As a wine enthusiast, I get asked many questions. How do they get the chocolate in the bottle? Why is this bottle so much heavier than the others? What’s a good vintage that doesn’t cost too much? And then there's the granddaddy of them all: Is an expensive bottle really any better than the cheaper ones?
That question, and several variations of it, seem to be on everyone’s mind these days, particularly as we all search for more economical alternatives to our favorite wines. The truth is that price and quality are related, but not as closely as one might think!
All wines share many basic, fairly consistent expenses. There are actually only a few variables that you can throw in the mix, mostly due to activities that are not intrinsically part of the winemaking process. So, why do some wines cost so damn much?
That question, and several variations of it, seem to be on everyone’s mind these days, particularly as we all search for more economical alternatives to our favorite wines. The truth is that price and quality are related, but not as closely as one might think!
All wines share many basic, fairly consistent expenses. There are actually only a few variables that you can throw in the mix, mostly due to activities that are not intrinsically part of the winemaking process. So, why do some wines cost so damn much?
About the Author
Gregory Dal Piaz is a proponent and admirer of a broad range of wines and styles. During his decades of collecting and tasting he has discovered that a wine need not cost a fortune to drink well. Feel free to ask him questions at the Snooth Forums where he regularly engages with beginners and experts alike.
Raw Ingredients
The grapes that make a wine -- plus the bottle, closure, and label -- account for a percentage of the wine's price. But have you ever wondered how much that really is?
Raw Ambition
Other factors that contribute to the increasing prices of wine. The pursuit of high scores, and the effects of those scores on whole wine categories, can have a profound influence on pricing.
Bulk wine can be made from grapes that cost as little as a couple hundred dollars a ton. Super-premium grapes can cost several thousand dollars a ton. That means that the actual juice in your bottle can run anywhere from about $.50 to almost $10 a bottle.
The next layer of costs really is a variable, simply because not every wine undergoes oak aging, and those that do can use a variety of barrels. From American to French, new to well-used, 225 liters to something much, much larger. There’s a lot of ways to use oak (let's not even mention chips and such for the moment) and all of them cost something, adding another dollar or three to the price of your bottle of wine.
So, where does that put us? Well, at this stage of the game we’ve invested anywhere from about $1.50 to as much as $16 in our bottle of wine, but we’re not really done yet. We now have to get that bottle of the wine into a store where we can buy it!
We’re talking importers, distributors, and retailers, here. That $1.50 can jump to $2.25, then $4.50, before you find it on the shelf for $7.99! And that $16 bottle of wine? Well you’ll be paying upwards of $40 for that bad boy. Probably way upwards.
You see, analyzing the price of a bottle of wine is not really not as simple as adding up the cost of the ingredients. There are salaries to pay (contrary to popular opinion, good wine generally does not make itself), and then there are expenses to cover. A bottling line for example, or the fee for a mobile bottler to come and bottle your production for you, utilities -- maybe even some profit, if you’re lucky.
Sure there are a ton of wines out there that deliver dubious value. A lot of producers are late to the game, and they not only have a big mortgage to cover, but they’ve hired the best and the brightest (and most expensive) consultants to give their wines every chance of getting a higher score.
Oh yeah, high scores. We forgot to mention that. Yup, high scores are worth money, in some cases, big money. And once a neighbor of yours gets that kind of big money, you might be tempted to raise your prices. I mean your wine is just as good as his. Right?
Well, if it’s not quite as good, it’s pretty close, so maybe you don’t raise your price quite as much as he did. Say 10% less – a great deal! Yes, in addition to points, egos play a huge role in the pricing of wines. All of this tends to lead to more dubious values.
There are great wines out there that cost an arm and a leg, and their prices have very little to do with what I just laid out. The marketplace determines those prices, and demand far outstrips supply, but for the vast majority of wines in the marketplace what I laid out does apply. Factor in additional expenses and some profit and most wines should be in the $10-$100 range or so. Beyond that, you’re most likely getting into point score and ego tariff territory. It’s a different game, and one in which I don’t have fun playing. I don’t mind drinking some of those wines, but paying the price, well, it tends to rub me the wrong way!
The grapes that make a wine -- plus the bottle, closure, and label -- account for a percentage of the wine's price. But have you ever wondered how much that really is?
Raw Ambition
Other factors that contribute to the increasing prices of wine. The pursuit of high scores, and the effects of those scores on whole wine categories, can have a profound influence on pricing.
Don't Miss: The Truth About Wine Prices [INFOGRAPHIC]
There are many reasons why wines are offered at varying prices. First off, there are the base prices for the necessities -- your bottle, closure, capsule, and label. Those add up to your first dollar or three. Then comes your first big semi-variable: Grape juice. I say semi-variable, because you’re gonna have to pay something for the grapes that go into your wine, but how much you pay depends hugely on where you are and what you’re producing.Bulk wine can be made from grapes that cost as little as a couple hundred dollars a ton. Super-premium grapes can cost several thousand dollars a ton. That means that the actual juice in your bottle can run anywhere from about $.50 to almost $10 a bottle.
The next layer of costs really is a variable, simply because not every wine undergoes oak aging, and those that do can use a variety of barrels. From American to French, new to well-used, 225 liters to something much, much larger. There’s a lot of ways to use oak (let's not even mention chips and such for the moment) and all of them cost something, adding another dollar or three to the price of your bottle of wine.
So, where does that put us? Well, at this stage of the game we’ve invested anywhere from about $1.50 to as much as $16 in our bottle of wine, but we’re not really done yet. We now have to get that bottle of the wine into a store where we can buy it!
