Restaurant Markups: the most expensive $10 bottle you’ll ever buy

A prime example of an exorbitant restaurant markup

The most expensive $10 bottle you’ll ever drink. But just look at that atmosphere!

Last week I talked about wine night being one of the best times to go enjoy a bottle of wine at a restaurant. I think I’ll be changing that statement to “wine night should be the only time to go enjoy a bottle of wine at a restaurant.” I had a rude awakening this past weekend while in DC, where I went to a wine bar for dinner before a show. With the price of a glass of wine, it makes more sense to get a bottle to split. Looking over the wine list, we saw prices ranging from $35 – 500. We didn’t want to worry too much about the price, but we obviously weren’t going to get something for $100 when we knew that wine was generally marked up to double the price you would find in a retail store.

Double ha. That’s funny. I’m laughing now, because as I learned this weekend, wine is actually marked up 2 ½ to 3 times the retail price. But now I’m laughing even harder because the bottle we got was over 4 times the price I could’ve gotten in a store. Yep, I drank a $10 bottle of Sangiovese from Tuscany, screw-top and all, for $45.

So before you go telling me that I should’ve known better and looked up that bottle on my phone first or gone with a wine I was familiar with, I’ll tell you why I didn’t. First of all, even with the incredible amount of knowledge we can tap into on our smartphones, I don’t think that we need to look up every decision we choose to make. I wasn’t going to pull out my iPhone in the middle of a restaurant. I’d rather take the risk than look rude. Secondly, I enjoy trying new things, so why would I go for a safe choice of already being familiar with the wine?

So despite the original price of the wine, which I looked up the next day using my Delectable app, it was actually really good! I would’ve guessed an original price of $15 – 25. But whether or not it was good is not the issue here. The issue here is that this wine was literally marked up 4 ½ times the price I could get in the store. Something needs to change here.

I know what you’re thinking, you’re paying for the atmosphere! Yeah, yeah, yeah, I know. But is the atmosphere really worth $35? No, I would say it isn’t, especially when you know that your food has an “atmosphere tax” too. Instead, what this is is a restaurant owner knowingly and willfully taking advantage of the consumer – a consumer that trusts that whoever is in charge of making the wine list is knowledgeable enough to choose good quality wines and charge fairly for them. It is a lot less daunting for someone who knows nothing about wine to order something at a restaurant rather than go into a wine shop for the first time, because there is an immediate trust that everything available will be pretty good.

I won’t be calling out the restaurant I visited because that would be even more unfair. Although I don’t think that their pricing is morally right, I can’t blame them because it is such a common practice. For me to name every restaurant that upcharges their wines exorbitantly would take me years, and still, nothing would change. Instead, it’s sadly up to us consumers to be more knowledgeable and careful when it comes to ordering a bottle of wine. So here are some tips to help you make the right decision when it comes to ordering wine:

Don’t order the second-cheapest bottle: If you’re looking for a fair deal, don’t make this mistake. The cheapest bottles are generally marked up the most. So why do I say the second-cheapest bottle? That’s because people often steer clear of the least expensive bottle in an attempt to not look cheap. Order something mid-list if you don’t want to break the bank, but order more expensive bottles if you’re looking for the best value.

Look for something unusual: Wines that are less likely to sell will be marked up the least. See a grape you’ve never heard of before, or a blend that sounds somewhat ludicrous? Order that one! You’ll generally be getting the best deal.

Take it for a test drive: If you’re able to purchase a wine by the glass, you are allowed to taste it before you commit to the bottle. Don’t be afraid to ask! This way, you know you’ll enjoy it, even if it’s not necessarily a good deal.

Wine Nights: As I said before, restaurants are constantly having drink specials, and this is the best time to find a fair price for wine. With the average mark up being 2 ½ to 3 times the retail price, when you cut it in half, you can get a decent deal.

BYOB or bust: Many restaurant allow you to bring your own bottle of wine for a corking fee. They can range anywhere from $10 – $250, but the average nationwide is $25. So if you do the math, I would’ve saved $10 if I had brought my own $10 bottle. Call ahead and ask what their corkage policy is.

Fuggedaboutit: Now this is my somewhat paradoxical advice, but the best for your sanity. You know you’re most likely getting ripped off, so just don’t look up that bottle afterwards unless you absolutely loved it. That upcharge is a small price to pay for discovering your new favorite wine!

