Good Grape Wine Company

February 19 2006

Wine in Restaurants--Dante’s 8th Circle

Wine at retail is usually marked-up 30-50%.  In some cases where significant buying leverage can be had, or the retailer is a giant (like Sam’s Club) the mark-up is lower and the consumer can find a bargain. 

Wine On-Premise (at a restaurant or a bar) is usually marked up 300%  To use a familiar frame of reference--furniture is also usually marked up 300%.  Why this is, I’m not sure.  But, nonetheless, a good gauge for wine at a restaurant is to see how much it costs per glass because 8 times out of 10 the cost of a glass of wine for you will equal the buying cost of the bottle for the restaurant.

So, last night while having a quartino of Pinot Noir for $11.50 (three servings from a bottle) instead of 4 for a glass, I wanted to do some quick math and look at a topic near and dear to my heart, restaurant prices for wine.

When I came home I checked the retail price of the bottle for which I just paid $11.50 for a quartino and it was selling for $45 a bottle.  It was selling for $9.50 a glass.

Come to find out it can be found online from $16.99 to $19.99 a bottle.  This isn’t bad.  It means that by restaurant standards, I wasn’t getting completely robbed. 

Let’s assume that their buying price for the wine was $12.00 a bottle at wholesale cost--this maps loosely to a $18 retail price.  By virtue of this, I paid for the bottle (save for .50 cents), but the larger deal was had if you bought the bottle that under the 300% mark-up model would have made the bottle $48, and not the relative bargain it was at $45.  Or, by the glass at $9.50 which was under the wholesale cost.

Now, I’m being relatively generous in my description of all of this because at the end of the day I really think this is all bullshit.  Wine in restaurants is ripe for a Freakonomics treatment whereby the fallacy of this pricing model ceases to stop making any sense.

To wit, instead of buying a bottle for $45, my wife and I each bought a quartino--her’s as $10.50, mine was $11.50 and then I subsequently bought another glass of a different wine for $9.00.  So, if you assume that a bottle is 4 glasses and a quartino is 1.5 glasses, then we consumed a bottle of wine.  But, the total cost for that pieced out bottle of wine was $31 dollars.

And, what I really wanted to do was have a bottle that we both could enjoy ... but there’s a buying barrier to overly expensive wine. 

Now, the unexplored topic here is for people that aren’t nearly as into wine as I am--of which there are a great deal.  I would like for a restaurant to drop prices to normal mark-up levels for a month.
Wine ranconteur and brainchild behind Trader Joe’s has suggested the same in a Wine Business Monthly article:

Franziawonders why other wineries don’t follow his lead and introducelower-cost wines, and he said even wine patriarch (and relative) Ernest Gallo complained that he’s selling wines too cheaply. "They’re afraid consumers will get used to the prices," said Franzia.

Franziais leading a virtual crusade for less expensive wines. Few restaurantsfeature his wines, and he fumes that they won’t sell wines at lowmarkups. "If they sold wine cheaper, everyone’s food would tastebetter," he pointed out. "Until they do, America is never going to be awine-drinking nation."

He doesn’t add that he’d be a likely beneficiary if the restaurants more sold inexpensive wine.

Franziachallenges restaurants to sell decent wines at $10 per bottle, and hasbeen seeking a major restaurant chain to partner with his company muchas Trader Joe’s did at retail. "The Charles Shaw project made TraderJoe’s a destination retailer for wine; a restaurant chain should beable to do the same," he said

Sofar, however, Franzia has been unsuccessful in signing up a majorrestaurant chain for his wines, a process Gallo and some otherproducers have done well.

Healso seems mystified that more groceries don’t emulate Trader Joe’s."How can any major grocery chain not have a wine that competes with TwoBuck Chuck?," he asked.

I am hard pressed to believe that at the end of the month, with some suggestive marketing wrapped around the pricing action that a restaurant wouldn’t see equal to or significantly greater wine sales, excellent word of mouth and longer-term increased sales.

Econ 101 and market economics whereby we allocate our resources in the most efficient means possible tells me this has to be the case. 

But, alas, I suspect that the coming wine boom with Generation Y will soon change these practices.  Our younger brethern haven’t gotten to the point where they enjoy a nice dinner over the club, but when they do you’re either going to see a hasty increase in corkage programs or a steady retreat in on-premise pricing.  Let’s hope it’s actually both. 

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