We’re talking importers, distributors, and retailers, here. That $1.50 can jump to $2.25, then $4.50, before you find it on the shelf for $7.99! And that $16 bottle of wine? Well you’ll be paying upwards of $40 for that bad boy. Probably way upwards.
You see, analyzing the price of a bottle of wine is not really not as simple as adding up the cost of the ingredients. There are salaries to pay (contrary to popular opinion, good wine generally does not make itself), and then there are expenses to cover. A bottling line for example, or the fee for a mobile bottler to come and bottle your production for you, utilities -- maybe even some profit, if you’re lucky.
Sure there are a ton of wines out there that deliver dubious value. A lot of producers are late to the game, and they not only have a big mortgage to cover, but they’ve hired the best and the brightest (and most expensive) consultants to give their wines every chance of getting a higher score.
Oh yeah, high scores. We forgot to mention that. Yup, high scores are worth money, in some cases, big money. And once a neighbor of yours gets that kind of big money, you might be tempted to raise your prices. I mean your wine is just as good as his. Right?
Well, if it’s not quite as good, it’s pretty close, so maybe you don’t raise your price quite as much as he did. Say 10% less – a great deal! Yes, in addition to points, egos play a huge role in the pricing of wines. All of this tends to lead to more dubious values.
There are great wines out there that cost an arm and a leg, and their prices have very little to do with what I just laid out. The marketplace determines those prices, and demand far outstrips supply, but for the vast majority of wines in the marketplace what I laid out does apply. Factor in additional expenses and some profit and most wines should be in the $10-$100 range or so. Beyond that, you’re most likely getting into point score and ego tariff territory. It’s a different game, and one in which I don’t have fun playing. I don’t mind drinking some of those wines, but paying the price, well, it tends to rub me the wrong way!
Comments
Santa Margherita's a good example, totally over priced!!!!!!
Jul 01, 2010 at 1:25 PM
Tim
One more important note to add about wine pricing is how much you pay at a restaurant. I've read that restaurants can mark up a bottle of their wine by anywhere from 100% up to an astronomical 300%...or even more! And if you prefer wine by the glass, understand that when you order a glass of your favorite white or red you've just about covered the proprietor's per-bottle cost (this price, of course, may vary, depending on several factors). Next time you're eating out, take a moment to check the wine list and see if there's a familiar bottle or two on the menu. Compare the restaurant's price to the retail price and you'll have a pretty good idea as to how much more you're paying. I'm not knocking a restaurant's pursuit of profit, but my wife and I are always amazed at how much wine goes for at some restaurants.
Jul 01, 2010 at 1:39 PM
Good post.
@ Wanderlush-Tim:
Mostly true regrding restaurants with some caveats.
The more the restaurant deserves it the more I'm comfortable with the astronomical markups (to a point)
1)Well resarched wine list that compliments the food
2)Properly stored wines per wine type
3)Staff (or at least someone) who is conversant about the wines and pairings (e.g. time spent studying the wines should be reflected in the price)
4)Good service, presentation, show (it is an experience, afer all), served at correct temperatures
Remember that these aren't just bottles of wines that are sitting on the shelf in a chain grocery store, but should be treated as part of the menu (food) of the restaurant.
If a restaurant is going to charge over 200% and there is no value added to the customer than a crime indeed it is.
Jul 01, 2010 at 2:10 PM
Keep in mind that a restaraunt needs tp purchase a liquer license in order to serve wine. They cost lots of money, sometimes $20,000 or more
Jul 01, 2010 at 2:14 PM
Well, Santa Margherita may be overpriced (?), but it is still my favorite pinot griglio.
As for pricing in restaurants ... I totally agree. I think their wine pricing is outrageous. I've done what you've suggested and compared prices of familiar wines and found that restaurants typically double or triple the cost of a bottle and some even more. Makes you wonder why a restaurant should be making more profit than the producer of a bottle of wine.
Jul 01, 2010 at 2:19 PM
g
My favorite restaurant-- a independently owned medium-casual Asian fusion restaurant-- lost their liquor license a couple of years ago and have not replaced it for some reason. They actively encourage patrons to bring their own wine and the restaurant does not have a corkage fee. We get to enjoy a $40 bottle of wine with our meal and pay $40 for it! Lovely. (Monsoon, in the suburbs of St. Louis Missouri.)
Think about it: This practice makes their meals much less expensive and therefore a more attractive restaurant.
Jul 01, 2010 at 2:39 PM
Interesting debate on restaurant wine prices. It appears restaurant wine pricing strategy falls somewhere between beer and soda. Many restaurants/bars charge four to six dollars for a bottle of beer I can buy at a store for one dollar. They'll also give me a bottomless glass of soda for $2.50.
I expect a bottle of wine to be about double retail (triple wholesale). A glass should be about a fourth of the bottle price. That should make us both happy.
Jul 01, 2010 at 2:51 PM
I am somewhat surprised that someone who seems to know wine like Santa Margarita. Yes. It is a nice wine but not at the price point paid in the state. It is overproduced and, BTW, I have paid the equivalent of $5 in Italy
As an ex restaurateur, there is some extra costs associated with the pricing of wine in a restaurant. You need to take into consideration the possible cost of a sommelier, definitely the costs of a server and a busser . And, let’s not forget the liability insurance, which is the largest operating cost in a restaurant serving wine . However, I never overpriced the wines I served. The markup on some of the more expensive wines was as a % of the cost of the wine much less than the inexpensive wines but never a markup of 200 +%.