4 Comments

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4 Responses to Restaurant Markups: the most expensive $10 bottle you’ll ever buy

  1. Megan

    “Atmosphere charge?” Try debt service on the investment, occupancy, licensing, equipment maintenance, inventory hardware/software, breakage, spoilage, theft, overpour, extended cellaring, advertising, training, education, charity, etc… and those are just a few of specific wine related costs alone. Not to mention the idea that restaurants are among the world’s most risky entrepreneurial endeavors generally, especially given the upfront capital required before a restaurant even has the opportunity to sell their first bottle of wine to a guest like you. So big surprise, it costs more to buy a bottle of wine in a restaurant than it does in a grocery store? Guess what? You might be curious to know, considering the economies of scale, most larger retailers pay significantly less for the same bottle of wine than smaller retailers (ie…restaurants) do in that same market, and adding insult to injury, those larger retailers operate under a completely different business model. You’re comparing apples to oranges (pun intended). Quick fact, as per the New York Times, “The National Restaurant Association based in Washington estimates that pretax profit margins for a full-service restaurant operation in America are 4 percent to 6 percent” which means that on your $45 bottle of wine, that restaurant cleared two whole dollars – still feel cheated?

    • I understand the costs involved in running a restaurant, but when it comes down to it, those costs are required to create a certain atmosphere. If I choose to go to a restaurant, it’s because it has a different atmosphere and quality of food than my home. I am seeking this atmosphere, and as a result, I agree to help pay the costs it requires to create such an ambiance, which includes costs I may not physically see like tech and management costs. That’s why I call it an “atmosphere tax”. The entire operation is a luxury.

      So I’m not telling people to go out and protest such exorbitant prices at restaurants, but instead to be smarter consumers. Despite those profit margins, I stand by my thought that a %450 markup (from retail, the actual wholesale markup is higher) is just nuts. I’ve been searching for the net profit margin of liquor/wine shops to no avail, but it seems that most retail operations experience a similar profit margin to a full-service restaurant, if not only a couple percentage points higher. Their prices fall because you aren’t gaining anything but that bottle of wine you buy to consume at your house. You don’t get a nice atmosphere, so their prices fall and their profit margin remains quite similar.

  2. Michael

    The reason the profit margins in the retail are similar to the restaurant is because the overall cost of operating is much cheaper, therefore the retail outlet can pass the savings onto you. It is much cheaper to operate a retail establishment than a restaurant. Which (to your credit) you account for in your “atmosphere” tax. Unless I misunderstood, your claiming that restaurants should sell at retail prices because they would have the same net profit. The problem with this is that you are only looking at half the equation, you fail to look at the cost of operating for the two. If you were to buy that bottle at the restaurant for retail price, the restaurant would have paid to have you drink that bottle. While you and I might really enjoy this, it is not a good business model and that restaurant would not be around very long. There are also many costs that a restaurant must endure that a retail outlet does not. The first and most important is selling by the glass. A retail outlet does not have to deal with wine going bad because only 1 glass was sold in the 5 days since a bottle was open. So unless you sell a glass of wine for the cost of a bottle you are lose money. Over pouring is another issue. which can be curbed by training and management but is still going to happen. If a restaurant sold a bottle at retail price say a $6 cost wine for $12. There are about 25 oz. of wine in a bottle so 4 glasses per bottle at $3 a glass. the wine costs about 25 cents an ounce, so a 1/2 oz. over pour costs the restaurant 12 cents every time, think about how many times this may happen no matter how much training or management supervision. Imagine if just one glass was sold and the rest went bad before it could be sold again, that means the restaurant would have made $3 on a bottle that cost $6. Now you may say get a machine to measure exact pours and preserve wine which is an excellent idea, but such machines cost money. Even small home use ones can cost $1000, so the cost is still going to have to be passed on. I know I’ve rambled a bit but the main idea here is to help you understand that the goal is not price gouging the customer, but to cover all costs and make a little profit. I have managed many bars and written and priced multiple wine lists, I tried keep prices as low as possible but costs are so high sometimes, and if I had not sold my wine at an average %400 markup our wine profits would have been negligible at best, a severe loss at worst.

    P.S. Another thing to keep in mind is some establishments use alcohol pricing to offset LOSSES on food. So the wine is priced much higher to make a profit while they are selling entrees that actually cost them money to make.

    • I was supporting my argument of calling it an atmosphere charge by showing that the lower cost of operation does result in lower prices, but you don’t gain anything besides that bottle, whereas at a restaurant, you are gaining an experience as well.
      It definitely seems to be a complicated issue and it varies a lot from restaurant to restaurant depending on a multitude of factors. I will continue to do research on the subject. But it seems as though if prices were lowered at all, more people would possibly find wine in a restaurant more appealing. Although that is extremely simplistic economic theory and only relies on there being only a few variables, I know that I personally will be buying much less wine in restaurants unless the price is more reasonable than this past experience. I can’t say whether or not that will mean bringing my own bottle, or continuing to only buy bottles of wine on days with wine specials, but I certainly won’t be making another mistake like that again.

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