Maximizing restaurant profits
Yesterday I had a good chat with the sommelier of a local restaurant called bluehour. We were chatting about making money with by the glass pouring and he had an interesting take on it. First some facts:
1) Usually restaurants get on average 5 pours per 750ml bottles.
2) Restaurants like to mark up wines up to 4 times (especially for by the glass vs by the bottle).
3) Restaurant buy wines wholesale, sometimes with a special “by the glass price”. Let’s assume that wholesale is about 30% less than retail.
Now here is the math that most restaurant do: Buy a $9.99 retail bottle of wine ($7 wholesale), mark it up at least 4 times ($7 X 4 = $28), pour 5 glasses out of it and sell them at $6 each. Profit would be: (5 X 6) – 7 = $23 per bottle. Not bad….
My Sommelier friend was arguing that it was crazy math because a) you really rip off the customer (the customer could almost buy a whole bottle at that price) and b) you do not maximize the take home per bottle for the restaurant. Here is his math: Buy a $30 retail bottle of wine ($21 wholesale), mark it up gently 2.5 times ($21 X 2.5 = $52.5), pour five glasses out of it and sell them at $11 each. Profit would be (5 X 11) – 21= $34 per bottle. 50% better than the previous calculation. Not only you got more money per bottle but you also offered a great wine to your customers at a more reasonnable cost (you definitely could not buy a bottle retail of that $30 wine at $11).
I think he has a point….
August 25th, 2009 at 10:51 pm
Bravo! This guy is a genius — why haven’t more restaurant and wine bar owners figured this out? (Many of them, in fact, refuse to sell a single glass pour at less than the cost of the bottle because they are enamored by the margin, not the bottom line.) The other benefit is that people will try more wines, thus increasing both profits and customer satisfaction even more.
August 25th, 2009 at 10:54 pm
Another idea would be to charge full-bore for the first glass and half that price for subsequent ones. I also meant to add that I will be sure to visit bluehour next time I’m in Portland!
August 26th, 2009 at 6:43 pm
Hoo, I like that idea.
September 15th, 2009 at 12:25 pm
That is some interesting math. I’ve never really understood the mark-up on wine bottles before. Thanks for helping me understand this a little better.