Today as a diner, I am dismayed on what some of the restaurants are charging for wines. But what it really gets me is when a server can automatically tuck on a 20% tip on the price of the wine without any service whatsoever. That is thievery in my view. I have never had allowed that in my restaurant.
Jul 01, 2010 at 2:53 PM
76
OMG! If it has been said once, it has been said one million times. Please, do not think restaurants are selling your precious Jordan Cabernet for 3 times what you pay for it at Costco, just to make a profit. Please, use a little math. I, the wine director buy the bottle or case from a distributor (who sets all of these prices in motion). If a selection costs my owner $20 dollars a bottle to buy from a distributor, then I turn around and sell it to the guest for $20, how am I supposed to buy the replacement bottle? So, what if I charge $40? Now, I have made my owners money back and can buy the replacement bottle. But, I have a staff to pay, lights to keep on, insurance (because drunks cost more to protect!), spillage (i.e. broken bottle, "I don't like it," theft). Finally, as much as we wish, a large portion of the inventory will not be sold and will sit in my inventory for a while. That costs everyone money.
The thought that restaurants are making more money that the wineries is totally false. Wineries love to see there wines on lists. The more lists, more money. They will buy trips, discount cases, lower bottle costs just to see their wines on lists across the nation.
Finally, yes, some wines are grossly overpriced (Jordan, Silver Oak, Plump Jack etc) because people will PAY the price listed. They are also the people that don't want to talk to the sommelier. Shocker! Think about this. A sommelier builds the list and needs the entire inventory to sell. Not everyday, but eventually. The last conversation you ever want to have with your owner is about "dead stock." EEK! And, I'll bet there are steals for $55 that are far superior to the above mentioned wines. Generally, consumers look down on wines that cost $35 on a wine list believing it couldn't possibly be good. And, then there are businessmen that won't buy a wine unless it is over $200 (yes, even in this "global economic crisis")
Jul 01, 2010 at 3:19 PM
I love Barefoot Merlot and it costs less than $10. It came out on the best wine list. I decided to give it a try and I have been drinking it ever since. Just a note for those people who love wine but like to pay economical prices.
Jul 01, 2010 at 3:20 PM
76
kwennerberg: BYO's are great. Chicago has hundreds of them. And, not all ethnic either. It's smart business for a lot restaurants.
Jul 01, 2010 at 3:25 PM
Another reason wine prices often are so high is that the state by state 3 tier supply chain for wine distribution is, in most cases, highly inefficient.
A typical $30 retail imported wine, sold at its regular (non-closeout) price has around $11 in the middle for the importer and distributor. Not that these middlemen don't deserve a fair profit; rather the supply chain structure of how wine gets sold is inherently flawed due to its inefficiency.
This is doubly an issue in the current economic climate where retail prices are declining because consumers can't afford or won't pay high prices, with increase in supply chain efficiency.
Of course there are many forces working to change the wine business to make its transport, distribution, and sale more efficient - and the sooner the better as the current structure is killing small, innovative, producers!
Jul 01, 2010 at 3:37 PM
I live in the wine country in Upstate New York and have always been baffled by the fact that I can buy a bottle of wine in a liquor store cheaper than I can buy that same bottle of wine at the winery. I just don't get it.
Also, $20,000 for a liquor license?? In what state might that be?
Jul 01, 2010 at 3:52 PM
One and only one reason for the price of wine: demand--what people will pay for it. Vinegar is cheap for reason.
Jul 01, 2010 at 3:55 PM
Any business needs a decent markup to make money. My beef with restaurants is pouring wine that is not ready to drink. There are simple aerators available that work great. Some good [and very expensive] wine is undrinkable when first opened, and most wine benefits from aeration. I'd rather drink a well-aerated wine from a Libby tumbler than a just-opened bottle from Riedel crystal. Yet, I have never has a restaurant offer to aerate wine they serve me.
Jul 01, 2010 at 3:56 PM
Some of the great fun of wine is finding good stuff at bargain prices. A good $6 bottle is not likely to equal a great $50 bottle, but then, I can't afford $50 wine very often. I have had $9 bottles that were better than over-priced $50 ones.
Jul 01, 2010 at 4:02 PM
Vinifera
Your numbers on raw production aren't too bad, but your high-end figure of $16/bottle most likely applies to wineries that are at least producing 10,000 cases of wine. Probably more like 25k-50k cases. When you drop down to very small boutique producers (1,000-10,000 cases/year) who are producing wines using state of the art technology and they are estate grown/bottle wines...that raw cost can easily reach $30/bottle (even $40/bottle in bad years with lower yield vintages)...and that doesn't even include the winery owners cost of capital and all the downstream distribution costs.
Jul 01, 2010 at 4:21 PM
You left out marketing costs...which partly explains Santa Margherita's shelf price.
Jul 01, 2010 at 4:26 PM
er 1
Don't know if I should really get into this, I am a winemaker and really have no control over what the owners of the winery charge for a bottle of our wine. That said, I have noticed a few omissions in the cost calculations for the production of a bottle of wine. I make around two dozen small lots of wine here in Washington State. Small lots that average about a hundred cases or so. Factor in the cost of our equipment... twenty or thirty thousand for a press, twenty thousand for a destemmer/crusher, between five and twenty thousand for each stainless steel tank, thousands for a glycol chilling system for white wine tanks, four or five thousand for a pump, food grade hoses, stainless steel valves, clamps and such. Then there's crushpad space, barrel storage space, warehouse space, etc. All of this has to be factored in to the cost of production. As well as the three man crew. Every stage in the production of a wine, regardless of lot size requires time. Time to clean and sanitize, set-up, process, break down, clean and store equipment. We pay about 750 Euros for French coopered barrels from French oak (plus shipping from Erope), and don't forget that yeast, Malolactic cultures, and other chemicals for production aren't very inexpensive either. I pay about $500 for 10 kilos of yeast! That said, I admit that supply and demand still determine a large part of the price of a bottle of wine. There are always good bargains out there, and there are so many wines to choose from, we should all spend more time enjoying as many as we can! Thanks for your attention.
