The Lowdown on Restaurant Markups

The inside story on why and how restaurants price their wines.


Published:

 The scene is all too familiar: glancing through a restaurant’s wine list you spot a Napa Cab you saw in a wine shop for $30; it’s listed at $80.

In a recent survey of consumers’ wine-buying habits in restaurants, Julie Brosterman, CEO of WomenWine.com, found that 70% of respondents felt restaurant wine prices were too high. “People are savvier about wine markups than they used to be,” Brosterman says. “They know retail prices, and they can look up wine prices on their Blackberrys while sitting in the restaurant.”

“Wine is a good profit item,” reads one restaurant management textbook. “It will average approximately the same cost of sales as food, but the labor and operating costs needed to present it are substantially less,” observes another.

Industry-wide markups average two and a half to three times wholesale cost, says Randy Caparoso, a restaurant wine consultant at Wine List Consulting Unlimited. A bottle priced at $10 wholesale might sell for $15 retail, but $25 to $30 in a restaurant. “Everyone knows you pay more in restaurants than at retail, but what really aggravates a lot of consumers is how wacky prices can be. A bottle may be $25 at one restaurant, $15 at another, and $40 at a third.”

So what really goes into wine prices, and why are they all over the map? Let’s dissect some of the factors.

State laws and taxes. Each state has its own alcohol laws and taxes that can affect the price of wine. Utah restaurants are required to buy wine from state-run liquor stores at retail price instead of wholesale price. Taxes are steep in some states—Tennessee tacks on a 15% tax hike for on-premise sales, for example—and fairly low in others.

Wholesale costs. Again, those Byzantine state laws make pricing a maze. In some states, wholesalers are required to price wine fairly to all restaurant customers; in others, large chain restaurants and those with bigger buying power are able to negotiate better wholesale prices.

Restaurant operational costs. “A neighborhood restaurant where you’re greeted at the door by the owner who also seats you, takes your order and cooks your food has two to three times lower overall expenses than a restaurant with fresh flowers, valets, five chefs and an army of waiters,” Caparoso says. “Wine is a commodity, a costed good. It’s the same as buying a pair of shoes. The nicer the store, the higher the cost of the shoes.”

Position on the list. Most lists follow a graduated markup, with the highest markups on the cheapest wines, and lower markups on higher-end wines. A $10 wholesale wine may be marked up to $30, but a $50 wine might be just $80.

Whim. Mike Shor, an economics professor at Vanderbilt University, did a personal study analyzing wine prices at 38 Nashville restaurants, rating the restaurants according to markups. “I teach a class in pricing, and a couple of restaurants I’ve been to have ridiculous wine prices,” he explains. “I wanted to see if that was true or just a feeling I had.”

His findings: markups varied widely. Some adhered to industry standards, but at least one merited this description from Shor: “If you search long enough, you may find a wine price that is merely insulting.”

Trevor Hertrich, a wine buyer for a large retail store in Denver and a former restaurant sommelier and wine program manager, says high markups are a matter of convention rather than good business planning. “To me, it’s more about the bottom line and selling more at a lower margin.”

Hertrich maintains that there is a magic number where a good restaurant wine manager can do a lower markup, sell more wine and make the same amount of profit. “If you pay $50 for a mid-range Burgundy, you can put it on the list for $200 and wait six months for someone to buy it, or you can charge $125 and sell it right away,” he says. “Meanwhile you’ve already paid for it and you have to store it.”

The good news is that restaurants are beginning to get the memo. Ten years ago, Caparoso says, wine markups were even higher, but that prices are moving down towards two times wholesale cost.

“Prices are coming down in response to consumer feedback. You couldn’t do that 15–20 years ago because not enough wine was drunk to make it worthwhile,” he says.

Ultimately, though, Caparoso begs wine lovers to stop comparing restaurant wine prices with retail. “You have an army of people serving you and cooking for you and washing your dishes. They aren’t doing it for free.”

Here are some ideas on how to get the best value from the wine list:
Spend more for a better value. Most lists have higher markups on the cheapest wines and lower markups on high-end wines, so often the more you spend, the better wine you’re getting for the money.

Order mid-list. The second-least-expensive wine on the list is often marked up the most. Why? “People don’t want to look cheap, so they order the second cheapest wine,” Shor says. Go one or two bottles higher for a better deal.

Beware brand names. Popular brand names always get the full markup because they sell no matter what, Caparoso says. “The restaurant is kind of punishing you for being a creature of habit.”

Be adventurous. “If there’s a wine I really want on the list but don’t think a lot of people will order, I put an even lower markup on it,” says Jay Frein, wine manager at Margot Café in Nashville, which had the best value wine prices in Shor’s study.
 

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Reader Comments:
May 8, 2010 08:19 pm
 Posted by  Ari

In Tucson we are fortunate to have Feast
Markup. Straight retail and a $3 corking fee.

