Wine in Restaurants

[KatieLoeb]

I just finished going over the check register and dividing up the expenses for the last several weeks here at my small bistro. Just to give you an idea of operating expenses that ARE NOT recoverable by turning around a purchased product/ingredient (food, drink) and selling it, I paid bills to:

Linens

Parking Lot

Weekly grease cleaning of the hoods

Silverware

China

Glassware

Kitchen Utensils

Exterminator

Florist

Office supplies

Printing

Dishwasher maintenance and chemicals

A new Vacuum cleaner

POS system supplies

Paper goods and kitchen wrap/takeout containers

Liquor Delivery service

Bottled water and canned soda for the employees

Legal and Accounting fees

Utilities (gas, water, trash removal)

Grease Hauling

Telephone

Cell phones

Knife sharpening service

Insurance

Repairs and maintenance

Chef Coats

Uniforms

just to name a few....

This list does not include payroll, taxes, or rent.

Any more questions????

[derricks]

I certainly wouldn't suggest that you turn around and sell a wine bottle for your purchase cost; there absolutely are costs that you have, both for food and wine. Since those are the things you're selling, you need to add a markup to cover all your costs, just like any other business.

But I still don't understand why most wine markups are based on multiplication. Granted, cheaper bottles tend to get marked up more and more expensive bottles tend to get marked up less, so it's (usually) not an exact multiplication. Many of the items you list seem like they're only somewhat variable (the new vacuum cleaner obviously being an unforeseen expense), though I suppose one could point out that income is highly variable.

It's something that's always confused me; if the costs are static within a certain range, why not just markup wine and food to handle those costs. You didn't pay more in rent with (what I see in retail as) a $50 bottle of wine then you did with a $25 bottle, but I might be paying $100 for the first bottle, and $50 for the second (not knowing your markup strategy, of course). In fact, none of the items you list seem like they'd cost you more with a more expensive wine.

Just curious; I know restauranting is a tough, tough business. And I'm all for restaurants I like staying in business. But I've never heard a good reason for why wine markups are based on multiplication, other than "we use wine sales to compensate for low food profits".

[nwyles]

We as restauranteurs have to use some system to decide on wine prices. A one time or two time markup is a good rule of thumb. The higher the price, the lower the markup can be because the profit $$ are good ( $150.00 sale price on a $100.00 bottle of wine puts $50.00 in the coffers. You have to sell lots of caesar salads to make $50.00 ) The wine multiplication system is just a general rule of thumb to help you guage where your sell price should be. Availability, Rarity, allocation from wine maker, non availability to general public - these are also factors.

But I still don't understand why most wine markups are based on multiplication.

As we only have food and beverage to sell, what would you have us use ?

A sliding scale based on projected volume that day ? Monday is not very busy so reprint menu and wine list so cost of rent is absorbed in that ? That would give you a $40.00 caesar salad - $3.00 on Friday but then we would be bitching about the cost of printing.

This is the cost of running a business. People who sell things for less than of or close to cost, only run their business into the ground.

People want to eat in restaurants in nice areas - theatre districts, upscale areas etc. That comes with a price and that price is absorbed in one of the two things we sell - food and booze.

It has to be a balance in order for the business to succeed.

I hope you are starting to see that.

Edited August 21, 2004 by nwyles (log)

[KatieLoeb]

I certainly wouldn't suggest that you turn around and sell a wine bottle for your purchase cost; there absolutely are costs that you have, both for food and wine. Since those are the things you're selling, you need to add a markup to cover all your costs, just like any other business.

But I still don't understand why most wine markups are based on multiplication. Granted, cheaper bottles tend to get marked up more and more expensive bottles tend to get marked up less, so it's (usually) not an exact multiplication. Many of the items you list seem like they're only somewhat variable (the new vacuum cleaner obviously being an unforeseen expense), though I suppose one could point out that income is highly variable.

It's something that's always confused me; if the costs are static within a certain range, why not just markup wine and food to handle those costs. You didn't pay more in rent with (what I see in retail as) a $50 bottle of wine then you did with a $25 bottle, but I might be paying $100 for the first bottle, and $50 for the second (not knowing your markup strategy, of course). In fact, none of the items you list seem like they'd cost you more with a more expensive wine.