Jul 01, 2010 at 4:37 PM
Ok! everything is clear. But why the insane diference in price between a 100 bucks bottle and
a Petrus or Cheval blanc thousands bottle in Sotheby´s ?????
Jul 01, 2010 at 4:38 PM
as a professional ( a french export professional) i can give you a few idea of what makes the price of a wine most of themhave been discussed here
a few point still ( and i ill distinguish europe and the usa
- for teh cost price at teh cellar..think aging ( it cost) think cost of the piece of land ( an hecatre of premier cru or grand cru champagne cost more than 1.2million euro, an hectare in teh south of france an average of 30 000 euro),aging for a extra premium vintage can be up to 10 year while for a vin de pays it is a few month...
- restaurant mark up , it is customary in europe to have a 300% mark up in restaurant BUT service is included and it is the only part of teh meal where they actually make some money as restaurant usually loose money on the meal itself
-for the USA you have to take into account the "outdated " distribution system with its three tiers and 35% mark up on each tier..+ import taxes and transport...
they are amny other factor that get into account depending on teh style of wine ( mass production brand , artisan wine etc..)
BUT in any case in the USA the main cost factor is the distribution system
Jul 01, 2010 at 4:44 PM
Vinifera
Once you go into the stratospheric pricing of wines like Petrus and Cheval Blanc it's all about paying for the label. I'm not saying those wines are not beautiful, but it certainly is not costing them 450 euro to produce a bottle they then sell for 900 euro! Once you crack into those prices that are over than $100 per bottle, the marketing and supply/demand factors start driving the price more than the intrinsic cost to produce the the wine.
Jul 01, 2010 at 4:49 PM
'ticleve' -Why can you buy wine at shops cheaper than that winery? If the winery undercuts shop price they then will end up having only one outlet...themselves! No shop would want to compete with the winemaker directly so they should be able to make some money selling it and at prices slightly cheaper than the wineries. That said I don't mind buying direct from winemakers either as there is value in education as well as opportunity to experience some tastings you may never get outside the winery setting. Same deal at restaurants, I'm more apt to purchase a nice bottle if they have a 'nice' sommelier, sort of guarantees the purchase. I've been introduced to some great wines I can then go and purchase for home at free market pricing.
Jul 01, 2010 at 5:22 PM
n
Makes me remember the old joke - Q: "How do you make a million in the wine business?"
A: "Start with two million...."
Jul 01, 2010 at 5:30 PM
Bobster
I agree with those who say that demand is key to pricing, ...but there's also "hype". ...if you mention a name often enough people start to "believe" that it's good and they'll pay for it. They'll pay handsomely if they think it's the "in thing" .... just look at the business model of Starbucks.
Jul 01, 2010 at 5:34 PM
85086
In reguards to the price of a liquor licence, in my state (AZ), a wine/beer bar licence must be purchased from an individual then transferred to your name. There are no "new" licences issued. Just to serve beer & wine the licence is approx. $10,000-$15,000 just to buy, then you get to pay the state approx. $1200 to transfer, and then the individual cities charge for the transfer as well, Phoenix is roughly $4500, just to change the ownership! Want a full bar or liquor store licence? The overall price easily jumps over $100,000....and their worried about illegal immigrants!?!?!?
Jul 01, 2010 at 5:39 PM
Liquor licenses and the control thereof are just another example of over-regulation and control of commerce that government slams this country and it's citizens with. And don't forget excise taxes on wine. I don't believe that was mentioned in the article.
Jul 01, 2010 at 6:15 PM
Liquor licenses in NJ are very expensive for either a retail or Bar Lic. The number is limited by population so if you live in small town with 5000 people there would be one Lic available. The town council decides to issue or not. A Lic like this would be auctioned by the town and fetch a fee of $125 to $300 Thousand dollars. That being said I have a very good base of knowledge on wines from around the world and know the retail price for many in restaurants I go to if the make up more than 2X retail I tend not to go back. The funny thing is I see a $6.00 Aussie Pinot at $24.00 to $30.00 that's Hwy robbery. They would sell a lot more wine if put this out at $12.00.
Jul 01, 2010 at 6:23 PM
Vineyards
As a vineyard and wine producer let me give you another factor that is huge and easily overlooked.
The cost of grapes 'should' factor this in but it rarely does.
To make a wine you start out in the winter, pruning season, when crews of workers come in and cut the vines for the next season. Tie them then you need to work the vineyard through the season, control weeds etc. Finally you have a large crew coming for harvesting. All this determins cost of the grapes itself.
A table wine will have (here in Argentina) somewhere of 15,000Kilo production per hectare. A top wine will have only 5,000Kilo production. Some of them even less.
Then you are finally off to make a great wine of the juice. Yes, the barrels are super expensive.
Now comes the tricky part. How long will you keep a wine in a barrel? Some wines will disclose that they are oak aged but have only 30% of the wine actually oak aged. The rest is tank wine, which did not rest in barrels. If you made the whole lot in barrels, will you leave it 3 months, like some 'oak aged' ones do or will you leave it 18 months? Will you bottle it and then ship it the next day or rest it in your cellar and for how long. Some wines rest for years.
