Corkage fees

[Beachfan]

Jordyn: Number 3

Those situations (only allow corkage on 30th anniversary) were traditionally handled via a policy of no corkage, and an exception being made for such a special event. You would discuss it with management beforehand.

"No corkage allowed" is what I would prefer to see as the stated policy in those situations.

[glenn]

As I recall, it was the cost of carrying the inventory.

Although it may vary greatly among restaurants, practically speaking, the cost of carrying inventory is not a major expenditure. For example, a $100k inventory financed at 8% (it's irrelevant whether it was financed -- if it wasn't, there's lost opportunity cost) would cost $667/month in interest Add on storage fees, i.e., temperature control, rent attributed to the space needed, etc., and I would still find it hard to believe it's a major item, even for restaurants with major wine programs.

I disagree wholeheartedly with this. The cost of a wine program is just a capital line item on a balance sheet.

Hmmm... Unless I misunderstand, I'm not so sure about that. The interest on financing the inventory is a p&l item. Storage costs are p&l items.

and before you get going on sommeliers and assistant sommeliers and temp/humidity controled cellars, let us not forget that the majority of restaurants, around this country at least, don't have that level of wine service.  but they continue to charge 300% markups on their crappy chardonnay and merlot, and oddly enough are the first ones to look at you funny if you BYO.  

That argument is so way off base, but unfortunatlely it is the perception that most diners have. By the same line of reasoning, food is marked up even more. A pasta dish is marked up 500% or much more. Bad example, as pasta often makes up for the less profitable items like steak. But you get the idea. However, everyone knows how labor intensive food prep is so no one gets all huffy and puffy that a chicken they can buy at the butcher for $1 costs $18 in a restaurant. Well, some people do. Wine also has costs attributable to it as has been discussed. One cost --- one of the largest after the actual cost of the wine -- is breakage or spoilage or theft. I won't bother to repeat all the other costs involved. You cannot take the sales price minus the cost of the product and say the difference is profit.

In my experience, there is no magical formula for determining what the price of wine should be. Prices are determined mainly by what people are willing to pay, as is virtually every other product sold in a capitalist society. The rule of thumb has evolved to an average of a 300% markup. I doubt an accountant sat down and did number crunching and came up with this figure. Bear in mind that this is an average (and not all restaurants adhere to this unwritten policy). Usually a less expensive wine is marked up more while an expensive wine is marked up less.

And if anyone thinks wine markups are unfair, answer this --- why is the goal of most restaurants a piddling 10% net profit? Judging from some of the implications here, you'd think every restauranteur owns a house in the Hamptons and Nice and laughs insidiously at all the clueless diners that spend ridiculous sums of money at their establishments. Well, I'm sure there are a few that fit in that category, but they are few and far between. The cost of opening and operating a restaurant, not to mention the time and efforts involved are mind-boggling. At least in NY.

[jordyn]

Glenn: Thanks for your insight so far.

With regards to BYO, what is the view that the management of the restaurant that you are affiliated with takes?

Is it allowed? Is there a perception that BYO people are trying to get something for nothing, or somehow acting in a manner that is at odds with the financial interest of the restaurant?

[Fat Guy]

Beachfan: Me too.

Plotnicki: I don't know the economic situation at Daniel or Jean Georges well enough to comment -- though I could make some very educated guesses -- but here is what I can tell you about Lespinasse as of the time I had good inside information (about a year ago) because one of my closest (and only) friends was the sommelier there: If one of those empty tables goes to someone who pays $25 as his wine bill (in the form of corkage), the restaurant loses money. That's an oversimplification, because the concept of "losing money on a table" is something a real restaurant accountant probably wouldn't embrace, but let's use it anyway. But there's more: The restaurant is full on Friday and Saturday nights, and on those nights the corkage customer is taking a table from a non-corkage customer. Corkage would have to be something like $95 to offset that average. But it's not just about the average, because when you implement corkage you also have to assume that some of the tables who would have bought from your list are going to opt for corkage under the new regime. Lespinasse is a restaurant where $10,000 bottles of wine sell fairly routinely to very rich people. If just one of those people decides to bring his own $3000 bottle of wine and pay $25 corkage or even $100 corkage (which would be socially unacceptable and create a media disaster situation), that one lost sale will offset every penny of profit that could have been squeezed out of filling an empty table or two on all those Wednesday nights for a year.

