Shouting “Fire!” in a crowded theater may be less incendiary than the matter of restaurant wine pricing. Some wine writers emit sparks over the notion that restaurants should (horrors!) charge twice or more the wholesale price for the wines they purchase. Wine markups two or three times the cost is an industry norm. Do these writers expect restaurants not to earn profit from wine sales? These fellows should cool down.
Yet, their complaints are not without merit. In certain resort and gambling towns, restaurants demand $50 or more for wine that can be found in nearby grocery stores for less than $10. Markups of 500 and 600 percent are more commonplace than one might suppose, with the availability of closeouts stoking the fire. Perhaps the metaphor should be twisted: discussing restaurant wine pricing may be more like shouting “Theater!” in a crowded fire.
Are 400 percent or higher markups acceptable? And should customers be charged a higher markup, as is commonplace, for inexpensive wines? It appears that any bottle an operator buys for $6 or $7 is destined to be sold for nearly $30. Should customers be punished for buying well-known wines? White zinfandel might cost $5, but many restaurants price it at five or six times that amount; ubiquitous chardonnays like Kendall-Jackson often engender similarly greedy markups.
Add to that the reality that owners and their accountants demand percentages that may or may not be realistic. As a result, operators will insist that they are guided by ironclad margins. However, closer inspection finds enormous variance in markups and percentages.
Sandy Block, M.S., vice president of beverage operation at Boston, Mass.-based Legal Sea Foods, admits, “These are complicated issues. I don’t use a formula. Basically, if it’s a wine I want to give greater exposure to, we’ll go with a shorter gross percentage margin in order to encourage product trial.”
A glance at the wine list at the Park Square Legal Sea Foods in Boston reflects this sort of thinking. Laurent Perrier Brut Champagne sells for $55, a fair enough price. But, other wines are more aggressively priced: the Pegasus Bay Pinot Noir from Waipara in New Zealand is listed at $49, the Hanzell Chardonnay at $72. Grosset Polish Hill Riesling from Australia is at a lower margin as well, selling for $39.
The Penfolds Grange 2001 is offered for $245, virtually the same as the average retail price. Casanova di Nera “Tenuta Nuova” Brunello di Montalcino 2001 is offered for $95. While that might not seem cheap, it’s a highly sought after and visible wine, making it a bargain in a restaurant.
At 2941 Restaurant, in Falls Church, Va., wine director Kathy Morgan notes, “A lot of people are aware that many restaurants charge four and five times wholesale, and they appreciate those who use a lower markup.”
Morgan’s markups are in line with many other restaurants. “Anything that costs under $10 is marked up three and a half times wholesale. For bottles that cost $10 to $25, I triple the price,” she explains.
Like many, Leonard Mirabile, owner and manager of Jasper’s and Marco Polo’s Italian Market in Kansas City, Mo., is satisfied with a similarly modified formula. “I usually price wines at two and a half times the cost,” he says, “unless they are really inexpensive bottles. So if a wine costs $20, we sell it for $50. And if a wine costs $8, we sell it for $28 a bottle.”
No Good Deed Goes Unpunished
One of the stranger tendencies among wine list writers is to charge more for extremely popular, low-priced wines. White zinfandel is particularly prone to this sort of vindictive pricing. Without naming names, I can paraphrase many restaurant professionals for whom the attitude is, “If they’re going to buy something cheap and boring like white zinfandel, I’m going to make sure they have to pay plenty for it.”
I’ve seen many wine lists that offer a popular white zinfandel for more than $25 when the same wine sells for $6 or $7 in a retail setting. Perhaps some restaurateurs can justify punishing customers for buying wines that are familiar to them. But by the same rationale, the restaurant should charge $25 for their burgers. After all, they, too, are simple, popular and commonplace.
What is worse about this sort of punitive pricing is that customers usually are familiar with the cost of such wines. The rest of the wine list is populated with wines and prices that might be more obscure. If a guest selects a Vouvray or a prosecco, they may recognize the category but they probably don’t know the brand or can’t recall the retail price. Wines as ubiquitous as white zinfandel or certain chardonnays have frequently advertised prices, so customers instantly know when they are being taken advantage of in the restaurant setting. A reasonable diner might conclude that since the only wine they know is being sold at rip-off prices at a particular establishment, the rest of the wine list must be full of rip-offs as well. Is that what you want your customers to believe?