Just curious; I know restauranting is a tough, tough business. And I'm all for restaurants I like staying in business. But I've never heard a good reason for why wine markups are based on multiplication, other than "we use wine sales to compensate for low food profits".

I'll give you a really quick answer off the top of my head.

Restaurants have a lot more costs related to regulations and legalities than almost any other business I can think of. Liability insurance (particularly if you possess a liquor license) is astronomical. There's also all those pesky Health Department regulations that require the bills for cleaning, grease removal, expensive dish chemicals and dish washing systems, having the kitchen grease hauled away, the exterminator, etc. that a maufacturer of small parts or a retail store doesn't have to deal with.

The other answer is that if there's a wine by the glass program, there's a lot more waste at the low end. Between spills of the higher volume glass wines, waste due to customers tasting it and sending it back (doesn't happen a lot, but there are those customers that think they can taste their way through everything and send it back if it isn't to their liking) or tastes given out to customers in an attempt to prevent the previous scenario, or waste due to a bottle being opened a bit too long and the rest getting poured down the sink because it isn't "servable" any longer there is a lot less product that actually gets turned into $$$ than would initially seem to be the case. Wine by the bottle is another story. But again, I can't use a straight equation there either. The really high end stuff would never get sold at all if it were marked up three times, so you take the hit for a lower cost of goods percentage on those items. Mercifully, those sell less anyway, but the low end, high volume by the glass stuff, basically funds my ability to have a few really high end spirits behind the bar and bottles on the reserve list.

And yes - income is variable. My restaurant doubles it's seating capacity in warm weather because we have outside cafe tables. We have basically six months (May-October) to make enough revenue to sock it away for the "leaner" six months of the year when we have half the seats, and way less revenue coming in. Otherwise it would make meeting payroll, rent and tax obligations near impossible in January and February. And you just can't NOT do that.

[ledervin]

In regards to the difference between europe and the states:

We pay a lot for the marketing, shipping, 4 middle men, and the old "the neighboor charged an arm and leg, we will also" of the wines we drink here. There are no local vineyards cranking out good wine at a reasonable costs, due to land and labor costs and no historical properties (where land and tools have been mostly paid for already)

I totaly agree with you Mmerill, in Europe, whether your in a high end restauarant of not, there is a choice of wine ranging from $10 to infinity. In dc, your lucky to find a bottle under $25. It's rediculous. The restaurant owners know you'll pay for it, so they charge it. Also, there's definately a trend among the wise (Nectar's a great example, they have an interesting and extremely fun list) of presenting consumers with wines they've never heard of; where the price becomes almost arbitrary.

The same can be said about grocery stores in europe, good luck finding a bottle above $10. The choice is....should i spend $4.35 or $4.64 euros on this?? LOVE IT>....take me home to drink some wine baby.

salut :)~

[Mark Sommelier]

Great replies here so far. My views on this subject are well documented on the interet, this site included. The question I always want to ask people who obsess on what restaurants charge for things is this: What business are you in? Do you ask your doctor why he charges you $175 for a 20 minute office visit? Do you quiz your dentist about why a 10 minute cleaning costs $90? Ragu spaghetti sauce costs $3.49 at the Safeway, but I prefer the Putanesca sauce from Dean & Deluca that costs me $12.99. To be fair to the original poster, I agree. Wine in a cheap place should be cheap, too. A little bare bones bistro with $8 entrees should have wine in a similar price range. Fine dining places have different costs to assume. The rest should be obvious.

[derricks]

The question I always want to ask people who obsess on what restaurants charge for things is this: What business are you in? Do you ask your doctor why he charges you $175 for a 20 minute office visit? Do you quiz your dentist about why a 10 minute cleaning costs $90?

A good question, and I think this underscores why people focus on wine list prices: we often know what a bottle costs in a wine store. I don't know how much dentists have to pay for the eighty quintillion things involved in a cleaning, so I assume their price takes that all into account plus some for profit. But I do often known that bottle X costs some amount and that bottle Y costs some other amount, and I can quickly calculate that the restaurant is multiplying their cost by some factor on average. Does a dentist charge me different amounts for different numbers of teeth? I'm guessing not; they have a fixed set of costs they're spreading across all their patients.

Thanks for all the responses, by the way.

