Wine markup in restaurants - why the inconsistency?

I am new to the forum and perhaps this is a question that has been asked and answered. I searched, though, and couldn't find the topic.

My question is why are the markups on wine so inconsistent at restaurants? As someone who is very conscious of price points, value for price paid, and who enjoys wine with meals, I ask myself why the wine list at one restaurant has the 2004 Franciscan Cabernet priced @ $49 and another at $67?

This begs a follow-up question too - why don't more restaurateurs simply charge a corkage fee and let you bring your own? That would seem to yield a more pure profit, though I guess stocking the corkscrew and employing the operator would involve some overhead

Thanks for the opportunity to ask the forum!
Davooda

Question 1: Because they're greedy, and they can get away with it.

Question 2: Because the retail cost of that bottle of wine is $18.89. If the first restaurant wants to maintain its profit margin on that bottle, it'll need to charge corkage of $30 per bottle. If the second one wants to, it'll need to be nearly $50.

More people will pay $67 for a bottle of wine than $50 for corkage, I suspect.

I'll explain why as someone looking at getting into this business eventually (not for a long time). Different restaurants get their bottles from different sources and get quantity discounts. Additionally, wine and liquor is where the profit center comes from in a restaurant- moreso than the food, thus if a restauranteur is getting a worse price based on lesser volume the markup may be slimmer but the price may be higher just to keep the profit margin at a reasonable level. Something to remember about wine even moreso than liquor is that it has to be stored just right or it goes bad fairly quickly. Storage for wine is always expensive as it takes up space for other things (namely tables in some places) thus it is an expensive cost for restaurants to maintain.

Now to add to your second question, besides the profit reasons for getting people to buy in their own restaurants, there is a cost associated with BYOB's- and that lies in good glassware. Really nice glassware (ridel, spigleau) meant for really good wines is extremely expensive. There is a labor cost in keeping these clean, there's a lot of overhead in keeping good glasses around (this is one reason corkage can get into the 50 dollar range at some places).

I've rarely been to a restaurant that sells from their list and won't allow for a corkage fee (minus the case when you're bringing bottles that are on their lists). Most places I go where I bring a bottle of wine, I'm generally starting or ending with a different bottle from the restaurant's list. In almost every restaurant I've been in they've waived the corkage as I'm buying a bottle off their list.

gleam wrote:Question 1: Because they're greedy, and they can get away with it.

It may not always be greed, but simple business need.

When you're sitting at a restaurant, especially a new one, take a look at the silverware, the art on the walls, the number of employees, the location in the city, etc. Each restaurant (and any business for that matter) has to pull in a certain amount of money each month to stay afloat. There's payroll, loan payments, etc. etc. etc.

So, restaurant A has to pull in 100K and they normally sell 200 bottles of wine per month. Restaurant B sells the same amount of wine per month but has to pull in only 50K to stay afloat. So, restaurant A actually may need double the markup that restaurant B does to pay their rent, fancy sommelier, and the loans that paid for all their Riedel stemware.

Based on my basic Business 101 knowledge, I think that has a lot to do with it.

Best,
Michael

I appreciate the insights everyone! My exposure to the restaurant business has been solely as a consumer without much thought about what makes them tick. It seems probable that each place would have a different operating margin, just as each would have different overhead.

Gleam - I appreciate your response as it has helped me think about the whole situation in a new light.

Question 2: Because the retail cost of that bottle of wine is $18.89. If the first restaurant wants to maintain its profit margin on that bottle, it'll need to charge corkage of $30 per bottle. If the second one wants to, it'll need to be nearly $50.

I had, naively probably, felt that if a restaurateur was selling me the bottle of wine then he or she rightly had a claim to profit on the transaction. No sale - no claim to a profit in the BYOB case, I felt, but I am cool with paying the corkage fee just to be able to drink what I want to drink.

I think what you suggest, and correct me if I am in error, what the restaurateur is actually selling me, and taking profit from, is the experience of enjoying that bottle of wine with the food prepared in the establishment. Kind of like not getting all bunched up having to pay 5 Euros for a Pernod in a lovely cafe overlooking the Pont Neuf - you're really renting a prime piece of Paris real estate for as long as you wish to sip.

Cool - I guess the challenge then, is to find the best atmosphere with lowest markup

Oh, they absolutely have a right to claim a profit on the transaction, they have a right to profit as much as they possibly can on it. And, if you BYO, they have a right to try to recoup the money they lost by you not buying your wine from them.

Note also that the retail cost of the wine might be less than the price the restaurant pays, so their markup may be less than what we're assuming. On the other hand, it might be the exact opposite. It depends largely on the wine and the state's laws.

My feeling is, if you feel the markup applied is offset by the value to you of the service, setting, etc, then by all means order that bottle of wine. If it doesn't, don't.

Other things to keep in mind: the restaurant probably has to add ~10-20% of the cost of the wine as markup to cover bottles being corked, getting broken, or getting stolen. With wines by the glass, they have to be able to cover those bottles where they only sell one glass before having to dump the bottle.

So it is, as michael said, a complex calculation, with a lot of factors, and it was very simplistic for me to reduce it entirely to profit motive.

But just keep in mind this quote from Bill Buford's article about Gordon Ramsey: "The [food] prices--the best value in New York--had been deliberately set low, Ramsay told me, to encourage people to spend more on wine, an upmarket restaurant's greatest potential profit (no overhead, no spoiled ingredients)."

gleam wrote:...Note also that the retail cost of the wine might be less than the price the restaurant pays...

