The Problem With On-premise Pricing

November 2006
by Ted Task
The "new paradigm" Bryan Garbutt described in his October "Opinion/Analysis" piece is certainly not new to this retired industry veteran. The "gatekeepers" are not new, just younger. For more than four decades, what I ran into went something like this:

"I cannot use your product--of which you are selling thousands of cases--because the consumer knows the retail price and I can't take my rape and pillage markups without looking like I'm overpriced on everything that I sell." That's the nature of the on-premise trade: difficult then, difficult now. From my perspective, the "gatekeepers" who say tried-and-true, big-name wines are "boring" are being circumspect, and are not really saying what they are thinking.

Back when I was on the street with '53, '55 and '57 Bordeaux classified growths, I distinctly recall being asked derisively, "You want how much for 'frog' red wine?" The price was $24 per case, irrespective of vintage.

Now that everyone knows that I have a bunch of gray hair (translation: time in the trade) let's talk about something serious: the overpricing of wines on-premise, and the detrimental effect that has on people's enjoyment of the dining-out experience.

There has developed a pricing mentality on wines, thanks to corporate F&B training, that there should never be a cost exceeding 25%. Let me translate that for the mathematically challenged. If the on-premise unit is selling something for $1, it may not cost them more than 25 cents (preferably less). So, a bottle of wine selling for $40 may not cost more than $10.

This pricing mentality comes from the food end of the business, where I understand the logic. Food automatically presumes waste (loss by more than several means). Then there are the costs of the highly skilled cooks, chefs and other kitchen staff. Napkins, tablecloths, silverware etc. all are appropriately folded into those costs. So axiomatically, the wines are priced using the same formula. (That's my opinion, and I can't wait to hear the outcry debunking my thoughts.)

On-premise folks will tell you about the inventory they must carry to support a good working wine list, they'll talk about the glassware that they must have to properly serve customers, and they are correct. But you'll never hear about the space needed and the inventory required to run that (even more) profitable bar. OK, enough denigrating; let's explore the positive.

I grew up in the business with a pricing method that today will be called outdated (at best), but which works: If the appetizer costs $8.50 and the main course is $19.50, the cost of the bottle that I will order will be $30 or less. If I allow dessert pricing ($10) to enter the equation, then add another $10 to the bottle price. The price of the bottle should not cost more than a third person at a table for two.

In the "old" days when we were "helping" a restaurant develop a wine list, we would double the everyday cost of the bottle (a post-off/discount was considered gravy and not applied), then we'd add $2 and round up. Cost of bottle: $8.75 X 2 = $17.50, plus $2 = $19.50--final price on the list, $20.

The $2 add-on was supposed to be for waitstaff incentives, but it was rare to see that done. So all through the late '50s, '60s and into the '70s, all that happened was a growth of wine on-premise that was beyond our initial expectations.

People will drink wine on-premise if it's fairly priced. This old codger looks at wine lists, and often settles for a (note the "A"--signifying one) glass rather than paying too much for a bottle.

Shall I talk about the pricing of wine by the glass? Wow, talk about profit margin! But here I am less strident than about bottle pricing. Paying the cost of a bottle with the first glass sold is still rape and pillage, but not as violent. Think about that profit: The costs are somewhere around 20%, but then there is an open bottle, which may not be sold within a day.

To get back to Bryan Garbutt's lament about the lack of restaurant support for tried-and-true brands, I'd like to conclude with this thought: The on-premise market owes the big-name producers favorable access to its wine lists, simply because it's the name-brand producers who generate consumer interest in wine and its proper place at the table. Give them a break and a "thank you," by placing some of their wine on your list at a fair markup.

(Ted Task is a member of the Society of Wine Educators and teaches a variety of wine classes for consumers. He lives in Rockville, Md. To comment on this column, e-mail

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