[DonRocks]

Do you quiz your dentist about why a 10 minute cleaning costs $90?

Of course if you could get that exact same cleaning in your own home for $45...

I'll save Mark the trouble of replying:

"Well, then stay home!"

[FunJohnny]

Another dimension that should be mentioned in this discussion is that some wines are only sold to restauranteurs and getting them for retail is not a possibility unless you perhaps are friends with the producer.

[Katherine]

Do you ask your doctor why he charges you $175 for a 20 minute office visit?

You are assuming that ordering wine while dining out is like going to the doctor, having insurance. People go as often, whether there is a specific need or not. So for people with insurance, the price does not affect the demand for medical services.

I propose that much of the time, it is more like going to the doctor not having insurance. You go if you can afford to, and sometimes not even then right away. In the same way, the price can have a significant impact on purchases for dining, and wine specifically. If the wine is reasonably priced, you buy more wine, you buy better wine, and you eat out more often. If the wine is outrageous, you buy a beer, or drink wine when you get home, or maybe not eat out at all.

[alexhills]

I certainly understand that wiine markups are a necessary part of making a profit while running a restaurant and on the whole I don't mind paying 2.5 ish times the store price. However, what I don't get from a financial standpoint is how there can be some places that offer wine for so very much less. There's a particular restaurant in England, the Old Fire Engine House in Ely (very very old fashioned English food, totally anachronistic but can be lovely), where the list seems to me to barely reach retail levels. I can't remember particular details off the top of my head, but 1er Cru Burgundys from the mid ninties for 30 odd pounds, a 1978 cru bourgois Bordeaux for 45 pounds. I guess the person running the list buys things in France and then cellars them for a long time - I first went to the place 8 days after I was born, 30 years ago, and I think it had been going a while then so I suppose they can think this way, but still, its like a third of the price of similar in London. Does anyone understand the economics of this kind of list in relation to normal markups or is it just an abberation? And why can't there be more like it please??!!!

[KatieLoeb]

I certainly understand that wiine markups are a necessary part of making a profit while running a restaurant and on the whole I don't mind paying 2.5 ish times the store price. However, what I don't get from a financial standpoint is how there can be some places that offer wine for so very much less. There's a particular restaurant in England, the Old Fire Engine House in Ely (very very old fashioned English food, totally anachronistic but can be lovely), where the list seems to me to barely reach retail levels. I can't remember particular details off the top of my head, but 1er Cru Burgundys from the mid ninties for 30 odd pounds, a 1978 cru bourgois Bordeaux for 45 pounds. I guess the person running the list buys things in France and then cellars them for a long time - I first went to the place 8 days after I was born, 30 years ago, and I think it had been going a while then so I suppose they can think this way, but still, its like a third of the price of similar in London. Does anyone understand the economics of this kind of list in relation to normal markups or is it just an abberation? And why can't there be more like it please??!!!

I'm guessing the proprietor owns the building and has no astronomical rent payment.

[FaustianBargain]

Great replies here so far. My views on this subject are well documented on the interet, this site included. The question I always want to ask people who obsess on what restaurants charge for things is this: What business are you in? Do you ask your doctor why he charges you $175 for a 20 minute office visit? Do you quiz your dentist about why a 10 minute cleaning costs $90? Ragu spaghetti sauce costs $3.49 at the Safeway, but I prefer the Putanesca sauce from Dean & Deluca that costs me $12.99. To be fair to the original poster, I agree. Wine in a cheap place should be cheap, too. A little bare bones bistro with $8 entrees should have wine in a similar price range. Fine dining places have different costs to assume. The rest should be obvious.

highly priced wine is whats sometimes known as 'veblen goods'...the preference for the product goes up with the price...people will pay for it because they want to say that they paid $$$ for a bottle of wine or at least feel good about it in the privacy of their bank vaults...

daniel boulud's Letters to a young chefhas some interesting points on why the margin for wine is drastically upped in restaurants.

I like to read MarginalRevolution, Tyler Cowen's blog..foodieand economist. I dont remember when I read his wine entry, but take a whirl around his blog. It is very interesting.

[sdelgato]

Why does it a lawyer cost 250 an hour... Why does a dentist charge 60 to clean your teeth... Why do banks charge 35 for a bounced check... You could go on and on as the the whys. the key is to seek out restaurants that have a fair pricing policy and frequent them often. Support them, tell friends, bring clients. Those are the things to do not whine about about why...

