If you’ve ever looked at the wine menu at a restaurant, the prices per glass or bottle may have stopped you from selecting the option you preferred, or even having a glass at all. Even worse, if you tried a specific wine at a restaurant and shopped for it later at a grocery store or liquor store, you may have been shocked to find the cost much lower.
Why are wines so expensive at restaurants? Each restaurant may mark up the cost per glass or bottle of wine to cover the cost of serving, purchasing, and storing the wine. These costs include maintaining a liquor license, certifying staff to serve wine, taxes and fees on reselling the wine to customers, purchasing equipment, and operating expenses.
Here is additional information on each category to explain why having wine at a restaurant may be more expensive than buying a bottle yourself.
The requirements to maintain a liquor license vary per jurisdiction. In the state of California, for example, the state only allows a certain number of licenses to be distributed. Proprietors may buy these licenses as needed, or to even resell to a bar or restaurant that needs one.
The process to obtain a license is complicated and the cost of the license depends on the market and demand for licenses. The cost of a license in California averages around $13,800 annually, but that cost may not include any legal fees or consultants to help the restaurateur navigate the process. The restaurant owner also must ensure that the business is located in the proper area (or city zone) to allow consumption of alcohol on the premises.
In order to recover the cost of maintaining the licenses on a regular basis, the restaurant will need to mark up each alcoholic drink served to cover the cost with a profit. In California, even if the restaurant only marked up each drink by $1, they would need to sell more than 35 drinks each day to recover the average costs!
Waitstaff and Sommeliers
Many states require anyone who serves alcohol in a restaurant to be certified to serve alcohol. These certification programs educate bartenders, waiters, and waitresses about safe alcohol consumption, such as recognizing intoxication, blood alcohol content regulations, and underage drinking. The restaurant may need to compensate their staff for their time completing the program, or any fees associated with the program.
Serving wine also takes time. For example, if a couple only ordered one glass of wine while sitting at a table, staff would still need to attend to that customer and clean the table, along with any table settings used. Adding the hourly wages for the waiter, dishwasher, and even dry cleaning table linens, the costs rack up quickly.
Some restaurants may even hire a sommelier to curate the wine list and provide recommendations to customers regarding the best pairings for the menu. Sommeliers are educated in all aspects of wine, such as how to properly store, serve, and pair wines. Their expertise is provided by the restaurant to the customer to elevate their dining experience. The wages for the sommelier would need to be covered through markups on the wine and food served.
Storage and Operating Costs
As discussed in other posts, wine should be properly stored to prevent the wine from going bad. Wine should be stored at the proper temperature, laying on its side or a slight downward angle, away from sunlight. Storing wine in a wine refrigerator requires electricity for the refrigerator at all hours, even when the restaurant isn’t open, which will drive up the restaurant’s utilities bills each month.
Restaurants that own their building would have paid a premium to build or buy the extra square footage for storing wine, but most restaurants rent their spaces from commercial landlords. Retail spaces rent at high rates and landlords may even take a percentage of the retailer or restaurants profit. In a quick napkin calculation, if a retail rental costs $25 per square foot, and a single wine refrigerator takes up a 10 foot square, it would cost $250 a month just to store that wine.
Dedicating some of their rentable area to wine storage reduces the amount of area that could be used for customers, which reduces their potential profits. Marking up the cost of the wine served helps cover that loss of revenue.
Taxes and Fees
Many states also tax the sale of alcohol beverages. Like a sales tax, anyone who purchases wine from a restaurant would also pay the alcohol tax on that drink. For example, in the State of California, each gallon of wine served is taxed twenty whole cents. Each gallon would provide roughly twenty five, five ounce glasses, so the cost is less than one cent per glass in this instance.
Finally, in order for a restaurant to stay in business, it must make a profit. After all the wages for employees, utility bills, rents and mortgages, license fees, costs of equipment and ingredients are all paid, the profit is what ensures that the owner can continue to own and operate the business.
Every item sold in a restaurant is marked up to cover the costs and make a profit, but typically entrees cannot be marked up as much as beverages, especially alcoholic ones.
With many restaurant choices typically available to the customer, price, quality, experience and service all weigh on the customers decision to choose a specific restaurant. Typically, a customer would not choose a restaurant with higher food prices than a competitor, if other factors such as quality and experience stayed the same. Therefore, maintaining competitive prices on food, but adding additional markups to beverages such as wine, helps the owner increase revenue and profits.
While the cost of a glass or bottle of wine at a restaurant may seem extravagant when compared to purchasing wine yourself to consume at home, remember all the components involved in providing you with an improved dining experience. Having a glass of wine, served by knowledgeable and capable staff and perfectly paired with your dinner, will help you make your next special dinner one to remember.