The major factor for price is T*I*M*E
The vineyard/winery will lay out month from the pruning of that vintage all the way till they determin that the wine is at its peak. A good bottle will take several years, that means the entire cost of the season of that vintage will not ne recouperated until years later. You can start a winery and it will take you 3-5 years until the first income starts coming in. Your advance capital cost is that of having to hire vineyard workers, crews that come for pruning and harvest, winery workers and expensive equipment for several years before you can send it off to your customers who will quesiton why the 2003 Cabernet costs $40 when they can buy a Cabernet for $6.99 at their local supermarket.
..and the answer again: T*I*M*E !
In our case we will not sell our wines from the April 2009 harvest until the end of this year. 2 years later. The advise is really...let it sit in YOUR cellar for another 3 years. Doing this I can give a discount on my wine, because now you are taking the 'storage' cost and the time cost. But as the time progresses the price of the 2009 will progress upwards.
Jul 01, 2010 at 6:30 PM
Bottom line is we all have a choice as consumers. You can choose to drink wine in a restaurant or not (some are BYOB and might have a corkage fee). If you feel wine in general is overpriced you can choose to drink Barefoot or Two Buck Chuck. Personally, I think there are plenty of values out there. Most of the wine that I buy and drink is between $8 and $20. I don't typically order wine with a meal in a restaurant because it's too expensive (special occasions excepted). I think restaurants could decrease their costs and probably make more money by increasing the volume of wine sold. Maybe not, I'm not a restauranteur, so I'm in no position to be critical of how they run their business, but I'm not going to pay a 200% markup. I would more likely get the food to go and drink my own wine in my own house or just cook my own steaks on the grill. What I can't stand is the government needlessly making wine cost more because, hey, no one has stopped them from doing so. I'll stop here or this message will turn into a needlessly long and boring attack on government regulation and taxation without ethical, moral, or qualified representation!
Jul 01, 2010 at 6:59 PM
I strongly disagree with Rossired. Without a doubt, wines should be LESS EXPENSIVE at the winery than in a retail store. The least-expensive way for a winery to sell its product is direct to the consumer! Therefore, it should be the least-expensive way for a consumer to acquire the product.
It's ludicrous to think that a lower price at the winery is "undercutting" the retailers. Obviously, way less than 1% of a wine's buyers actually visit the winery. These are two distinct, discrete markets. Wineries should neither charge people to taste wines at the tasting room nor should they charge more for a bottle than a customer could buy it for at a retail outlet.
Jul 01, 2010 at 7:25 PM
Vineyards
On the restaurant issue let me please add one more thing.
Try to put yourself into the shoes of the restaurant. You own it.
Contrary to popular believe restaurants do not buy their wine cheaper than you do when you actively shop for it. You buy a bottle for 9.99 at Costco, chances the restaurant around the croner buys it for $10 as well. They have to buy the case and hope someone buys it.
Now you have the wine by the glass. For every customer that wants to have just a glass they open a bottle and hope that they will sell at least another 2 glasses to make the profit calculated for that bottle. Say the $10 buy bottle sells for $29.00 at the restaurant. (200%) The glass sells for $8.50. If they do not sell more than that one glass the wine goes bad and....they took a loss.
Someone does not 'like' it and sends it back. It goes down the drain and there goes a profit.
We put a value to the guy throwing a steak on the grill and cooking it for us. Something that we all know how to do yet we pay $40 for a filet in a good steakhouse, when we can buy the same meat for $10 at the butcher.
In reality we pay for the ambinace in sitting there, for the waiter to be nice to us and pampering us.
When it gets to the wine, you find the wine you buy at the supermarket for X marked up and all of a sudden we thing we are getting ripped off. Yet nobody questions the price of the filet for $40.
What do you drink at the restaurant then? The soda from the handgun. A glob of sugar mix run through a mixing machine with tab water to make your Coke? Cost $0.30 per glass , billed to you at $3.50. Now there is a profit margin. :)
Jul 01, 2010 at 7:31 PM
es
Don't forget that ever present bugaboo TAXES; in addition to the sales tax you see at the register, the winemaker must pay both state and federal excise taxes, business and occupation taxes, litter taxes, payroll taxes. Then there are the costs of utilities and processing elements used in the production of wine. Stainless steel tanks, hoses, pumps, hoppers, conveyors, chillers, air compressors, bottled gasses, fork lifts, pallets and case boxes. Finally there are the marketing costs for samples, advertising, "tastes" and promotions. Your list barely scratched the surface!
Jul 01, 2010 at 8:19 PM
Really pretty basic; not much new here. Was looking for the author to tell us something that we did not know, or could figure out. Guess there are no secrets.
Jul 01, 2010 at 9:03 PM
All I'm saying is that I think (and I mean think because every situation/restaurant is different) that restaurants would sell a lot more wine if they reduced their markup some. What I drink in restaurants is water, most of the time. I'm not arguing with the function they serve, the problems they have keeping good people, or paying their overhead. The restaurant business is pretty danged tough and I feel for them. I do not begrudge them their markup, I just choose not to pay it most of the time. If a glass of wine is reasonably priced, occasionally I will have glass of wine. It's not a hard and fast rule on my part, but rather just a matter of personal budgeting. I might be able to go pay $40 to $60 for a meal for me and my wife including tip and taxes, but I usually don't opt for appetizers, wine, or desserts for personal budgeting reasons, but I'm not a communist. All of your points are well-taken.