No restaurant needs your business, Plotnicki. I can say with confidence that if you're not dining at Jean Georges, Lespinasse, and Daniel, the loss is yours. I dine at those restaurants all the time and they're among the best in New York, which also means America and the world. And Lespinasse, for example, has an outstanding wine list including many bottles that surely aren't in your cellar. Not to mention, back when Joseph Nase was the sommelier, the restaurant had one of the world's most talented and knowledgeable working sommeliers on the floor to help customers make their wine selections. It's too bad you didn't shell out a few hundred dollars once in awhile for the privilege of being served by Joseph. You could have learned a lot.

Glenn: I'm sure you're right. Note, however, that I was talking about a restaurant with something like $2 million locked up in the cellar. I think I remember -- though I could be misremembering -- being told that the cost of carrying that inventory was greater than the sommelier's salary. Could that be?

[jordyn]

but here is what I can tell you about Lespinasse as of the time I had good inside information (about a year ago) because one of my closest (and only) friends was the sommelier there: If one of those empty tables goes to someone who pays $25 as his wine bill (in the form of corkage), the restaurant loses money. That's an oversimplification, because the concept of "losing money on a table" is something a real restaurant accountant probably wouldn't embrace, but let's use it anyway.

Woah. Are you suggesting that at an otherwise empty table, the marginal cost of serving that table is greater than the price charged for food ordered plus a $25 (let's assume that's per person) corkage fee?

If so, that seems like an insanely bad business model.

[Beachfan]

It's funny when people talk about "rights" or "ethics".

Restaurants have the right to charge whatever they want for wine. Both in the "spirit of the law" and the "letter of the law". They are choosing a business model, right or wrong, conciously or unconciously, that they think will work well.

Diners and wine collectors have the right to choose whatever restaurant they want, and the right to maximize their pleasure on whatever budget (or lack thereof they have).

There will be overlaps of interests, and hopefully happy diners/wine drinkers at restaurants.

I don't feel angry at high wine prices, or no BYOB policies. However, they don't coincide with my interests much.

Some restaurants have very high markups that are supported by cost analysis of their wine program and business model. Fifth Floor in SF has some of the highest prices I've seen. It scared me off. But the wine list is one of the very best I've ever seen. Like the cellar Bill Gates would have if he was into wine. Clearly, they are targeting a different segment of the wine world that I inhabit. But I understand their costs. ( Corkage fee: must be not on their list, $30 per 750ml, max of two bottles per table).

Martini House in St. Helena, California has an extremely fabulous wine list. They tried to hold the markup to double retail but couldn't. And they donate half their $25 corkage fee ) to charity (and won't waive it for Robert Mondavi nor the sommelier's mother). But they have an incredibly robust selection for under $60. My interests coincide with theirs, even though I couldn't afford to buy the type of wine I can bring.

Babbo and Lupa don't allow corkage. I find their wine list so reasonable and fabulous, with many tastey under $60 options that I go there when I can.

I need Daniel more than they need me. But I certainly don't get wine commensurate with the food. But I'm not angry with them. I just don't bring my pets there to drink.

Similarly, the only reason ethics seem to come into it is because restaurants may be offering corkage in situations they are unhappy to do so. Let me know those situations, and I won't do so. Sounds simple. What compels them to offer corkage when they don't want to?

[Fat Guy]

Jordyn: No, that's why I said it was an oversimplification.

[Beachfan]

Between Rhone thread and this one, wine board rules!

[lizziee]

Beachfan,

Have you found the attitude toward BYO to be very different between the West Coast and the East Coast? In my experience, it never seems to be a problem in California. In restaurants that we go to frequently, it seems to be encouraged.

[Beachfan]

Beachfan,

Have you found the attitude toward BYO to be very different between the West Coast and the East Coast?  In my experience, it never seems to be a problem in California. In restaurants that we go to frequently, it seems to be encouraged.

Yes, although it's warming up out East.

