What's Behind that $15 Martini?

[mrbigjas]

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.

Did I mention that most any drink they make for $4 or $4.25 in a regular 8 oz glass, can be made as a "large" in a pint glass for $6? I've sat and watched people drinking pints of melon balls until I wanted to puke just watching them.

Katie can tell you more about wholesale liquor in PA, but basically they don't get much of a discount from the retail price, which is one reason why bottles of wine cost so much in restaurants here.

This bar is a weird place. A weird, smoky, stinky, no-draft-beer-havin, no-kitchen-havin place that I call home entirely too often. But that's neither here nor there. To bring this back to the original topic, I've never had a $15 martini.

[Busboy]

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.

So, the liquor cost of ~ 25% is something that works in your place, and an industry rule of thumb, but not necessarily the only formula that works? A place with low overhead (you have to see the inside of mrbigjas' bar -- their note was pobably paid off 20 years ago, about the last time they renovated) could cut margins a bit in exchange for more volume? Especially in a down-scale location?

[NulloModo]

Whats wrong with selling on volume? If you boil it all down, if lowering your margin results in higher net profits due to higher sales, isn't that better?

[beans]

But how many years does it take to narrow your margin?

I've been at my employer off an on, it has been open for about 15 some years, we've done some serious six figure sales on particular Friday or Saturday nights, and the margin never lowers. In fact, we're lucky but I do know of places margins may even increase....

No matter the volume you do, if it is costing you 30%, it still is 30% which is a bit high for liquor and about on the spot for food. Keeping cost under control is key to earning profit and remaining open.

Edited July 14, 2004 by beans (log)

[Busboy]

Beans:

What are your employers' fixed costs? Own or rent? You're in a waterfront location, right? Probably pretty pricey if he's paying rent, especially if his landlord knows he has six-figure weekends. How often does he have to make up for the substantial wear-and-tear your place undoubtedly experiences? How many people on the staff who aren't selling and who earn fixed salaries (accountants, managers etc.) regardless of volume?

I'll be your guy is looking at a very different equation than that of someone who buys a storefront and some furniture, has a part-time accountant, manages the place himself and tends bar a few times a week.

I think in the latter case you can cut your margin as the original lump gets paid off, whereas the in the former case continued high fixed costs make that much more difficult.

With the volume you do and the costs you face, I'll bet your management is very interested in liquor costs, as a point or two multiplied by a large volume is probably the difference between a very profitable year and barely scraping by.

[beans]

We rent the restaurant space from Jacobs Investments. (Son bearing the family name that graces the Cleveland Indians' Jacobs Field). As with all commercial rentals, they earn a percentage of our sales volume.

Currently, we staff:

1 bookkeeper

3 bookkeeper assistants

1 pr person who handles a myriad of stuff (manages hostesses, orders uniforms, orders logo'ed merchandise, books entertainment; coordinates: advertising, menu printings, restaurant promotions, liquor promotions, private parties)

1 general manager

1 bar manager

3 assistant managers

1 laundry lady

1 maintenance man

1 executive chef

1 sous

1 kitchen manager

10-12 various cooks

4 expos

6-8 dishwashers

5 busboys

48-52 bartenders

120-130 servers (some double/pick up beer barrels and "tooter" shifts)

6 that are solely designated as food runners (our Russian foreign exchange students)

8-10 barbacks

12 cleaning crew

3 parking booth attendants

10 valets

4 dock hands

(I'm sure I'm forgetting someone)

edit: Opps I did. We also have about 12-15 hostesses

We also have a list of regular djs and one who always handles all of the sound/stage/lighting equipment.

We've been open awhile requiring routine replacement of everthing: carpeting, tile, booths, tables, outside furniture, kitchen equipment, bar equipment, china, glassware, POS, security system, window doors (we had a few panels replaced due to a persistent theif breaking in late on a Sunday night in the early spring one year), parking pavement, general landscaping of planters, actual dockage (boards/structure due to a tug boat mishap) and our huge awning.

Stuff always breaks down or odd events of mother nature (the 60+ mph winds early last spring caused us to replace our awning, again). In season we rent a "sled" -- a refrigerated semi trailer -- for additional beer storage.

I do know our utility bills are astounding. We average $6,000 in water a month during the summer and $7,000 in electric.

Since we've opened a sister restaurant less than a quarter a mile down river, we purchased a Harley Davidson golf cart and have a larger truck for utilitarian purposes. (We call it the "box" truck and is the size of a small UHaul).

We're starting to do some serious volume, but we're still scraping by. Our summers need to carry the place through the winter. Mother nature also has a large part of what our business will be like since the entire restaurant is open air (removal of the glass panel doors) and four of our seven bars are outside.

Edited July 14, 2004 by beans (log)

[KatieLoeb]

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. 

