How Much Do Restaurants Mark Up Their Wines?
Last weekend I enjoyed dinner with my wife and a friend of ours at a tavern in Philadelphia. We started at the bar waiting for our table and ordered two draft beers and one glass of wine. The bill was over $35. Ouch!
We sat down and ordered a bottle of Malbec, a purple grape variety with dark inky color and big tannins. I have typically found Malbecs to be great values, especially the ones coming from Argentina like this one.
One of the reasons I purchased the Malbec was because at $63, it was one of the lowest priced bottles on the wine list. For a tavern, I was a little surprised but hey, we were out for a fun night of dining with a friend.
For the record, the wine was delicious. So delicious I wanted to purchase more of it for home consumption. In Pennsylvania, restaurants have to purchase the wine from the state liquor stores, so individuals like me can order any wine I find on a restaurants wine list.
I did a quick search on the Internet for the same bottle of Malbec we enjoyed at this tavern. Same wine, same year. I was shocked when I saw the price of the wine I found on the Internet – $13.00. That makes the $63 price I paid at the tavern cost almost FIVE times as much as the retail price. Outrageous!
I know restaurants are charging more than the one-time markup I remember from years ago when a $10 wholesale bottle of wine sold in a restaurant for $20. Those were the days.
Today’s Restaurant Markups
I decided to do some research before getting too upset over this 5-time markup. Maybe I’m just way behind the times and this is an industry standard. I did a search for “Wine Markups in Restaurants” and found the following results:
According to an article by Gretchen Roberts called The Lowdown on Restaurant Markups in the WineEnthusiast,
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.
OK, that’s more than I would like to pay but 2 1/2 – 3 times WHOLESALE cost, not RETAIL cost. Of course wholesale prices vary from state to state, and state laws and taxes can affect those prices.
I also learned in this article, position on the wine list matters.
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.
Following my wine experience, even if the restaurant paid retail for the Malbec I ordered, using the 2 1/2 – 3 times ratio, I should have expected to pay $32.50 – $39.00. That’s more like it.
Why The High Markups?
According to Anna Bernasek in her Newsweek Business article,
Restaurants say they mark up wine because they add value to the drinking experience. First, they take time to select a wine list to go with your dinner.
They may also provide advice on what wine pairs best with menu items and, for those who want it, some education about the wine itself. Some provide fine glassware, and of course they all open the bottle and pour it for you.
But is all that really worth an additional $53 for your bottle of Ferrari-Carano? And don’t forget that you’re paying a tip on that extra charge.
Restaurant Costs Factor Into the Equation
Depending on what state you live in, a restaurant will pay a percentage of the markup for a state tax “or penalty” for alcohol consumed at the point of purchase. According to restaurant.com, a state looks at it as a way to
discourage people from drinking multiple glasses while out, but also provides a significant source of revenue for the state.
The actual amount of wine excise tax varies greatly from state to state. As the map on TaxFoundation.org shows, the highest rate in 2014 was Kentucky at $3.56 per gallon to a low of just $0.11 in Louisiana.
The size of a restaurant can also affect the size of the markup. Large chain restaurants can buy their liquor in bulk and get wholesale prices while smaller restaurants who may purchase only odd lots of wine don’t receive the discount.
Also, there’s a good chance a smaller restaurants’ operational cost per customer is higher, so they have to pass on these extra costs by marking up both the food and the wine prices.
Should You Buy Wine By the Glass or By the Bottle?
I personally like to buy by the bottle. Depending on the pour a restaurant offers, which can vary from 4 glasses per bottle to 6 glasses per bottle, and the price they charge, I usually find a bottle is the way to go.
For example, a 750 ml bottle of wine equals 25.36 ounces so that means if the restaurant is getting 4 glasses per bottle, each glass offers 6.34 ounces. That’s a very fair pour and one I would be thrilled with.
Unfortunately, I find many restaurants using the 6 pours per bottle or 4.23 ounces per glass which in my opinion does not justify the $10 to $17 per glass they charge. At an average $14 per glass, we are talking about $3.31 per ounce.
If a restaurant is charging $14 per glass and gets 6 pours from that bottle, we are talking about $84 per bottle of wine. That’d better be an excellent bottle of wine they are serving. Now if they are serving you 4 pours per bottle, we now are talking about a $56 bottle of wine. A huge difference.
How Restaurants Can Sell More Wine
In my opinion, I think restaurants would do better by pricing wine with lower markups (of course I do) for a few reasons:
I am more likely to go back to a restaurant where I feel I’m being charged a fair value for the wine.
I am definitely not going back to the tavern I just went to, where they are marking up the wine 500%.
I think more people are willing to buy a bottle of wine instead of a glass or two of wine if the prices are reasonable.
