Profits or profiteering?

Restaurant wine consultant Douglas Wregg ponders the dilemma of mark-ups, pointing the finger of blame at those who pile it on just because they know they can get away with it.

Three years ago, leafing through the wine list of the Dorchester Grill, I happened to notice that the 1979 Château Pétrus cost £700 - a stonking £350 more than at the Atlantic Bar & Grill, where I'd been the previous day. Such anomalies reinforce the general perception that restaurants use wine as an easy target to achieve their margins. If you can achieve a higher gross profit, the attitude seems to be: "Go for it."

One restaurateur says confidentially: "It has been a buyer's market until now. When you are popular, you can charge what you like - a simple case of supply and demand." And as Matthew Bradford of Moving Image Restaurants points out, higher rents and huge premiums entail greater overheads for the restaurateur. "These [costs] have to be recouped somehow," he says. "You need strict targets and disciplines to show you that you are running a viable business."

Passive accounting This is true enough, although whether relentlessly pushing up wine prices is the most effective means of resolving a cash shortfall is questionable. Targeting wine is a form of passive accounting. Need some money? Ratchet up those margins! It is one thing, however, to break even and make a small profit; it is another to finance a restaurateur's vanity, that massive initial outlay and over-capitalisation in setting up a restaurant that Anthony Bourdain in Kitchen Confidential refers to as the disease of "owner's syndrome".

What is the mark-up for? It nominally accounts for everything in the restaurant from the consumables - such as rent, rates, heat, light and so forth - to the frills and fripperies which provide the special environment in which you enjoy your meal: fine glassware, the napery, possibly even a fancy Eurocave system or temperature-controlled cellar, and expensive leather-bound covers for the wine list. It does not include service, which is invariably charged on top.

Barny Haughton of Quartier Vert in Bristol makes a clear case for the rationale of mark-ups. "There is an equation whereby money has to be made on a combination of food and wine, a balance so that customers are not penalised," he says. "Customers need to perceive value for money." The balance is a delicate one, he concedes, and although many people rightly deprecate the practice of putting swingeing mark-ups on wine, "the restaurateur has to make a living".

Nevertheless, profit margins, or "target GPs" (gross profits) in the jargon of restaurateurs, have increased dramatically in the past few years. Restaurants which recently survived happily on a gross profit margin of 62% are now pushing up towards 69%. In crude terms, the bottle of wine for which you were previously paying £22 would now cost you £29.

Clive Greenhalgh, formerly of Bank and the Chiswick, both in London, offers a couple of reasons why customers have hitherto accepted the price rises. "With wine," he says, "we don't notice these incremental changes partly because we don't know how much restaurants are paying for the product." And because: "We tend to buy within certain brackets, rather than at a specific price." Or as Ossie Gray, of the River Caf‚ in London, adds: "There are certain restaurants that can get away with outrageous prices because they know their customers are prepared to pay them."

There are different types of mark-up which can be used to fulfil different functions for the restaurateur.

Let's start with the percentage mark-up - the tool of the cost-controller, which sets specific targets for the bar-manager or restaurateur. As Greenhalgh says: "It is easy to determine economic performance if you can measure margins in gross profit terms." However, it also throws up the greatest anomalies between restaurants. Recently, I saw a bottle of Que Sera Sera, Mas Morties, listed at £45 (cost £17.50 excluding VAT) at La Trompette in Chiswick, and the same wine selling at Pétrus in London's St James's for around £70.

While it is gratifying for the accountants, this form of marking-up does not factor into the equation what the wines are actually worth. Having a conscience can be an astute commercial selling point. Francesca Melman, owner of the Vale restaurant in London's Notting Hill, is aware that her customers are looking at value for money. "Before pricing the wines," she says, "I ask myself the question: how much would I pay for this bottle of wine? I cannot see how some restaurants justify charging £5 more for exactly the same wine in the same street."

