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Margin vs. Volume

Posted on  | April 13, 2015   Bookmark and Share
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The Classic See-Saw Dynamic of Restaurant Wine Pricing Deserves to be Re-Examined


Every evening, is it any wonder that half the tables at Toronto’s Le Paradis Bistro on any night have wine on them? Many of the diners don’t even order it. Instead, says manager Jascha Baraness, “they ask us what they should have. And they do that because they trust us to bring them something that is quality and not expensive.”

And why not? The markup on the wines on the Le Paradis list averages two times wholesale, and the restaurant has used that multiple for much of its 28-year existence. Yes, some wines are marked up more than that, but Le Paradis is famous among consumers and the trade for its wine pricing. Many of the wines on the list cost $40 or less, impressive given Ontario’s taxes and highly regulated distribution system.

Is it any wonder that half the tables at Le Paradis on any night are drinking wine?

“Our business model is based on volume,” says Baraness, who recently returned to Le Paradis after a seven-year absence. “That’s why our food is priced in line with our wine. We want our customers to be able to have dinner for two with a glass of wine each for $35 a person.”

Is this almost three-decades-long practice a fluke, or can other restaurants change the way they price wine and make more money in the process? Or is traditional restaurant wine pricing, the three to four times wholesale that has endured for what seems like forever, with us—for better or worse?

The answer may not be what you think.

“This is real ancient history, and usually imposed by people who are afraid to price more fairly because they’re afraid of the bean counters,” says Dallas wine consultant Diane Teitelbaum, who has been working with restaurants and wine pricing for more than 30 years. “But it’s starting to move away from that theory, and it seems that more and more restaurants are getting the message. You can make money charging less than three and four times.”

Price history

Restaurant wine pricing has a long and infamous history—$10 for a glass of house wine that  the distributor charges a couple of bucks for, or $25 for a bottle of $6 wholesale White Zinfandel. So it shouldn’t be surprising that a CNN survey a couple of years ago claimed that markups of as much as 500% wasn’t unusual, or that a Cornell University report around the same time found that these too-high wine prices hurt sales.

That’s because, for most restaurants, the goal is not volume, but profit, says James Tidwell, MS CWE, the master sommelier and beverage manager at the Four Seasons Resort and Club in suburban Dallas. Use too-low pricing over time and too many loss leaders, he says,  and the law of diminishing returns kicks in. Low pricing becomes permanent, and margin never returns.

Still, for every restaurant that does wine the right way—fair pricing combined with quality glassware and trained employees—there are the rest, which see wine as inventory that needs to be expensed instead of an asset that needs to be sold. Restaurant bosses would never treat a chicken breast the way so many treat a bottle of wine, because no one would eat an overpriced piece of poor quality chicken that has gone off. But wine? How often does it seem that the attitude is: “How much can we mark that bottle up, and I don’t care if we leave it open on the bar for two days to get rid of the entire bottle?”

“There is sort of this infrequently spoken gripe from consumers: ’Why are we paying these kinds of markups?’” says Stan Frankenthaler, chief officer of food, beverage and strategic supply for CraftWorks, which operates about 200 restaurants under 11 brands, including the Old Chicago and Rock Bottom concepts. “Are you delivering a special experience with wine to the guest, or is it the same experience they can have at home? Because then they are going to be cynical about your wine program.”

At the most basic level, cutting wine prices sells more wine, though many people don’t want to believe this, says Lyle Beaugard, a certified sommelier and wine consultant in suburban Toronto.

“Consumers know prices,” he says, “and when you charge $50 for a $15 wine, they know it and they think you’re too greedy. So they don’t buy anything, and you’ve lost a sale.”

Teitelbaum’s theory: “You can sell a $100 bottle once a day, or you can sell $20 bottles of wine all day and all night. It’s your choice.” Mark wine up two-and-a-half times, she says, and you reduce spoilage; increase turnover, which will please the distributor who may then be willing to offer better deals or more interesting wine; and increase cash flow from something that may have barely flowed before.

What’s the next step?

But the discussion can become even more sophisticated than that, says Frankenthaler, whose company’s wine program at its Chop House and Gordon Biersch concepts is about more than just margins. It’s about value vs. cost, something that not enough operators and owners understand. They see wine pricing from the cost perspective, he says, and don’t see how including value can boost a wine program without focusing solely on margins.

“But value doesn’t mean rock bottom pricing,” he says. “It’s the best equation. It’s like coffee. Why do people pay $3 for a cup of coffee when they can drink it at home for free? You have to give them a quality product that also gives them something different than they can get at home.”

In other words, treat your wine program as part of the overall customer experience, and not as something that is separate from the rest of the restaurant. After all, who complains about the price of restaurant coffee?



Price wine using the same approach that you price food, and not differently just because it’s wine. Markups like 2½ times wholesale make more sense for most of the wines on the list, just as a $5 appetizer makes more sense than a $10 one.

Consider pricing tiers, like 4 times wholesale, 2½ and 2, based on quality and availability. If the wine is difficult to find, for instance, or offers exceptional value, the 4 times markup is not outrageous. “Let the higher priced wines make up the difference in margin,” Frankenthaler says.

Look for unique wines for the highest pricing tier. Again, it’s a question of availability, he says. If you can offer someone something they can’t get anywhere else, price is less of a barrier to purchase.

This approach, say those who have tried it, is more work than letting the distributor pick the wine (while throwing in free glasses and table toppers), but the  payoff is worth the effort. The results, as Le Paradis’ history can attest, can be more profitable than imaginable.

And can make customers happier than they thought they could be.


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