[Fat Guy]

What compels them to offer corkage when they don't want to?

I can't speak on behalf of every restaurant, and I wouldn't want to, but I can tell you what I think many of them would say if they thought about it: They want to offer it because they're in the business of being hospitable and making customers happy, but they want people to exercise restraint. We've already gone over in several different posts some examples of what could be called bad-faith corkage.

[MartyL]

Lizzie brings up a revealing point here. If the BYOB model doesn't work economically, then how come it is basically the norm in California, and in New Jersey?

And FG, while your point is well taken about the economics of the foregone $10,000 bottle at Lespinasse, JG and Daniel, I think the question is better applied to restaurants at a tier or two below those.

For example, there is a restaurant on the upper west side that offers solid traditional french fare. It is a simple but nice neighborhood place and not really a destination restaurant. They do not generally allow BYOB and have an uninteresting wine list.

I once asked the manager if they would consider making an exception and allowing BYOB if I brought in a large group on a Sunday night. He said no problem. We turned out to be a group of about 15 people, had the whole back room to ourselves on a night when the restaurant was basically empty, and did a vertical tasting of Ridge Geyserville along with dinner. He charged us only $8 per person corkage. Our group has been back to that restaurant about once a month and they have always been happy to see us.

Of course, this manager wasn't giving up a table to us that would have otherwise been occupied by a group that would have ordered the 1900 Margaux from Jeroboam, but I get the feeling that there are lots of restaurants that could do a lot more business on slow nights if they were receptive to BYO.

[Fat Guy]

I agree.

[TCD]

If the person is just trying to save money and the restaurant offers the same wine, I don't think it's ethical to bring in the wine.

You're starting to clarify a point and it's one I raised earlier. Does it make a difference why the diner wants to bring his own wine?

I believe that if a restaurant establishes a policy of $X per bottle then the diner can bring any wine that he or she desires, special occasion or not, special bottle or not. If the restaurant places no limitations on the policy, why should the diners impose one on themselves?

The reasons that restaurants in NYC have begun to take a less restrictive stance towards BYO is because: (i) their vacancy rates are too high -- they are looking to fill tables (meal income and corkage fee is better than no income from empty tables); or (ii) there is a fear that business will be lost to more "customer friendly" peer establishments that have adopted the policy. Restaurants are making the decision to permit BYO out of their own economic interest, not to make the public happy. If their analysis tells them that $20 per BYO bottle works for them then I have no problem with diners taking them up on it. That being said I usually combine any BYO with purchasing wines off the list.

[Fat Guy]

That being said I usually combine any BYO with purchasing wines off the list.

Why?

[TCD]

That being said I usually combine any BYO with purchasing wines off the list.

Why?

Because my momma taught me well.

[Fat Guy]

She did indeed.

[glenn]

That's an oversimplification, because the concept of "losing money on a table" is something a real restaurant accountant probably wouldn't embrace...

I have no beef with tax deductions.

Glenn: I'm sure you're right. Note, however, that I was talking about a restaurant with something like $2 million locked up in the cellar. I think I remember -- though I could be misremembering -- being told that the cost of carrying that inventory was greater than the sommelier's salary. Could that be?

Since my abacus doesn't count that high, I'd take a wild guess that your info is correct. If the $$ were invested at a modest 5% return, that would be $100k interest (without compounding).

jordyn: our restaurant charges a $25 corking fee. FG hit the nail on the head (with us, anyway) when he said the reason restaurants allow it is to make the customer happy. From an accounting standpoint, it's a wet dream, at least for our restaurant. We mostly have modestly priced bottles of wine. The way I look at is even if we "lost" a sale of a $40 bottle of wine (about our average), we still broke even if it cost us $15. But the policy has little to do with economics. We're in the service industry.

top 5...

Cork 'n' Bib - Lee Konitz

Capitalism - Oingo Boingo

10 percenter - Frank Black w/S. Plotzkie

Wined & Dined - Syd Barrett

Wine & Depression - New Bomb Turks

[Beachfan]

That being said I usually combine any BYO with purchasing wines off the list.

Why?

Because my momma taught me well.