So, the liquor cost of ~ 25% is something that works in your place, and an industry rule of thumb, but not necessarily the only formula that works? A place with low overhead (you have to see the inside of mrbigjas' bar -- their note was pobably paid off 20 years ago, about the last time they renovated) could cut margins a bit in exchange for more volume? Especially in a down-scale location?

Yes. Obviously if a proprietor owns the building he's in it cuts down on overhead tremendously. Then the RENT comes out of the long laundry list of non-cost of goods expenses that have to be paid each month like payroll, utilities, taxes, insurances, regularly scheduled maintenances like hoods cleaned, exterminator, replacement china and glassware, etc, etc. etc.

As for there being only one formula that works, that's never the case in any industry. There are, however, industry standards that make certain assumptions about the businesses using that model having certain fundamental similarities. There was an article in the NYT just TODAY talking about this very phenomenon with wine sales and costs. Of course Landmarc, the restaurant in question, does indeed own their building. They'd have to in order to afford the minimal markups they're charging for the wines and still maintain the "excess luxury" expenses like nice glassware, linens, decor, etc. that they do have. A place like Bob & Barbara's certainly doesn't have a several hundred dollar a week flower bill, doesn't rent linens, etc. The downer and dirtier you are the less of those "extras" your clientele expects or expects to pay for. And the easier it is for you to get away with the economies of scale like using 1.75L bottles of the least expensive well liquor you can find that calculate out to mere pennies per oz. and allows you even lower cost of goods percentages as I illustrated earlier.

And Beans, my only comment would be that a cost of goods percentage that includes liquor, wine and beer is by definition, an average, not a minimum that you have to achieve.

[Chef Shogun]

It's not the 'idea' of the $15 Martini that bugs me, it's the sticker shock! Furthermore, since most bars don't have driver's side windows on which to display this sticker, you don't get to see the sticker until you've got the drink in front of you. Sub Pet Peeve: drink menus without prices. You're just supposed to order one and be suprised? Bet more people would bite if they knew what they were getting into, from a financial standpoint. Anyway, on the issue of the $15 martini and sticker shock, there's a point at which you should be able to guess at least the range of what your drink is going to cost based on what you order and call, but it's that random element (Ok, it's not random, with all the above-thread discussions of costs and margins, but it SEEMS random to J. Random Drinker) that gets you in the end.

Re: Lowering of margins and percentages to lower the price of a drink.

Would any place actually DO this? It seems nice, but once an establishment has gotten used to a certain standard of money comming in, lowering that while the rest remains constant seems silly. "We're going to provide the same level of service, hospitality, ambiance, regular hood cleanings, and the finest bar crystal in Springfield, but take in less money for it per unit than we used to, all other things being equal. It'll be great!" --Accountant. You would almost have to advertise this fact to the public, in the manner of real estate firms (The Six Percent Food Cost People!). I suppose word would get around, but it would take a while before previous levels of overhead-meeting and profitability would be reached, let alone additional profits from such a scheme.

-- C.S.

"The Six Percent Post-Making-Sense Guy"

[stephenc]

That's it. We're gonna subpoena all of Bob and Barbaras account sheets so we know for sure what's going on in that dingy old place.

[NulloModo]

Shogun - You bring up a good point about drink prices. Another reason I am hesitant to order mixed drinks many places is that you never know how much it is going to cost. Food prices are always listed, so why not drink prices? I'm sure the waitress/bartender could tell me, but I feel cheap asking.

I ordered a double Jim Beam on the rocks once on the Spirit of Philadelphia, and was charged 18.50 (yes, that's right, eight-fucking-teen dollars and fifty fucking cents) for it. I could have bought a whole bottle for that much. Now, I had in mind to just have a nice evening and not worry about liquor tabs, etc, but getting raped in the ass as soon as I set foot on the boat sort of put a damper on the rest of my evening.

[Chef Shogun]

I'm sure the waitress/bartender could tell me, but I feel cheap asking.

Your waitron isn't going to be so helpful: usually there's somebody with me who IS cheap enough to ask, but half the time, the waitron doesn't know, or they cop out and give you a range. Granted, these are mainly the big corperate-owned places around the area, so they're renoun for their service, but come on. I want to know how much MY fruity tequila/rum/triple sec/puree/silly name thing is going to be, not the range of possible values.

[His Nibs]

Whats wrong with selling on volume? If you boil it all down, if lowering your margin results in higher net profits due to higher sales, isn't that better?

Not necessarily true. Higher sales means higher cost of goods sold thus resulting in a lower gross profit. To generate the same profit level of lowering your cost of goods sold by 5%, you would need to generate 10x the sales. Since the prices the liquor is being wholesaled is fixed (with probably no room for price negotiation), there is nothing much you can do to improve the bottom line except raise prices.