Jul 01, 2010 at 9:28 PM
It's interesting to hear all the arguments around the horn on the issue of cost & profit. I, myself, being a restaurantuer, can tell you that a well run restaurant has a blend of profit modules to make his bottom line in the black (meaning there are loss leaders to broaden the menu offerings). In todays economy, cutting back on the things we normally purchase while dining out, changes the picture. I have people all day trying to get the cheapest deal possible (and they have a right to it), but when they get that loss leader food and then only have water with dinner, I'm going south quickly. A lot of the business has been built on making more of their margins in other items (drinks, sides, deserts, etc.), we all know that to some degree. When looking at food & beverage, a 28-35% cost is the normal range (so a $10 retail bottle of wine sells for $30). From there you have paper goods, labor, utilities, marketing, maintenance & repair, cc fee, bank fees, license fees, accountant fees, rent, uniforms, laundry, debt service, etc., etc., etc....... Restaurants do not operate on huge margins people and they come at the expense of HUGE work! I think that the successful restaurantuer has to be a jack of all trades to make it today and such is why so many are failing. Same will be true in the wine industry. Those that have a business model that makes sense (such as already owns the equipment, commercial space, minimal debt service, etc.) have a greater chance of surviving. So please do us all a favor and try to support your local restaurant (or winery) that is trying hard and doing it right. What a boring world it would be if there were only corporate wineries and McDonald's to chose from.
Jul 01, 2010 at 9:44 PM
8
I had also been an investors for two restaurants few years ago. 200% or 300% mark up for a wine than retailer seems high at first instance. However, please consider the value added cost ie Glass accessories, storage, wastage, breakage...that some mark up are needed. I can tell you a cup of iced lemon tea in a local restaurants in Hong Kong may charge you USD3 but the cost is just less than 50 cents.
Some winery ie those smaller one are distributing directly to wine lovers through organizing a wine club to reduce the middlemen commission. It may some kind of ways to give consumers better price to enjoy wines.
Jul 02, 2010 at 12:23 AM
Valletta
If you only see the Ais guide (Associazione Nazionale Sommelier) to' wine in Italy, you would have tha chance to' understand the complexity of making and chosing the right price for a wine, a bottle of wine. The evaluation is Made of graphes, 1 to' 5, where the best ones Are those with 5 graphes.
Until now, nothing strange. But why do i ave to' pay 130€ for a bottle that has the same evaluation of one of 25€? Maybe the Brand, maybe the tradition. I don,t know.maybe some bottles cos t to' much in any case!
Jul 02, 2010 at 2:01 AM
Valletta
If you only see the Ais guide (Associazione Nazionale Sommelier) to' wine in Italy, you would have tha chance to' understand the complexity of making and chosing the right price for a wine, a bottle of wine. The evaluation is Made of graphes, 1 to' 5, where the best ones Are those with 5 graphes.
Until now, nothing strange. But why do i ave to' pay 130€ for a bottle that has the same evaluation of one of 25€? Maybe the Brand, maybe the tradition. I don,t know.maybe some bottles cos t to' much in any case!
Jul 02, 2010 at 2:01 AM
eaux
I will have to contend that there is certainly a big markup in restaurants. Having worked in the restaurant biz myself and asked this specific question to the bar manager at our fine dining restaurant (he controls the prices) this is the response I received:
1. Cheap bottles of wine have the biggest markup. For example, a bottle of Beringer White Zinfandel that normally costs $5 in the store will go for a 400% markup at $20 in a nice restaurant. But when you move up the ladder to say Opus One, you're talking a very small incremental increase. Let's say Cakebread Cabernet which was offered on the list. This wine was purchased from the distributor for $70 and sold for $120, so a markup of $50.
In other words, the mark-up amount decreases when the quality increases.
Finally, a remark about Santa Margherita. It's price, in my opinion is well above it's quality. I almost find it watered-down and lacking in much substance of any kind of pinot grigio. But it has been made very popular amongst people who aren't normally big wine drinkers. In fact, I recommend it as an alternative to those people who drink nothing but white zin because it is such an easy drinking wine. But I think this is all chalked up to the fact you don't really taste much.
That said, much of that price is ego tariff I'm afraid. It's popularity and demand has sent the price over the moon for ta bottle that shouldn't cost more than a few bucks. I've seen a friend pay as high as $18 for it in the store before. ridiculous.
Jul 02, 2010 at 2:20 AM
One thing I know for sure, regardless of how much I pay for a bottle of wine in a great restaurant while eating a great meal, a great wine elevates that great meal to the upper stratosphere such that I'll remember that meal for a lifetime. Unfortunately, that usually requires that the restaurant have staff that really knows their food and their wine, and to a certain extent my tastes. Generally, I'm not going to buy a wine in a restaurant that I have in my cellar because the experience of paying 2-3 times more in the restaurant than what I did for the bottle in my cellar is too painful, even if I love the wine. Sooooo... the staff better know their wines and how to describe them or I am going to be disappointed (and conversely, I better adequately describe what I like). But tasting and buying wine is an adventure in risk taking which is one of the best aspects of it, particularly when the risk is rewarded! Anybody know where I can get some 2001 Tenmienti Ricci Brunello, had one bottle and I can't find it anywhere and seriously would love some more of it!
