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Wine Markup at a Restaurant



Let's start this conversation with the basic understanding that ALL restaurants have to mark up the food they get in. This is the only way they can survive. They have rent to pay, licensing fees to pay, the salary of their chefs, waiters and other staff members to pay. They had to buy all the equipment for the kitchen, the linens for the tables, the plethora of inventory, all in the hopes that over time enough people will come in and buy things to get them their money back. Only then can they even start to turn a profit! No wonder that nine out of ten restaurants fail in the first year of business.

So let's take a really basic restaurant - McDonalds. They put a lot of money into building a new McDonalds. They then hope that enough people will come in over time to eventually pay back that construction amount, and to pay all the staff salaries, food costs and so on. So they HAVE to charge more than "what they pay for a burger" to stay in business. So that's a given #1.

Next, they don't just say "OK we will charge 20% more on every item we sell and that will cover our costs". It doesn't work like that. Let's look at hamburgers. It costs you $3/pound in your local store to get hamburger, so let's say their burger is a third of a pound. So that would cost you 99 cents just for the raw meat. We can assume they get a discount for buying in bulk - but then they have to pay all the other costs involved in serving you - the rent, utilities, wages, etc. Don't forget the lettuce, pickles, etc!! I would have to bet it gets to be almost 99 cents in "total costs" for that burger by the time they hand it to you. How could they possibly only charge you 99 cents for it?

The answer is that they BALANCE their prices. They assume you'll find a 99 cent burger to be a great deal and can lure you in with it. Then they can make their profit with other items you buy while you're there. For example, it costs them maybe 3 cents (I'm guessing here, but I've been told this by several people who worked for McDonalds) for them to make a full large fountain drink of soda. There is hardly any syrup in there and the syrup is VERY cheap. They just add in water and fizz. So they then charge you say $1.50 for that. That is PURE PROFIT. On one hand they're gouging you! But on the other hand they're trying to price things so you feel they're "fairly priced" and so that - across your purchase - they make money to stay in business.

If someone came in and just bought burgers, they would go out of business. If someone came in and just bought sodas, they would be flush with money. So they try to balance things based on consumer buying patterns.

Sure they could charge $6 for burgers and 10 cents for sodas! But that would seem really odd to consumers, based on how they buy things elsewhere, and a restaurant always wants to seem "normal" if not "a really good deal". If they did charge $6 for burgers at a McDonalds they'd probably lose their market, even though in essence it ends up being the same total price for the meal. It's all about consumer perception.

Ridge Montebello So let's now take this same concept over to the fine restaurant world. A fine restaurant has even MORE costs than most restaurants. They have much higher salaries for their staff and chefs. They have finer equipment in the kitchen, linen tablecloths, Riedel glassware that breaks fairly often, nice china plates that also break. They bring in very expensive raw materials that go bad quickly, so they have to throw away a fair amount based on who orders what on a given day. Their basic cost of creating a steak could be $20 or more. Fresh ingredients cost SO much more than frozen / cheap ones - as anybody who shops their produce area of their supermarket knows!

So many restaurants run at barely break even for the food items they serve. They wouldn't get anybody coming in to them if they charged $40 for a steak dinner and their quality level was the same as other nearby restaurants who charged $20 for that same dinner. People look at the menu and make a decision. They do NOT usually look at the wine list and make a decision about eating at the restaurant based on that.

So - just like at McDonalds - the restaurant balances out their income in the drink side. At McDonalds they pay 3 cents for a full soda and charge 50 times that much to the end consumer. At a restaurant they buy a bottle for $X. It doesn't just sit in a box though - they have to actually store it properly. So there are some costs involved in the refrigeration unit and such to store the bottle for however many years. Also there is the inventory cost - they had to shell out tens of thousands of dollars to have this inventory on hand in the hopes that someday someone would buy those bottles. Then, when a wine bottle is brought up to the table, they typically charge 1.5 to 2 times the purchase price to you to drink it. Compared with soda, this is a HUGE bargain! But because of consumer perception, this can SEEM like a bad deal, because we see the actual bottle the wine is brought up in :) So we, mentally, equate that bottle with the bottle we have at home on our shelf.

A question is, when we're served a pile of corn, why don't we mentally equate that with a pile of corn from a can on our shelf at home? Why don't we say "That is a half of can of corn I bought for 50 cents - so they should have charged me 25 cents for this serving"? We make that jugement with wine - but we understand why other items are marked up. I'm sure *some* of the other food items you consume are marked up 1.5 to 2 times the amount, to cover their costs. It's just more "obvious" with wine because that is a discreet item, explicitly shown on a list and explicitly presented in the original container :)

I have several pages in this area which describe actual markups at restaurants of wine bottles. Keep all of the above in mind as you look through them!

Wine at Restaurant Tips

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