Instead, the wines that are familiar to customers had better be sold at reasonable prices. Indeed, it’s the lesser-known wines that provide operators an opportunity to improve margins without alienating their guests. If a smart wine list is a combination of well-known brands and wine discoveries, it’s the novelties that offer the best chance for margins that warm the accountants’ hearts.
While most restaurant and bar owners and management typically find a strict formula for pricing and margins to be the most rational system, many smart operators adopt a more flexible, savvy approach.
Stephen Gitto, sommelier at Charlie Gitto’s “On the Hill” in St. Louis, Mo., is one operator who doesn’t believe in the cookie-cutter markup system. “I am not a fan of standard markups,” he says, “or multiplying the wholesale price by some ‘x’ factor.” He takes a much more nuanced approach, and talks about pricing being a complicated reflection of influences such as the wine’s popularity, availability, quality and market pricing.
Gitto says he considers the following questions in developing his pricing: Who made it? Where is it from? What are other people selling it and similar wines for?
Ultimately, Gitto describes his target price for any wine as “driven by customer perception and satisfaction.”
For most operators, the wine-by-the-glass program exists to improve a restaurant’s margins. Of course, there are lots of other reasons to merchandise glasses of wine, but the overall gross percentages of the beverage program ought to improve in the presence of a vibrant glass selection.
2941’s Morgan believes that value is critical in a by-glass program. “A glass of wine is often the first thing a customer tastes in the restaurant,” she explains, “so it is crucial to make a good impression.” She points out that “profitability can still be a challenge, especially when you do club service instead of serving pre-poured [and properly measured] glasses.”
Jasper’s in Kansas City offers a six-ounce pre-poured glass, and simply divides the cost of a bottle by four. Morgan also pours six ounces at 2941. She divides the bottle sale price by four for bottles that cost less than $10 (and rounds down). Bottles that cost more than $10 are marked up at a slightly lower percentage (as noted above), so she adds $5 to the bottle price before dividing by four to determine the glass price.
Legal Sea Foods utilizes a six-ounce glass pour. “I personally don’t like the four- and five-ounce pours I see out there,” says Block, “and the way the restaurants think they’re being cute in trying to disguise it. We want to be perceived as offering value and not being skimpy on the pour.”
Flights are popular; most restaurants interviewed for this article show robust acceptance in their wine flight sales. “Flights are successful because we promote them and list them right on our menus in front,” notes Block. “We usually offer an interesting array of choices.” Indeed, he notes that all Legal restaurants have at least four flights available at all times, as well as spirits flights.
Block’s experience is that while there is some resistance to high prices on the wine and glass lists, guests are more tolerant of such pricing on flights of small-portion glasses. In fact, many restaurateurs find that they can sell these flights at higher margins than typical glasses or bottles.
Jasper’s Mirabile utilizes flights, as well as two-ounce pours and quartinos, all priced at the same gross percentage margin. For many operators, the ability to create a single margin and to stick to it offers fair value to customers and provides assurance to the number crunchers.
It may be more advantageous, however, to focus upon each and every price, category and size in order to maximize profits for the house without alienating customers. The goal should be to create the greatest number of customers who are not only satisfied but delighted, customers who have been made to feel utterly welcomed and embraced.
As Block says, “I’d rather sell the wine at a fair price, actually at a relatively low price, and put the dollars in the register rather than create a monument where everything is marked up to a certain percentage and anyone who wants a particular wine is going to have to pay a lot more for it than they would at a retail store.”
Each of these restaurateurs is expanding their serving choices, whether adding to the glass offerings or adding new sizes and formats, such as quartinos. Just as this sort of expansion entails more training for servers, bartenders and other floor personnel, it requires re-thinking pricing and margin strategies by management.
For most managers, pricing formulas may be the best way to assure consistency and fiscal responsibility. Stringent formulas may leave a few cents or even dollars unsolicited from your customers, however. By expanding pricing strategy options, those few cents can quickly add up—sometimes exponentially.
Perhaps that’s the point: Today’s environment demands a move from thinking in terms of formula to thinking in terms of strategy for the sake of the overall guest experience and the overall success of the wine program. In other words, institute some systems (note the plural) that are responsive to the fiscal requirements of the operation, but that also are reasonable in their demands of the guest.
In pricing, as with every other aspect of the restaurant business, your job just got more complicated. l
Doug Frost is a Kansas City-based wine and spirits writer and educator. He is one of only three people in the world who is both a Master Sommelier and Master of Wine.
“I am not a fan of standard markups…or multiplying the wholesale price by
some ‘x’ factor.”
-Stephen Gitto, sommelier
Charlie Gitto’s “On the Hill”