It really depends on the price elasticity of the product you are selling. High-end martinis are probably viewed as a luxury item and therefore is probably price inelastic.

[KatieLoeb]

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...

Ludja:

Sorry it's taken me so long to respond. Without belaboring the point and getting into all sorts of nonsense you don't need to be discussing with your server the easiest way to get a "short" martini would probably be to:

1) Ask if the "regular" martinis are supersized

2) Then ask for a "shot" of your favorite spirit served chilled and "up". Explain about not wanting a HUGE martini and just say you'd like to be served your vodka/gin chilled and up with or without vermouth, garnishes, etc.

Server should be able to ring that into almost any system with appropriate instructions to the bartender. And you shouldn't be getting charged for a humungous drink, just the same thing you would be for say a vodka/tonic. You just don't want the tonic and you want your vodka in a different sort of glass.

Another approach is to say "shake the hell out of it" because it will melt more ice and dilute your drink somewhat. Works well if you're stretching that cocktail before moving on to the wine with dinner.

[Busboy]

Whats wrong with selling on volume?  If you boil it all down, if lowering your margin results in higher net profits due to higher sales, isn't that better?

Not necessarily true. Higher sales means higher cost of goods sold thus resulting in a lower gross profit. To generate the same profit level of lowering your cost of goods sold by 5%, you would need to generate 10x the sales.

This depends on the initial margin, though -- I'm curious to see the math. You're assuming an initial 6% margin, right?

But, even at a volume increase of substantially less than 10x, the margin begins to expand, since certain costs are fixed, ie rent, lighting, advertising, licensing, some labor, etc. In some cases -- say a bar with a large fixed investment but low sales volume -- lowering prices below present cost might even bring in enough new business to creat a profit where none existed before. Theoretically anyway -- if your bar's not taking in enough to cover fixed costs, pricing may not be the problem. At the level of hip and trendy, bars don't compete on cost so much as on intangibles, creating a branding effect which in turn increases price inelasticity.

Anyway, why wasn't economics this compelling back when it was my major?

[Ed Hamilton]

I think I get Stoli retail for about $30 a 1.5L, so I'd guess that whlesale would run $15/liter tops.

While I can't comment on every state, many states like Illinois require bars and restaurants to buy from distributors at a price that is very close to the retail price at an off premise store. This way the state can keep track of how much an on premise establishment is selling and can stay on top of the tax game. Bars caught buying from a discount store face suspension of their license.

[ludja]

Ludja:

Sorry it's taken me so long to respond.  Without belaboring the point and getting into all sorts of nonsense you don't need to be discussing with your server the easiest way to get a "short" martini would probably be to:

1)  Ask if the "regular" martinis are supersized

2) Then ask for a "shot" of your favorite spirit served chilled and "up".  Explain about not wanting a HUGE martini and just say you'd like to be served your vodka/gin chilled and up with or without vermouth, garnishes, etc.

Server should be able to ring that into almost any system with appropriate instructions to the bartender.  And you shouldn't be getting charged for a humungous drink, just the same thing you would be for say a vodka/tonic.  You just don't want the tonic and you want your vodka in a different sort of glass.

Another approach is to say "shake the hell out of it" because it will melt more ice and dilute your drink somewhat.  Works well if you're stretching that cocktail before moving on to the wine with dinner.

Thanks for the inside scoop Katie...

I'll probably try out something along the lines of the first suggestion. I can see the strategy of the second but I'm not too fond of the taste of watery drinks (for cocktails served up).

I just want a smaller, cold silver bullet...

Edited July 15, 2004 by ludja (log)

[mrbigjas]

Another approach is to say "shake the hell out of it" because it will melt more ice and dilute your drink somewhat. Works well if you're stretching that cocktail before moving on to the wine with dinner.

Another option is to drink more and get that tolerance up there!

[ludja]

Another approach is to say "shake the hell out of it" because it will melt more ice and dilute your drink somewhat.  Works well if you're stretching that cocktail before moving on to the wine with dinner.

Another option is to drink more and get that tolerance up there!

point taken... the splrit is willing and the liver is fortunately !?! in good fighting shape. I just don't have the total poundage to drink a double at enough speed to keep the drink nice and cold... hence, I prefer a "regular size", straight-up, cold, strong cocktail...

And, I'd rather space them out (if necessary) with a club soda in between rather than milk a larger, weak, one that is getting warmer by the minute...

Anyway... back to our regularly scheduled programming re: price justification for a $15 dollar martini...

Edited July 15, 2004 by ludja (log)

[mrbigjas]

I'm just messin with ya, ludja...

[ludja]

I'm just messin with ya, ludja...

Taken that way all along...

I just grabbed a little soapbox re: other reasons I'm not fond of the larger $15 cocktails... but that's probably also been discussed elsewhere.