[CtznCane]

  Do you ask your doctor why he charges you $175 for a 20 minute office visit? Do you quiz your dentist about why a 10 minute cleaning costs $90?

Boy does that statement light a fire. Having worked for many years where people would ask such questions but be too -------- ignorant to either believe or understand the answer if one did bother to explain it.

That aside, you are right in that it is none of the publics business what your costs or margins are. What IS important though is the publics perception. Why? Because that is what will influence their decision on whether or not to spend the money.

As a restaurant, as with any other business, the idiots are going to be idiots regardless of whether your pricing is fair or not. For the people though who are potentiallly regular customers who will frequent your restaurant time and again the perception that they are getting value is important. Even though the drop in diner is important I'd think that the regular customer is the key to success for most restaurants. Most regulars, or anyone who apprecitates having that restaurant and wish to see it exist will not begrudge them a reasonable profit. It is when that profit is deemed unreasonable that both the patron and restaurant suffer.

Consider the following scenario. If the wine is reasonably priced, the consumer might not only make the jump to a better wine but a wine that will better show off the food. If this is the case, that jump in price will offset or be greater (perhaps) mark-up wise to the lesser wine. If both the food and wine show better, the profit will be compenstated for and it is a win-win proposition.

I know for myself, that if I feel I'm getting ripped on the wine, I'll do without. Sometimes I'll either have none or perhaps just have a cocktail before and/or after instead.

Bottom line: Yes there are costs and the consumer should realize this and accept a higher price on wine and a resulting mark-up. It is simply to keep it reasonable and it is there that I think many restaurants can and do jack the wines up to an unreasonable level.

[mnebergall]

Why does it a lawyer cost 250 an hour... Why does a dentist charge 60 to clean your teeth... Why do banks charge 35 for a bounced check... You could go on and on as the the whys. the key is to seek out restaurants that have a fair pricing policy and frequent them often. Support them, tell friends, bring clients. Those are the things to do not whine about about why...

Lets' cut to the chase. The anwer to all of these questions, and the question why some restaurants apply an exhorbitant markup on wine is the same as the anwer to the age old question "why does a dog lick his balls?". The answer is "because he can." Some restaurants apply large markups to wine simply because they can get away with it.

[Jeffy Boy]

Lets' cut to the chase. The anwer to all of these questions, and the question why some restaurants apply an exhorbitant markup on wine is the same as the anwer to the age old question "why does a dog lick his balls?". The answer is "because he can." Some restaurants apply large markups to wine simply because they can get away with it.

It all comes down to supply and demand, simple economics. If a restaurant can charge a high price for wine, and "get away with it", more power to them! Nobody is forcing anyone to go to that restaurant. If their prices are more than the market will bear, those chickens will eventually come home to roost (no repeat business or word of mouth).

[stovetop]

Let’s put this another way, Punch a time clock, now design your evening at home with your date, lover, wife whatever, now go get all you need to make this evening eventful, go to the store and get your food, you will find that you have to go to more then one store to get all the things you will need, now the liquor store.

You are at home now all the ingredients on the table waiting for you to cook, lets see how much time is this going to take lets see anywhere from 30 min to six hours, how much will it cost, any where from 20 bucks to 100, that is not including the wine.

Oh yes the dishes!!!

Try and match your fav restaurant and duplicate the meal at home, you would be surprised on how much it can cost you, if you do not have that pantry at home and you have to go out and get all those items then you will see how much.

If you have to make a demi or stock, this will take like 3 hours to make something even close to your fav saucier's demi or brown sauce.

Lets say you are restaurant and you have to pay rent, Vancouver, 5000 to 15,000 a month, hydro, phone, office expenses, labour, food 30% ->;labour 30%->; liqour 30%->, that leaves you with about 5-7%, that is why it cost you money for wine. You have GST---PST---Socan, business license, food license, health board, liquor license, accountant, lawyer…..,

Cost of a bottle of wine for liquor store 4 bucks, their selling price would be like 12- 15 bucks, add all their taxes + ( markup) and the other tax plus tip, wow that is a lot of mark up, but the restaurant only sees a little of that.

steve