Tuesday, January 12, 2010

Won't someone think of the restaurants?!?

In my travels, the one tier of wine sales that catches more grief than any other, are the restaurants. They are constantly taken to task for their unfair wine markups and margins. While every layer gets their cut along the way, some restaurants sell their wine for 2, sometimes 3 times what they pay.

It is in my best interest for restaurants to sell wine on as thin a margin as possible: I sell mid-high end wines that can get slaughtered on wine lists at these markups. Yet, I completely defend restaurateurs wine pricing!

This is controversial. Many in this business believe that restaurants are the villains, and are essentially getting rich off of markups, with no real investment in the chain of distribution. Many of these critics have never spent time looking at Restaurant P & L statements. Ironically, everyone knows how often restaurants fail, yet people complain when the restaurant's wine prices are too high.
Let's put a few things in perspective: of the 3 areas for alcohol sales: wine beer and liquor, wine is by far the least profitable. Your $9 margarita may cost $1 to make, including labor. For an upscale dining establishment to make any profit off food sales is a rarity. It is the role of alcohol to make money. The better the restaurant, the more hours are invested in the preparation of the food. Most upscale establishments employ more than a dozen back of the house chefs doing nothing but cutting vegetables, making sauce, butchering meat, ordering product. These are chefs that never touch your plate, just support staff that have already worked 8+ and are home before you even set foot in the door. The average cost for flatware and stems for a table of 4 can easily eclipse $1000, needing to be replaced no less than once a year. Rent, utilities, linens, etc, all could make your Filet Mignon $80 + if you didn't have wine to help offset these ludicrous menu prices.
Your Sommelier's time doesn't come cheap either. In addition to hours each day, tasting, ordering inventorying, staff training and rewriting wine lists, then there is the time on the floor. Without this investment, the wine list wouldn't be what it is. All of the time behind the scenes results in the enhancement of your money and time in the restaurant. We all know how much a knowledgeable wine staff can add to the enjoyment of your evening.
Once in a while, you will come across a great restaurant that charges more modest markups and have deep cellars. How do they do it? 2 ways-Capital and volume. The more capital you have accumulated, the more you can buffer the everyday expenditures that can close many competitors, by keeping prices lower, this may help your volume, and continue the cycle. This is certainly to be applauded, but it is impossible for many restaurateurs to achieve this in a brief amount of time. these establishments are often the argument from the wine elites, but they are actually the exception that proves the rule. While I defend restaurants, here are a few cautionary bits I'll give to them as a word of warning:
  • Do not blindly markup 3x and then get lazy with staff training, stems or most importantly, wine list selections-NO GROCERY STORE WINES
  • Always sacrifice profitability for velocity. The faster you sell your wine, the more $ you make. Remember, you put dollars in the bank, not margins.
  • If you are profitable on your food, reign in your margins, don't get greedy
  • Great wine makes your food better. People will like your food more with the addition of the right wines, it should be your goal to sell every table wine, even though your other bar items may yield higher margins.
And my suggestions for diners sensitive to the best use of the wine buying dollar, here are some tips:
  • Buy wine by the bottle, glass pours are sold at a higher markup to justify the potential loss, you pay not for a glass, but often a glass and a half. Too much wine? ask for half bottle selections
  • ask the Sommelier to recommend something in your price range-They will always pick the best wine for the money, never be afraid to set a $ limit on what you want to spend.
  • Understand that the Sommelier knows more than you do, listen to what they have to say, and don't try to trick them into telling you that you are a smart consumer for drinking Jordan.
  • Enjoy the experience. You have no idea how much your paper towels cost target, and if you did, you wouldn't want to shop there.


  1. Great commentary on the business. It's hard for the general public to understand everything it takes to get that meal--and wine--on their table. Thanks for help shedding some light!

  2. Enjoyed your blog post and our talk on this subject. Look forward to debating you soon. Cheers.

  3. There are successful exceptions, such as Molinari's in Mentor, OH, that sell wine at retail (from their own retail collection) with a small corkage fee, in addition to fabulous cuisine.