This has been flagged
May 10, 2010 06:42 pm
 Posted by  BCMitchell

I work with a lot of restaurants on their beverage programs, and for the most part the wine list mark-ups that I see are fair and reasonable. As the article states near the end - there is an army of people preparing, and serving your food, as well as cleaning the bathroom, washing the dishes, taking inventory, printing menus and a million other jobs that cost money for the owner. Restaurants are businesses, businesses that are in the business of selling food and beverages; therefore, they need to make a profit on everything - not just some of the items on the menu. Food is typically marked up 3 times, why should the wine be any different?
A restaurant has to buy the wine, store it (sometimes for months) some place secure and or chilled in a cooler (which uses electricity), and then someone (perhaps a sommelier who might expect to be paid for his/her expertise) has to serve it, usually in glasses that cost money (and break), and then someone has to clean up after. All of this is not free - so why should the wine be? Sell that $9 bottle for a retail mark-up - say $12.99 - no restaurant would be in business for long with that kind of pour cost.
Here's an idea: find a restaurant that has fair pricing and support them by buying a glass or bottle of wine and quit worrying about how much they are making on it. If you don't like that, then stay home.

This has been flagged
May 10, 2010 08:09 pm
 Posted by  alfalfa323

The only real way to have wine control is the bring your own and suffer the corkage. Even if the charge is $25 or more, on a decent bottle of wine you will generally save enough to add salads an appetizers. A little research will yield a number of good restaurants that charge no corkage (e.g. Houston's). Strangely enough, these restaurants generally have the most reasonable wine prices.

This has been flagged
May 11, 2010 03:51 pm
 Posted by  cndp

BCMitchells argument makes sense at every level. In addition to the valid points he made, in many areas, liquor licenses cost 100s of thousands of dollars not to mention sometimes Millions of dollars to build the restaurant or bar. This is all done to add to your enjoyment of the dining/drinking experiance and it cost money.

If it is not within your means to dine out, pick up a bottle and cook your own food at home.

This has been flagged
May 12, 2010 11:42 pm
 Posted by  DCLudwig

Thank you for the helpful article. In my area restaurants charge at least four times the retail price of a bottle of wine, and I am willing to pay that on a special occasion, but most people I know won't do that. No doubt restaurants could sell more if they would keep it to twice the wholesale cost, and thus increase profit.

I don't know how customers can help but compare wine prices when they are exorbitant in restaurants, but I do expect a reasonable markup and would never worry about paying that.

This has been flagged
May 30, 2010 05:29 pm
 Posted by  Randy Caparoso

Ha! Restaurant wine prices always get people going. I'm a wine professional, and I hate paying more for wine, too. But as a couple people mentioned, if you don't want to to pay more, you probably need to stay home and enjoy your wine, because every extra bit of pampering you receive in a restaurant represents a little extra cost that a restaurateur has to deal with to, first, stay in business, and secondly, to make a buck.

What always surprises me, though, are people who begrudge restaurant wine prices who are obviously the same people who pay $100 or $500 for shoes that obviously cost pennies to make in Third World countries. Or: people who willing pay $5 to ride a cab 10 blocks who could have easily left a few minutes earlier and walked it for free. Come on, folks, if other businesses you allow to gouge you on an everyday basis are allowed to "make money," why can't restaurants? Don't pick on the restaurant industry!

This has been flagged
Jul 18, 2010 03:50 pm
 Posted by  Robert Bentley CWS, CWE

Some of the comments posted here, although critical of restaurant pricing as is this article have been flagged. These were reasonable comments offering good insights; so why were they flagged? Seems we have some greedy proprieters, sommeliers trying to restrict healthy constructive commentary. Why should we tolerate these vested interest tyrants from limiting a healthy discussion. When they can offer equally reasonable arguments, their side can be also heard, but don;t try to play Stalinist type censorship games with an intelligent, informed wine consumer public!
In my experience, as a wine educator, the worst pricing offenders are themselves often ill informed if not down right greedy; there is no reason for 4x+markups! The fancy shoe argument is specious at best and insulting to knowledgeable consumers! I see the finest wine lists often have very good wines at a relatively mild markup-some often now at going retail-they still make the wholeslae to retail markup and a well priced wine will not sit in inventory either! A recent visit to an outstanding restaurant in Blowing Rock, NC was prompted by thier ad on website touting NO CORKAGE FEES! I being a visitor thought his might be due to a licensur restriction or distributor/supply probelm, but it turned out they had a swell and daringly adventuresome, excellent wine list, centered on hard to find boutique wines and fairly priced to boot. This is an example of how to run a really great restaurant by encouraging fine wine drinkers to afford & have wines that match the excellence of the food. Maybe the "flagging" protesters need to get real, find that fair pricing will only increase their wine sales and ultimately good income.If confronted with unreasonable markups, I simply refuse to buy the wine & will not return to such a restaurant again!

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