The other day, my colleague James Laube pushed a bottle of California PInot Noir over to my side of the tasting room table for me to try. I did, and I liked it. It’s exactly the kind of wine I would like to drink often in a restaurant. Then I looked at the price—$52. On most restaurant lists, that would be at least $100.
Word is, restaurants are having trouble selling wines that are priced much beyond $50. I know I think twice about spending more than that. It has to be a special occasion or a special wine to get me to part with triple digits for a bottle these days.
That’s a big part of the slowdown on high-priced wines. The retail price is bad enough. Given the multiple price jumps you see on most wine lists, those wines seem even more out of line when we are thinking about what to drink with dinner.
It doesn’t have to be that way. The answer, in my view, is cost-plus pricing in restaurants, as opposed to a percentage markup. One restaurateur who adopted the cost-plus system many years ago went to it when he realized that it was dollars, not percentages, that made his bottom line healthier. So he figured out how much he wanted to earn from wine in a year, to pay for the cost of inventory, glasses, etc., plus a reasonable profit. He divided that total by the number of bottles he expected to sell, and came up with an average dollar markup, which he applied to every bottle on his wine list. As I recall, it was something like $25.
The result was a list that made the most expensive wines the best values. His customers drank better, he sold more wine than ever, and ended up with his most profitable wine year ever. As a result, he invested more money in a bigger cellar. Everyone benefited.
We wine drinkers love restaurant lists that offer us plenty of options. We hate it when we open a list and find maybe one or two that meet our criteria for style and quality. And in this economy, it’s especially frustrating when the only wines we really want to drink fall outside our price range.
The problem is that most restaurants still set their prices by multiplying their costs by a fixed percentage. The industry standard is a 200 percent markup, which effectively triples their investment. Let’s say Wine A wholesales for $14. It would cost $21 at retail and $42 on a typical wine list. Some lists might price it as high as $50 or $60. But it also makes higher-priced wines even scarier to consider.
That’s what drives some consumers (including me) to nurse a glass of wine sometimes instead of always sharing a bottle with dinner. Many restaurateurs might say, great, my percentage markup by the glass is even more than my percentage by the bottle. But that doesn’t sound like a great deal for a restaurant, which might make $7 or $8 on a glass of wine when it could have made $25 or $30 on a cost-plus markup on a bottle. Not to mention the server’s tip, which would be higher for the bottle.
That $45 wine represents a markup of $30 for a wine we could buy at retail for $22.50. Now, there are some very nice wines in that price range. But what if the same list had that $52 Pinot Noir on it? Let’s call it Wine B. Its wholesale price of $38 plus $25 makes it $63 on the wine list.
For comparison purposes, let’s see what happens to a really special bottle, which wholesales for $65 and sells for $99 at retail. Call it Wine C.
So let’s see. You’re looking at a cost-plus wine list. Wine A is $42. You know it’s about 20 bucks in the store. Wine B is $63, and you know it’s about $50 in the store. Wine C is $90, even less than the retail price!
Which one are you going to buy? Maybe you won’t spend $90, but it sure is an incentive to pony up and make it a special evening. (By the way, I don’t think any consumers would object too strenuously if a restaurant simply sold the more expensive wines at the retail price when the price passes the tipping point.)
What’s in it for the restaurant? Does making customers happy matter? I sure hope so.
David W Voss — elkhorn, Wi — February 4, 2010 6:10pm ET
James R Biddle — Dayton, OH — February 4, 2010 6:20pm ET
Brian Clouse — Philly — February 4, 2010 7:25pm ET
Russell Quong — Sunnyvale, CA, USA — February 4, 2010 9:03pm ET
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Harvey Steiman — San Francisco, CA — February 5, 2010 11:15am ET
Loren Lingenfelter — Danville, CA — February 5, 2010 2:15pm ET
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Stephen Plunkett — Scottsdale, AZ, USA — February 5, 2010 5:06pm ET
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John B Vlahos — Cupertino Ca. — February 5, 2010 6:09pm ET
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Carl Tacey — Bay City, MI — February 7, 2010 2:46pm ET
Richard — St. Louis — February 7, 2010 3:36pm ET
Charles P Daniels — New York, NY — February 7, 2010 6:25pm ET
Paul-kendall De Lancellotti — newberg,oregon — February 7, 2010 11:25pm ET
Todd Shreve — Cincinnati, OH — February 8, 2010 1:36am ET
Harvey Steiman — San Francisco, CA — February 8, 2010 2:17am ET
Harvey Steiman — San Francisco, CA — February 8, 2010 2:20am ET
Todd Shreve — Cincinnati, OH — February 8, 2010 4:00am ET
Harvey Steiman — San Francisco, CA — February 8, 2010 10:40am ET
Brian Clouse — Philly — February 8, 2010 2:19pm ET
Andrew J Walter — Sacramento, CA — February 8, 2010 2:23pm ET
Henry Kranzler — West Hartford, CT USA — February 8, 2010 9:59pm ET
John Boccabella — Orinda CA — February 9, 2010 10:41am ET
Jason Adams — Florida — February 27, 2010 12:52pm ET
Harvey Steiman — San Francisco, CA — March 1, 2010 2:18pm ET
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