Wine mark-ups

26 April 2005
Wine mark-ups

Nobody expects to pay shop prices for a bottle of wine in a restaurant, just as nobody expects to be ripped off. With the public becoming increasingly wine savvy, it pays to evaluate your pricing structure.

Profit margins or "target GPs" have increased dramatically over the past few years with no signs of the practice abating. Restaurants which use to survive happily on a gross profit margin of 62% are now hovering around the 70% mark, with some even reaching 75%.

And, they've got away it, largely because the customer has no idea how much restaurants are paying for the wine, and certain restaurants know their customers are prepared to pay those prices.

It goes without saying that everybody should be focusing on whether the wine list is well chosen, with interesting, original wines that suit the food. Whatever your style of establishment, customers need to perceive value for money.

But, of course, you have to make a living, too. Mark-ups account for everything in the restaurant from the consumables, such as rent, rates, heat, light and so on, to the frills, from stemware to temperature-controlled cellar, to the financing of wine stocks and even the question of how many sittings you have a night.

What kind of mark-up is best for you?

Let's start with the percentage mark-up - a cost-controller tool which sets specific targets for the bar manager or restaurateur. Percentage mark-up makes it easier to determine economic performance if you can measure margins in terms of gross profit.

The basic level at which a restaurateur can make a reasonable profit has become 65%, although some believe 60% will give you the profit you need. Ask yourself, would I pay that for this bottle of wine? Is it better than something I can find on the high street?

Beware of exposure from the critics. It is their mission to route out those who are too greedy by making regular, damaging price comparisons between establishments.

Most sensible establishments prefer a graduated mark-up system, to tempt customers to trade up. In this situation, 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.

Gross Profit

Then there's the product-specific mark-up for wines that are more esoteric or difficult-to-shift, such as pudding wine and sherry, all of which can be sold at a smaller margin to encourage people to experiment.

Avoid the temptation to slap on unrealistic mark-ups on popular generic wines (eg Chablis). Customers are wising up to this practice and will brand your establishment a rip-off.

The cash margin is, perhaps, the most attractive scheme for promoting wine, allowing the establishment to shift stock more quickly and generate more bankable profit, while at the same time creating a better customer experience, offering the customer optimum quality and real value. The secret here, though, is to get good prices off your suppliers and carry smaller amounts of stock.

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