I’m also more likely to buy a second bottle of wine if the price feel right.
If a restaurant marks up a $50 bottle of wine to $200 on their wine list, it may sit there for a while before someone buys it. If they have a case of it in their cellar, this is a substantial investment not making them any money.
If they mark up that same $50 bottle of wine to $125, they are more likely to sell it in less time, freeing up capital for more wine or other expenses and still generating a $75 profit. The same goes for more moderately priced wines.
A $13 bottle of wine marked up to $43 (forget $63) is not going to sell as quickly as a $30 bottle and the restaurant is still making $17 per bottle. If you sell two, three or four times as many bottles at this lower price, it will more than make up the difference of selling fewer at the higher price.
How to Get the Best Value For the Buck
Assumptions – You are not on an expense account and you have not just won a big lottery.
All the experts seem to agree the more you spend on a bottle of wine, the better the value. As described above, the cheaper the wine, the higher the markup. So if you pay more for a wine, you should be getting a better wine with less markup giving you a better value.
Something I didn’t know and just learned is don’t buy the “second-least expensive wine on the list.”
Again, according to the WineEnthusiast,
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.
Stay away from the most popular wine brands like Clos Du Bois, Beringer, La Crema and Kendall Jackson. Not that there’s anything wrong with these brands, they are all good wines but they always get big markups because they are popular, people recognize them by name and restaurants know they will sell.
Also try some different grape varietals. Restaurants charge more for the chardonnay, merlot and cabernet sauvignon because they are so popular. I often find great buys on a wine list with less well know grape varietals like Malbec (but not at the restaurant this weekend), Tempranillo and Mourvedre.
The more you learn about these lesser known wines and try them at home, you’ll be surprised when you see them on a wine list as a great value.
If you are at a restaurant with a sommelier, don’t be afraid to give them a dollar amount and ask for their best choice. They are the experts and know all these different wine varietals and it’s their job to find you a great wine to fit your budget and be right with your food choices.
Do Your Homework
This may be a bit much, but if you know what restaurant you are going to and they have their wine list on their web site, go check it out. Figure out what their markup is by looking up some of the wines on their list and comparing prices.
I have never done this but I know I would not have chosen the restaurant we went to if I did, and will more likely do a little homework in the future for restaurants I’m not familiar with.
This is also a great way to find great wines to buy retail. If you know a restaurant has a great sommelier and has put together a great wine list and can get access to it, you can use it to learn about new and interesting wines to purchase in a wine store.
Use an App
I have an app called Corkz that let’s me keep track of my own wines that I purchase and hold on to for a few years as they get better, but I can look up just about any wine on the planet and get a rating plus the average cost. This would be a great way to learn about potential wines I want to purchase in a restaurant and to see how much they are marking it up.
Raisinable.com – I read about this upcoming app in one of the above articles. It’s not available yet but when it is, I’m going to purchase it. Here’s how it works:
Raisinable compares the prices of wines in a restaurant to the average retail prices for the same wines – so at a glance you can see how much bang you’re getting for your buck for each bottle, conveniently ordered in the same way as the restaurant’s wine list. No fuss, no fancy flim-flam, just clear pricing in a free mobile app.
Smart Phones – you really don’t need an app to see that the $63 of Malbec only costs $13 retail. You can just do a search on your smart phone. The problem with this method is you are already sitting down at the restaurant and you can be sure if they are marking up the Malbec by this much, there’s a good chance they are doing the same with the others.
An alternative choice is to find local BYOB (Bring Your Own Booze – Bring Your Own Bottle – Bring Your Own Beverage) restaurants that allow you to bring your own bottle(s) of wine to the establishment. This usually happens when a restaurant doesn’t have a liquor license or is waiting to get one but in some states like Utah, all restaurants allow you to bring your own wine even if they have a license.
In these restaurants, you are often charged a “corkage fee” that can range from $5 per bottle up to $25 per bottle. I’ve even read about some high end restaurants “like Per Se in New York or the French Laundry in California’s Napa Valley, that surcharge will set you back $150 or so.”
Can you imagine that?
The question I have for restaurants charging 400% – 500% markups to survive is how do these BYOB restaurants make it work without selling liquor? It’s not like they are charging more for their food than other restaurants selling liquor.
Dining out is a luxury. You don’t have to go out for dinner or order wine when you do, but for many of us, wine is an important part of the experience. I’m all for restaurants making a profit and taking care of their employees but I also believe they have to respect their customers.
I don’t go out these days as much as I did before kids and may be a little naive about current pricing practices. I’m not even sure if this new knowledge will change my dining habits in the future but I know one thing. The tavern I went to last weekend has lost me and my friends as customers for life.