Markups

You go out to dinner; you pay a lot of money for wine. When wines are offered by the glass, the standard, or at least close to it is that the restaurant charges you for a glass what they pay for the bottle, or maybe just a bit less. And, then the bottle price, at least for wines that are offered by the glass, is typically about 4 times that price. 

Let's think about this. A 750 ml bottle of wine (standard bottle) or nearly 25.5 ounces can produce 4 to 6 pours depending on how a restaurant is pouring. But, the standard pour for a dinner wine (as contrasted to a dessert wine) is about 5 ounces. So, they get 5 pours to the bottle.

It's time for some simple math. Suppose a restaurant pays $10 for a bottle of wine that they plan to offer by the glass. Then they get $50 in sales. That means their ratio of cost to revenue is 20% with no wastage. 

There is always some wastage. Customers want a taste before buying. There is a bit of spillage. Someone overpours. Somebody pours the wrong wine. A customer hates the wine and you decide that rather than charging them, it is better business to just give them something else.

For food items, industry standard is somewhere in the 30% range (Jon Taffer would tell you some other number and I am sure he knows more about it than me, but this is the number I have seen most often). So, for aloholic beverages, it should be something lower than 30%.

Then, there are the bottles. For lower-end and moderately priced wines, the bottle is typically priced at about 4 times what the restaurant paid for the bottle. That means that the ratio for a bottle is 25%. Frankly, in order for the restaurant to make a reasonable amount of money, this is probably necessary.

But, something interesting is going on. Not all wines are priced in this way. Restaurant owners are not, as a rule, stupid. They know that there are a few labels that their patrons really like or want and some that are much more difficult to move. The ones that sell themselves will still move if they are priced a bit higher, so the per glass price is likely more than the owner paid for the bottle and the bottle price is more than 4 times the price they paid. 

You know the brands. They are on every restaurant's wine list. And, they are the real moneymakers.

Another phenomenon is the cheapest wine on the wine list. It's a moneymaker. If it's $7 per glass, the restaurant probably paid $5. It's usually a pretty bad wine, but a lot of people will buy the least expensive even if it's too expensive for that wine.

The other wine that is likely marked up unreasonably is the most expensive wine. And, it will be one that you have heard of. It's that wine that you heard is really good and you are out for a special occasion and sure, you usually spend $50 for a bottle in a restaurant, but this is the good stuff and it's his birthday or a special date with her or your anniversary. So, you plunk down some number of hundreds of dollars for this bottle. And, you love it. And you rave about it. And you do that because you have to because you just broke the bank to buy this bottle that you really do hope you enjoyed.

In my experience, the best buys are often the names you've never heard of of the grapes you've rarely heard of. 

Why do the restaurants carry them?

Well, they really wanted a great allocation of Hifalutin Really Popular Cabernet. But to get that HRPC, the distributor told them that they needed to take half a case of Chasselas. No matter what they do, they can't move that Chasselas, so they price it well and they price the HRPC really poorly.

It all makes sense, doesn't it?