenc said above, and what you just described there. And they make up for that lower margin in lots and lots of volume.

[ludja]

Hi Katie--

I have a question for you re: the point slkinsey brought up, namely 4 oz vs 2 oz martinis.

After a regrettable instance in which I innocently ordered a Martini before dinner and got knocked off my butt b/c it didn't register to me that it was a 4 oz cocktail rather than a 2 oz... (I know this sounds silly, and really, one can't claim complete "innocence" ordering a martini anyway... )

Anyway--now I pay close attention to the size of the drink as lots of bars and restaurant bars in SF make the jumbo drinks. What is a polite way to inquire on the size of the drink and to ask to have the standard 2 oz pour? Would your bar do it and how would the price differ?

It isn't a question of being cheap--but I just don't prefer having a monster cocktail before a good dinner with wine---and neither would the restaurant or other patrons... but that's another story...

[ms. victoria]

ludja, I agree that that's a good question. I have a current Tennessee ABC card, a piece of paper that says I went through alcohol awareness training regarding state laws. As I understand it, 4 oz. drinks contribute to "overserving" customers. If an overserved, read drunk, patron leaves the establish and injures someone or damages property the owner, manager, and the server who delivered the drink to the patron can all be held responsible in the State of Tennessee. Such is life with dram shop laws. I personally would feel uncomfortable serving "jumbo" drinks.

[beans]

In PA a 750 ml bottle of Jim Beam costs $18.49 + 7% tax. That's a unit cost of $19.80. That comes to .78/oz. A "shot" is generally 1.5 oz. so that's 1.17. Plus the can of beer that probably costs them around .70 (~$17 case of 24) so the "Bob & Barbara's Happy Meal" costs them close to $2 to serve to you. They're charging $3? Clearly this is not where they're making their money. In marketing terms the Happy Meal could be called the "Loss Leader".

They pour the shots out of the $22.99 1.75L bottles, and the shots are small--1 oz. shots, I'm pretty sure. They buy the 30 packs of Pabst which are nearly always available, so I think it's less than that. The margin is probably somewhere between what stephenc said above, and what you just described there. And they make up for that lower margin in lots and lots of volume.

Lots of volume doesn't make up for a high liquor cost. Ever.

[phaelon56]

I've never worked in a bar setting, but if liquor is supposed to run 25% of costs, that means you are running a 75% markup on all of your drinks, and by retail standards, that is exhorbitant. I realize that there are lots of taxes, wages, and etc to cover, but still, 75% is way too huge.

Many good points have already been made about larger drink sizes (more prevalent in more upscale establishments and in larger cities) but IMHO very pertinent in this discussion is that fact that regular retail markup conventions do NOT apply. I was in the There are some inherent and specific costs associated with the business of alcohol related to things such as insurance which necessitate a higher markup. There's also the need to account for "spillage", which may range from something as innocuous as an inexperienced pourer who pours a bit too heavy but can extend to outright theft (e.g. the disgruntled bartender who pours multiple rounds of free drinks for their friends when no one is watching). In a bar with "regulars" it's also an accepted and wise practice to comp drinks periodically to your better customers. Lots and lots of hidden costs associated with alcohol sales.

[mrbigjas]

They pour the shots out of the $22.99 1.75L bottles, and the shots are small--1 oz. shots, I'm pretty sure.  They buy the 30 packs of Pabst which are nearly always available, so I think it's less than that.  The margin is probably somewhere between what stephenc said above, and what you just described there.  And they make up for that lower margin in lots and lots of volume.

Lots of volume doesn't make up for a high liquor cost. Ever.

OK then let's look at it more closely:

1.75L = 59+ oz. remember they're pouring a one-oz shot here.

1.75L Jim Beam at the state store: $22.99 + 7% tax = $24.60

$24.60 / 59 = $.42 per shot

I just called a beer distributor: 30 packs of Pabst are $12.85 + 7% tax = $13.75

$13.75 / 30 = $.46 per beer

$3 special = $.88 worth of booze = 29.3% cost

And while that's not including spillage/freebies, it's also not including the small shots of beam that they're selling for $2 each.

Also keep in mind that while this is a filthy dive bar, it's not necessarily THAT cheap a bar except for the special. Local beers (Yuengling, Rock) are $3 a bottle; nicer beers (e.g. Victory Hop Devil) are $4. Regular-sized shots of Makers Mark are $4 or $4.50.

[beans]

Okay. If my liquor cost was 29% I'd probably loose my job.

Not sure about where you live, but our wholesale is a wee bit cheaper than the state store price for a consumer. And in our state, there is no such thing as free liquor given to customers, ever.

However, think about that bottle of well vodka, rum, gin, etc. It isn't a benefit to the house to upsell a drink order to a call or premium brand. It is a benefit to the server to gain a higher check average that translates into higher tips. It benefits the house to sell that generic gin and tonic because after a wee few drinks, that bottle is already paid for.

Our target liquor cost percentage isn't applied to each and every liquor but is a cumulative whole, as it is with many bars/restaurants, with that magic number being the minimum of cost for every drink/liquor poured.

[Busboy]

In PA a 750 ml bottle of Jim Beam costs $18.49 + 7% tax. That's a unit cost of $19.80. That comes to .78/oz. A "shot" is generally 1.5 oz. so that's 1.17. Plus the can of beer that probably costs them around .70 (~$17 case of 24) so the "Bob & Barbara's Happy Meal" costs them close to $2 to serve to you. They're charging $3? Clearly this is not where they're making their money. In marketing terms the Happy Meal could be called the "Loss Leader".

They pour the shots out of the $22.99 1.75L bottles, and the shots are small--1 oz. shots, I'm pretty sure. They buy the 30 packs of Pabst which are nearly always available, so I think it's less than that. The margin is probably somewhere between what stephenc said above, and what you just described there. And they make up for that lower margin in lots and lots of volume.

Lots of volume doesn't make up for a high liquor cost. Ever.

Why not? Is there only one business model that works, regardless of the fixed costs a bar or restaurant faces?

What about wine costs?

Not being cranky, just curious.

Edited July 14, 2004 by Busboy (log)

[beans]

Wine fits into our tidy liquor cost percentage too.

Mark up goes to knowing your customers, the type of restaurant you are and what the restaurant next door is doing. Basically what the market will bare (or is it bear? meh. you get the picture).

Again:

Our target liquor cost percentage isn't applied to each and every liquor but is a cumulative whole, as it is with many bars/restaurants, with that magic number being the minimum of cost for every drink/liquor poured.

Lastly: no crankiness allowed. Curiosity good.