It’s a while since I was there but my recollection of prices in France, and I gather other European countries, is that wine markups were lower than NA and food prices tended to be higher. That’s also my recollection of UK.
I recall reading somewhere that restaurant food here is underpriced relative to total costs and reasonable profit. Wine and liquor balances the books. I have to assume that’s a successful business model, at least pre COVID, odd though it seems to me (undercharge your core product and overcharge an optional extra). I’m pretty sure that the general public gives greater weight to menu prices than the wine list in choosing a restaurant.
However I wonder if COVID may have upset the apple cart or wine trolley. Many restaurants have been offering take out and delivery and in many cases including wines at much lower markups. Will this have reduced customers’ willingness to pay 3.5 or more times (monopoly) retail.
I’d love to hear from those ITB on the restaurant side about pricing from their perspective instead of ‘assuming’ things. And it seems ‘obvious’ that lower mark ups might lead to quicker turns on their wine inventory, which would be great for cash flow, etc . . .
Framing it as a 400% markup over wholesale is a pretty weird way to think about it, since you can’t get that wholesale rate as an average consumer or restaurant goer.
And I am sure your customers can say the same thing about whatever the business you are in charges for their services.
It’s called “business” and part of the larger capitalism scheme.
It was always like that when I worked in restaurants, and cheaper bottles were usually marked up well over 5x. One of the few exceptions I’ve seen are restaurants that have some type of retail license with their beer/wine permit and can sell wine out the door. Some will charge a small corkage fee but in the end it’s just a little over retail at those places.
i’m sure i’m shooting myself in the foot here by diving in, but this is my business, and perhaps some of you might find it interesting. we make software for restaurants to optimize their inventory, turnover, and pricing. We built a system that aims to reduce the friction around learning what is working, what’s not working, and what you can do about it as soon as possible. In essence, we want the restaurant to make as many changes as possible given real-world constraints. In reality, this means perhaps a weekly look at sales and pricing trends and increasing and decreasing bottle, etc., pricing accordingly.
Here’s what we’ve learned from the data (not exhaustive, and always learning more):
90% of the industry doesn’t really do much more than what’s already discussed in this thread; they buy and sell what they think will sell and apply “industry standard” markups. And…it kinda works since they focus largely on COGS and then aiming to get to a certain COGS % at the end of the month (call it 25% ish) results in “profit” and then they work within a purchasing budget that is reactive to sales. Higher COGS on higher priced items, much lower on BTG. etc. It’s very much an art which is then influenced by generally intuitive ideas around pricing, but also lacking in any real level of rigor.
The Real People Factor: The general reasons for most of this comes down a few key factors; mainly (1) people that go into hospitality want to do… hospitality; talking, selling, tasting, engaging with the guest, etc. None of that includes wanting to be a quant on menu engineering and price optimization; (2) the systems and tech are beyond awful. it’s changing rapidly, but the typical tech stack (if you want to call it that) in hospitality is ancient - i mean like 30+ years old ancient. Combining these two factors results in people that don’t really want to do a thing, that are then forced by management to do that thing, and they aren’t given the proper resources to do that thing. This, to me, is inherently unfair. The best use of a hospitality professional’s time is to deliver that; any time not doing that is wasted from an organizational standpoint.
As you can guess, COGS is the least worst way to run a beverage program (packaged goods) but it used because the historical culture around restaurants is on the processed food part of the business (say 65% of revs) where COGS matters most since you’re dealing with (1) unique, processed items that are (2) perishable; e.g., your raw chicken is worthless within 2 days-ish. The beverage side economics are quite literally the opposite. While you need to clearly profit on those items, the selection, pricing, variety, etc, are orders of magnitude larger than raw ingredients (compare # of vendors selling chicken vs # of vendors selling wine, etc.) and they are generally not perishable. So the goal essentially is to optimize for a different outcome - one that is far more complex; you want to sell high (higher margin) AND fast (turnover time), BUT you also should want a portfolio approach since you run a cash business, not a margin business and the variety in pricing on the beverage side will be multiples of that on the food side. selling a bottle for $400 that you purchased for $200 is usually better than selling a bottle for $100 that you paid $25 for. Optimizing for lower COGS results in the latter when you will likely prefer the former - or more accurately, the perfect combination of those outcomes!
Playing on the above theme, you can see that a typical restaurant operates two businesses under one roof; processed food (2/3 revenue) and packaged goods (1/3 revenue) [these numbers are very broad strokes with many exceptions, but are good enough for our purposes now]. But here’s the catch, you also typically run two different businesses within the same week - one where you have excess capacity some days (open tables) and scarcity the others (fully booked). You now have 4 quadrants instead of two. And as I’ve shown above, the inherent economics and incentive structure for beverage and raw ingredients is almost opposite as are the strategies to maximize revenue for slow days vs fully booked days.
Given the large variety of options, pricing, the complexity of optimizing for #3 above AND that w/r/t wine, it’s the most expensive thing you buy AND sell, there’s a huge incentive to spend time and effort to get this right. In reality, the most mindshare is spent elsewhere. That leaves an insane amount of locked up value that’s just sitting there to optimize. I’d like to think that’s what we do.