Jul 02, 2010 at 10:48 AM
As a retailer, I am tired of distributors who have two sets of wholesale prices, one for the restaurant and one for the retail store. I've been told that there are wines that I wish to sell in my store that I can't purchase because they are for restaurants only. 14 Hands for example. I wanted to sell Pommery Pop, but the restaurants sell it for my wholesale cost due to "special pricing." There are two sets of price lists from the major wholesalers. The other thing is the BTG programs that are not available to retailers. The "By the Glass" programs will reduce the price to the restaurant significantly.
As for wineries selling their wines for more than the retailers, once they sell it to the distributors, it's up to the distributors to set the prices. There are mark-downs, post-offs and price reductions to get the wines out of their inventory. Anything to move slower selling wines. Also the wineries want to protect the shops as they usually move more product than the winery selling directly. I usually won't purchase wines from a winery that undercuts my prices.
Jul 02, 2010 at 11:00 AM
123
First time reader, first time contributer;
What a entertaining and great communication venue. I would like to add one point please. I am an ex Restraunteur, and presently am in the wholsale/retail wine industry.
On the wine pricing issue, everything is supply and demand. Larger supply - less demand - lower pricing...and vica versa.
One comment on the restaurant subject. One of the best wine lists in my town offers both high end products which they have purchased as "investments" waiting for a return as well as a feature list of 20 for $20. Guess which list generates the most and quickest income from the invested dollars?
Consumers go to bars to drink, they go to restaurants to eat. If I were back in the business I would follow the 20 for $20 concept and offer great wines for less markup but would mark up my food to become more profitable. Fewer people complain about the cost of the food they buy...then they do about the price of their beverage of choice, becuase they went out "for dinner" so they wouldn't have to shop, prep, cook, and clean up. In my very humble opinion, this concept could create one of the most successful concepts within the industry. Sorry for being long winded.
Jul 02, 2010 at 11:10 AM
One other note to point out is that there are alot of good wines out there at great values. Just because it is exorbitantly expensive does not mean it is always the best. Wine is very subjective and very dependent on individual palates.
Jul 02, 2010 at 11:54 AM
l
I totally agree with Greyfox. Wine is VERY subjective. I've done blind tastings with some really expensive wine vs wine at 1/2 the price and you'd be surprised at the results.
Jul 02, 2010 at 12:38 PM
Many will pay high prices for a wine simply based on the rediculous notion that a numerical score conveys what is in the bottle. Evaluating a crafted product and providing a numeric score defies logic. Nevertheless, many who lack confidence in their own palette rely on some self-qualified and self-designated Supreme Wine Pontiff to anoint a wine with an absolutely OBJECTIVE score based upon his singular and clearly SUBJECTIVE evaluation; style preference and differences in a humans perception of flavor by mere mortals notwithstanding.
Jul 02, 2010 at 12:41 PM
I've been a wine consumer for over 35 years and this same topic with all it's tentacles has been a common theme for all of those years. We started a winery, Sixteen by Twenty Wines, to address the "problem" of overpriced wines, but since we are new to the market I don't know yet if all of this complaining is just talk or if people will actually seek out wines like ours and treat themselves to a routine purchase. It might just be that we end up being viewed as not expensive enough - yes even in this new wine economy - and get passed over for the wines that have the "pedigree" of a high price tag. It appears there is a lot of that thinking at every level.
Jul 02, 2010 at 1:45 PM
e
I am confused by some of your math. You suggest that a bottle purchased by a retailer for $4.50 will sell on the shelf for $7.99? That's nearly an 80% markup!
Most retailers would be thrilled with a 30 to 50% markup, in my experience. For big box retailers, even less...much less.
Jul 02, 2010 at 2:10 PM
Dal Piaz
Good point. The wine business is not like many other businesses though. A big wine retailer can take advantage of bulk buying and score great deals on some wines, particularly those that sell at very competitive prices.
While big retailers can take advantage of these prices the market generally sets the prices based upon retailers who cannot take advantage of such a large quantity offer.
So the market says a wine sells for $7.99, and the retailer sells it at that price, at least until it can be placed on sale at it's typical 50% markup,
Only catch is in order for a retailer to place a product on sale it may have had to be priced at its regular price for a period.
Was $7.99 now $6.79
With any luck.
Jul 02, 2010 at 2:28 PM
Many wines in the market are produced by one company, and sold bulk (even re-sold several times) to another company that bottles it with a fancy label. Federal law requires that, for the American lable to state "Produced and Bottled by XXX," at least 75% of the wine in the bottle was produced from grapes by the company named on the bottle. If 25% or more, even all, of the wine was purchased as bulk wine and then bottled for consumer sale, the label cannot say "Produced."
So, if you see an attractive label that does not say "Produced and Bottled by XXX," the wine was produced by another company, no matter how wonderful the claims of quality on the label. Typically, those labels will say "Cellared and Bottled by XXX<" or "Vinted and Bottled by XXX."
California requires that a wine company itself produce 10% of the wine to claim "Made and Bottled by XXX." This ensures that the California wine company actually makes at least 10% of the bottled wine from grapes. But, if the label does not state "Produced and Bottled bby XXXX," the impication is that the wine is less than 75% made by the company on the label.
Bear in mind that it's cheaper to purchase bulk wine and then bottle it, than to produce wine from grapes. Your purchase price might not reflect that economy, especially with a wonderful label on the bottle.
Jul 03, 2010 at 1:20 PM
rz
The one facet of wine pricing that unfortunately nobody can argue away is that there is absolutely no elasticity to the supply of any one estate+variety+vintage: once it's all been consumed price is irrelevant because you simply cannot get any more!