Most sensible restaurateurs prefer a graduated mark-up system, to persuade customers to drink up the list. In this scenario, the highest mark-ups are generally made on the cheapest wines, but the highest cash margins are on wines that, paradoxically, represent the best value on the list. Melman estimates her average GP at 65%, but after a certain point the selling prices of the wines are calculated on a decreasing sliding scale, with the most expensive wines incurring a mere 50% GP (two times cost plus VAT) or straight cash mark-up.

The product-specific mark-up is a further development of this philosophy, highlighting certain wines. Esoteric or difficult-to-shift wines such as dessert wines, sherries and Rieslings, for example, may be sold at a very small margin to encourage people to experiment. But as Joëlle Marti, sommelier and wine buyer at the Great Eastern in London, admits: "Sometimes, when wines are too cheap, they don't sell because people believe that they are of inferior quality."

Beware of sharks

There are special wines, which, by virtue of being in fashion and by their image, arouse the most primitive and rapacious instincts in restaurateurs. Whereas certain fluctuations and discrepancies in prices are understandable, I would strongly advocate not buying a wine where you suspect that you will be subsidising wholly unrealistic profit margins. A bottle of Cloudy Bay Sauvignon, for example, will cost a restaurateur £8 inclusive of VAT, from the agent, and between £11 and £12 if bought through a third party. I have seen it listed in certain restaurants at prices ranging from £20 (Ransome's Dock in London, for example) up to £50 or more in the pomp of hotel fine-dining rooms. To make your protest heard effectively, I suggest you attach strips of Velcro to your clothing, which you tear off meaningfully when you spot such an egregious "rip-off".

The flat-rate mark-up is perhaps the most attractive scheme for promoting wine. "I have seen so many cases of shifting stock more quickly by just adding a cash margin - but this equates to a lower GP, and the bean-counters hate that sort of thing," observes wine consultant Jamie Wynne-Griffith.

Imaginative, proactive wine selling can increase a restaurant's turnover considerably. James Walker, general manager at the Storyteller in Cheltenham, a former Caterer Adopted Business, simply adds £6 to the cost of a bottle plus VAT. The secret is good husbandry, he reveals. "You need to get good prices off your suppliers and carry small amounts of stock," he says. Although he admits that he eventually may have to tweak the flat-rate mark-up up a notch, the recent expansion of Storyteller shows how successful a restaurant can be when customers perceive that there are bargains on offer. The proof of this particular pudding is definitely in the drinking.

Bean-counters

Restaurant policy is increasingly determined by a small but significant group of people who see the cost of everything and the value of nothing. I know of one case where a basic country Merlot costing £3.67 excluding VAT was put on the list for £27. It turned out that this was an administrative error, but the mistake was never rectified since nobody complained. "They [the accountants] don't have their finger on the pulse of the restaurant scene," declares Martin Lam, chef-patron of Ransome's Dock, who offers an alternative solution to a slavish adherence to sacred margins. He believes in educating his clientele, and says: "We should be bringing the customers along, increasing the spend by giving them the opportunity to drink better wines and thereby increasing the value of the meal." The Ransome's Dock list is appealingly democratic - great wines sourced at sensible prices and eminently affordable.

Giles Philips, owner of the Albertine in London, says that he is fortunate in that he is responsible for making money for himself rather than shareholders. He believes that location and competition keep prices keen, and he knows how to keep his customers happy. "It's all about perception," he says. "The Albertine is more of a bar than a restaurant, and by keeping prices on the lower side I can sell two bottles rather than one."

We can only hope that the future lies with businesses that respond to customers' needs, that actively seek repeat trade, and that foster goodwill by providing good-quality wine at consistent value for money, rather than the dinosaur restaurants and rip-off merchants which charge ridiculous prices for wines.

Stiff competition and greater public awareness will eventually make restaurants re-evaluate their pricing structure. Meanwhile, I'm still saving up for that affordable bottle of Pétrus…

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