So, back to markups - the main question in this thread. The correct markup is the one that results in the best ROI for the entire beverage program, or in our case the wine program. This takes into account both margin AND time. As a wine program increases in size, so does the complexity of this reality. Menu engineering, price anchoring, weighted average bottle sale, sleepy inventory, etc., etc., are all playing with each other. The math isn’t super complicated, but it needs to be done on a very regular basis to see what is happening and what we think will happen based on that sales information. The upside to wine geeks however is that this method results in “deals” at the higher end of the list (higher end is very relative to the restaurant concept, location, etc.). The reason is that optimizing for ROI leads to deals on things that are sufficiently above a floor price AND that haven’t sold as well as other items.
This was pretty scattered, so apologies. I wasn’t planning on writing all that, so it’s not super organized, but my gut is that most can follow it.
tl;dr - markups at restaurants are generally not done very well because they’re optimizing for something … sub-optimal. But, comparing the price of 1 item to that item’s price at wholesale or retail is also totally irrelevant given the goals of a restaurant, location, and a million other factors.
edit: there are two 3’s; i see it, but i’m not changing it. it’s fine.
This. (Though there is some “skill” involved in other aspects of the restaurant, including service.) It’s a lot easier to stomach (STS) a $40 steak that one can’t buy the same, prepared version of in a supermarket for $10, vs. a bottle of wine that retails down the street for 33% of the price.
That said, wine service isn’t purely marginal inventory cost. It’s reasonable to expect it to contribute ratably to overhead and profit, and the restaurant is renting a space, decorating, storing, and serving the wine. But at some point the markup converts from reasonable additional profit margin to shameless overpricing to a semi-captive audience (you’ve already sat down, perhaps primarily based on recommendations regarding the food).
As for the Inn at Little Washington . . . you’re already paying $300+/person . . . there’s a lot of wine to be had for much less, even if the markups are grand.
[Well, guess I should have just read Yaacov’s post before weighing in]
Over in the UK there is a law that restaurants have to have food prices shown outside the restaurant (e.g. in the window or at the entrance), but that law does not apply to drinks prices
Most restauranteurs entered the industry because they have a passion for food, not wine, beer, coffee, water etc. which inevitably get viewed as profitable side-lines to fund their real passion, the food
Markups are needed, to fund the staff, building / upkeep, profit, taxes etc.
Linked to the 2nd point, there is a tendency in the UK to apply fixed markup % for everything, be it a steak, aubergine, water, wine, etc. ignoring the differing effort / expertise applied to each
4x retail is not uncommon, with most in the 3x to 4x range, and typically engage with one of the wine merchants that specialise in supplying (often poor but cheap) wines for restaurants . A minority apply something closer to a fixed markup, or have enough of an interest in wine / recognition of the reduced effort, that they operate on a lower % markup for wines etc.
Add onto this additional bureaucracy and transport staffing issues from Brexit, the financial issues from Covid lockdowns / restrictions, plus the global shipping crisis, and I doubt wine is going to get cheaper in restaurants any time soon.
[postscript: Yaacov has covered a good chunk of this but with sharing greater expertise alongside it - well worth a read if you glossed over it]
Enough people are clearly OK paying the markups on restaurant wine lists where it makes sense for restaurants to price lists this way. If restaurants could make more money pricing wine at retail pricing, we would see more restaurants doing this. Its the same reason restaurants can sell 2014 Langhe Rosso and not even bother to stock/sell a better vintage for by-the-glass… I just assume they get better pricing on the 2014 Langhe and they can make more money selling that than a better vintage that may cost them a few bucks more. I don’t begrudge the restaurants with $80+ corkage fees either. I just push nearly all of my spending to restaurants with reasonable cork fees.
As an aside, it’s is easy to find places in Italy with very modest markups (say 15% on top of retail), and even places where mature wines are available for little (and not a lot) extra.
Every now and then somebody opens up a restaurant/wine shop combo where you can buy the wine and pay a relatively small amount as corkage. These restaurants always seem to do well, but it’s a formula not often copied. Not really profitable?? Dunno. People seem to love the idea.
The rule of thumb for movie theaters is you break even on tickets and make money with concessions. Maybe that s why drive in theaters have failed…too easy to sneak in popcorn.
I don’t mind a standard industry markup on wine but when I see a wine that retails for $25, wholesales for 18, for 70 on a list. During the lockdown I saw Muscadet for $50 and $60…ok, times are tough and I understood but now??
Of course, covid is going to bring a big change for restaurants. Fewer people want to work around unmasked people demanding their rights. Then there is a the issue of living wages.
The rule of thumb for movie theaters is you break even on tickets and make money with concessions. Maybe that s why drive in theaters have failed…too easy to sneak in popcorn.
theatres share tickets sales with the studio/distributor on a sliding scale from release date; more earlier usually greater than 50%. concessions are the only other rev stream and it’s a captive market so charge as much as the market allows. same at ballparks or the airport.