I thought that restaurants paid wholesale prices for wine?

mhill95149 wrote:

gleam wrote:...Note also that the retail cost of the wine might be less than the price the restaurant pays...

I thought that restaurants paid wholesale prices for wine?

Wholesale on alcohol is generally higher (in my experience) than retail, but wine can be an exception. In fact, the liquor commission audits quite frequently to make sure that all bottles have been purchased through a distributor. The reason is that they charge tax differently for bars and restaurants than the everyday consumer who is not going to be reselling the product.

When I helped run the bar and wine list at a restaurant the glass wines were priced so that the cost was recouped on the first glass, and the bottles were priced at 4 times the glass price. On non-glass wines we would price them at 20% cost.

Flip

there's no one way that is law. yes, you're renting real estate (which is also why it is so inconsiderate to be a no show for a reservation, or to make multiples and choose one). yes there's greed. yes there's charging what the mkt will bear. yes there's ocassionally even an altruistic position to be considered and yes there's an actual need to make "x" amount from an item, and you the consumer does not know what it takes to supply it and the rate of return you need to stay in business, unless you're paying the bills.

i've heard 3 x's bottle price for bottles under $50. 2 1/2 x's for bottles between $50-100, 2 x's bottle price for $100 and above, or "x" amount on ea bottle over the wholesale price are some of the standards or possibilities. there's many other models as well. some people want to get their bottle cost back on the first glass. some not.

it's up to the owner to decide what they need, what they can get, what they can live with and how they want to be perceived in the community. it all comes into play and a decision is made based more or less on the above.

gleam wrote:
Other things to keep in mind: the restaurant probably has to add ~10-20% of the cost of the wine as markup to cover bottles being corked, getting broken, or getting stolen. With wines by the glass, they have to be able to cover those bottles where they only sell one glass before having to dump the bottle.

While this is mostly correct I need to correct you on one thing- from my knowledge and research I know of no good distributor that makes restaurants pay for corked wines- restaurants typically get a credit back from their distributor for corked items.

There is almost no prep cost with wine, and very little spoilage (except for wine by the glass). Distributors even issue a credit for any bad bottles. Therefore, a restaurant has a lot of leeway in pricing wine. They may choose to keep wine prices down to bring in more customers, or use the wine sales to subsidize other costs in order to keep the food prices lower. I think 30%-33% cost is pretty close to average. At any rate, a restaurant is still making a fair profit on half-price wine night. Also, unlike most food, the value of a wine inventory increases as it gets older.

jpschust wrote:

gleam wrote:
Other things to keep in mind: the restaurant probably has to add ~10-20% of the cost of the wine as markup to cover bottles being corked, getting broken, or getting stolen. With wines by the glass, they have to be able to cover those bottles where they only sell one glass before having to dump the bottle.

While this is mostly correct I need to correct you on one thing- from my knowledge and research I know of no good distributor that makes restaurants pay for corked wines- restaurants typically get a credit back from their distributor for corked items.

I thought that might be the case, thanks for clearing that up.

It seems that most restaurants have some formula that they use to price their newer wines, current releases that they are hopefully not storing too long. What I find more interesting is the pricing of older, more expensive wines that the restaurant may have stored for a while. Some places will take the current retail or auction price and then add their markup, while others will take their cost, which is often significantly less, and add the markup to that. For example, the 1995 Harlan cab, which was about $50 on release is selling for $500+ at auction. I have seen it in places for $1500, which is a 3x markup of the current price (which could be the restaurants cost if they just bought it), but I have also seen it for under the auction price at several places, including for $200 at one place a year or 2 ago. When I asked the owner why she was selling it for so little, she said that she had bought it on release, and was making a decent profit on it, and wanted to offer good value to keep her customers coming back. While this may seem to be dumb short term, it may make good long term business sense. What I cannot understand is who is paying the $1000 markups for wine. While I never spend more than $100 for a bottle (my only exception was that $200 Harlan), and usually much less, it still leaves a bad impression when I see those markups.

-Will

I love when I find a wine list that features older wines that have appreciated
in value yet are priced based on purchased price.

Speaking of Harlen....
here's what we did with a bottle of 1996


actually just the dregs...

The "pricing based on purchase" is the rule at Dave's Italian Kitchen in Evanston. He really does a great job, and has a very interesting and idiosyncratic wine list.

d4v3 wrote:There is almost no prep cost with wine, and very little spoilage (except for wine by the glass). Distributors even issue a credit for any bad bottles. Therefore, a restaurant has a lot of leeway in pricing wine. They may choose to keep wine prices down to bring in more customers, or use the wine sales to subsidize other costs in order to keep the food prices lower. I think 30%-33% cost is pretty close to average. At any rate, a restaurant is still making a fair profit on half-price wine night. Also, unlike most food, the value of a wine inventory increases as it gets older.

One of the things you don't take into account here is the cost for storage...that's a giant factor in pricing.

A couple of things.

Sometimes when a restaurant is selling older wines, they are actually selling someone's collection on consignment, so the price is set by the collector and the restaurant is just getting a markup. I have run into this a few times, and it is a wondeful find. Except you may have to order a few bottles before finding one they actually have there that night, and I have also had to send back a bottle because it was no good any more (much to my chagrin). But the pricing can be shockingly good.

jpschust, I used to find that if one bought wine they would skip the corkage on the wine I brought, but I have not found that to be the case for years. Must be going to different places than you.