Now I've figured out my problem!

[tommy]

and before you get going on sommeliers and assistant sommeliers and temp/humidity controled cellars, let us not forget that the majority of restaurants, around this country at least, don't have that level of wine service.  but they continue to charge 300% markups on their crappy chardonnay and merlot, and oddly enough are the first ones to look at you funny if you BYO.  

That argument is so way off base, but unfortunatlely it is the perception that most diners have. By the same line of reasoning, food is marked up even more. A pasta dish is marked up 500% or much more. Bad example, as pasta often makes up for the less profitable items like steak. But you get the idea. However, everyone knows how labor intensive food prep is so no one gets all huffy and puffy that a chicken they can buy at the butcher for $1 costs $18 in a restaurant. Well, some people do. Wine also has costs attributable to it as has been discussed. One cost --- one of the largest after the actual cost of the wine -- is breakage or spoilage or theft. I won't bother to repeat all the other costs involved. You cannot take the sales price minus the cost of the product and say the difference is profit.

no, i'm sorry, it's not off base. look at just about any of the restaurants in hoboken for example, and i'm sure you know a few. although, as fat guy suggested earlier, this discussion is centering around restaurants with exceptional wine programs and lists. so i'll drop it.

[Fat Guy]

We can have any discussion you want; I'm just trying to limit my own comments to a certain context.

[glenn]

no, i'm sorry, it's not off base.  look at just about any of the restaurants in hoboken for example, and i'm sure you know a few.  although, as fat guy suggested earlier, this discussion is centering around restaurants with exceptional wine programs and lists.  so i'll drop it.

I definitely understand your feelings -- like why should those creeps charge you $60 for something you can pick up in the store for $20. I feel the same way about bottled water. However, many of these restaurants would go out of business if they didn't have such a high mark up on beverages (and food!). The high profit on beverages is more apparent to the public than the profit on food, and that's what turns people off about beverage prices. Ironically, food cost and beverage cost are generally comparable at about 30%. If the owner opened up his books to you and showed you all the numbers, which would likely indicate that the business was making a small profit at best, would you be more sympathetic to the beverage prices?

Hoboken Baby - Pat Boone

Night Falls on Hoboken - Yo La Tengo

[tommy]

glenn, i was merely speaking to the (valid) point that one could argue the validity of the markups because of the wine program and associated expense. however, ted and jo's and baja probably don't spend all too much on their "wine program." no, they just order the kendall jackson, pay 6 a bottle, charge 9 a glass and 30 a bottle, and keep it in the closet. that was my point. nothing more, nothing less.

[glenn]

Again, the bottom line is if the public is willing to pay the price, more power to them. Personally, I would be less willing to pay $30 for a bottle of KJ at Baja than I would at Amanda's, not that I would pay $30 for a bottle of KJ anywhere.

Along the same lines, do you find wine prices at NJ restaurants to be less than nyc eateries? I do, but my experience with fine dining in NJ, especially ones with a liquor license, is much more limited. Theoretically, prices should be cheaper because I would imagine operating expenses, especially rent, are cheaper.

[Steve Plotnicki]

Fat Guy - You model assumes that if a restaurant doesn't give the table to someone who BYOs then they are going to sell an expensive bottle of wine. What if it's a table of tea drinkers? And anyway, it is already calculated in the margin of the wine program that X tables drink tea. Why doesn't a restaurant just say that BYO is the same as tea? In fact it's better because at least they pay the corkage.

As for restaurants needing me vs me needing them, well I went to Lespinasse for my birthday in May. I bought a bottle of 1999 Meo-Camuzet Clos Vougeot for $270. I own a case of the wine (but never tasted it) and I paid $90 a bottle for it. They probably paid $60 for the bottle. That sounds like a 450% markup to me. Quite a ripoff. As for the rest of the Lespinasse list, to be honest I have many of the same bottles. But even if I didn't, I would never pay $1900 for 1982 Mouton, especially when I can buy 100 cases at $750 a bottle at auction. And that is on the worst day. But the thing is, the place didn't get more than 3/4 full. So I guess they do need me. But I'm not rushing back because I don't want to spend that kind of money on wine.