Jul 03, 2010 at 10:59 PM
Cordes
You think wine is expensive in North America??? B.S.! Come to Thailand where the tax on wines are based at 400-420% !! Protecting the local production of whiskey and beer!!!!! Be thank you for what you have there!
Jul 04, 2010 at 9:10 AM
what a thoroughly fascinating and informative post! thanks to greg and the many extremely knowledgeable professionals that shared their expertise and experience. i had alot of personal opinions on the matter, some based on facts, some on half-truths, some totally bogus. i'm much more cognizant of the realities and relativity of the various factors that go into the wine industry's (and restaurants') pricing. my compliments and appreciation...
Jul 04, 2010 at 9:36 PM
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Jul 07, 2010 at 1:58 AM
Not surprised to see so many comments about restaurant pricing. If a restaurant has a knowledgeable sommelier, keeps its wine at the right temperature, serves it in the right glass and makes the experience enjoyable, I don't mind paying a big markup. But when the wine comes warm in a crappy glass from a server who couldn't care less (hear me, Morton's?) I'd much rather bring something from my own cellar.
Good story and great comments.
Jul 08, 2010 at 5:19 PM
50
"If a selection costs my owner $20 dollars a bottle to buy from a distributor, then I turn around and sell it to the guest for $20, how am I supposed to buy the replacement bottle? So, what if I charge $40? Now, I have made my owners money back and can buy the replacement bottle. But, I have a staff to pay, lights to keep on, insurance (because drunks cost more to protect!), spillage (i.e. broken bottle, "I don't like it," theft). Finally, as much as we wish, a large portion of the inventory will not be sold and will sit in my inventory for a while. That costs everyone money."
I've got a few questions for you cschneider-76:
- Doesn't a liquor store owner need to make money?
- Hasn't a liquor store a staff?
- Doesn't a liquor store lights?
- Doesn't a liquor store owner pay insurance?
-- Does a liquor store always sell it's inventory?
Jul 15, 2010 at 8:21 AM
Interesting anecdote, given all of the above. I was out on the North Fork of Long Island last fall, and tasted a wine I thought enough of to buy 3 bottles at $30/btl. My friends and I stopped for a late lunch in Mattituck a few hours later, where the same wine was on the restaurant wine list for $24. We ordered two bottles waiting for the waitress to come back and tell us it was a typo on the menu or they were out of it (instead of telling us it was a typo) -- but she produced (and we drank) both bottles. I have become unaffected by the fact that I can often buy wine at my local shop for less than I can at the winery. But that was the only time I have ever bought it for less at a restaurant than at the winery!
For the last several years, my wife and I meet up with friends and tour Napa and Sonoma. I look for good wineries whose wines I've never seen. If you can't buy it anywhere at retail, and you really like it, then it's worth paying their price. I live in NJ. If I stop to taste at a winery and they say they don't ship to NJ, that usually means I can buy back here at home. But...then the question to ask is...which wines don't you distribute in NJ? Because they are often their best limited production wines. So, you try those, and if you like them, buy them and ship them privately...because you're never going to see them back home.
Jul 18, 2010 at 11:31 PM
ck
Another cost hidden in every bottle of wine, no matter where it comes from or where you're buying it, it the taxes, tarrifs and eco levies. That can make up a significant portion of the selling price, depending on where you are. There are only two sure things in life....death and TAXES.
Jul 22, 2010 at 3:27 PM
ck
Would just like to say THANKS to everyone who leapt to the defense of restaurant pricing on wines. When it comes to food and beverage, people love to be pampered and let someone else do all the planning, shopping, prepping, cooking and cleanup. They just hate to pay for it! In all my years working in wineries and restaurants it seems that everywhere I turn, people are telling me that I'm ripping them off as the dominant perception is that I am not allowed to make a living providing them with a product/service. I just hear them complaining though. I don't see them leaving. Curious....
Jul 22, 2010 at 5:32 PM
For the people who say that Santa Margharita is not such a great Pinto Grigio, can you reccommend some others? I have tried several with lower price points but none compare to the taste.
Sep 01, 2010 at 1:43 PM
Haven't yet seen anyone mention Restaurant rent expenses. Rent can be over 20,000/month in some places.
A successful restaurant I know even further raises their markup because, well, they are very successful and very busy. Unfortunately for Joe Middleclass, Jonny Suit will pay more for the same wine and food because he has more money to spend. I know my restaraunt will be busy all the time, do I want my restaurant full of Joes or Jonnys?
Oct 06, 2011 at 10:12 PM
I generally don't mind paying wine that has a mark-up; the most I've paid for was around 200% mark-up. I just remind myself that I am also paying for the ambiance (something important to me), the use of the place (utensils, furniture, etc), and of course, the experience.
In so saying though, I have a suggestion: always, ALWAYS ask two questions. One, how long has the bottle been opened, if you're ordering a glass. Sometimes, that bottle was opened just 2 customers ago, but I've been horrified to learn at one of Manila's restaurants that the bottle of Tempranillo being served was opened two weeks prior! And two, always ask if the restaurant is willing to open a fresh bottle for you. I've found that certain restaurants (I'll drop names later) will be happy to open a fresh bottle provided you'll have about 2-3 glasses.
If you're in Manila, try out MOMO (in Ayala Triangle), The Stock Market (in Bonifacio High Street), and CAV (also in Bonifacio High Street). :) A glass is 1/4 the price of the bottle here, usually, so if I have company, I get the whole bottle :) The places I've mentioned allows one to take a half-consumed bottle of wine too if you can't finish it in one sitting.
Feb 24, 2012 at 3:19 AM
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