Latest / Restaurant Business with Fexingo: Food Service, Hospitality, and Independent Operators / The Secret Math Behind Your Restaurant Wine List
Transcript
- Lucas: So you're sitting down at a nice restaurant, the server hands you a wine list — you flip it open, and you see a bottle that retails for maybe fifteen dollars at the store listed at fifty-four. It's one of those moments where you know you're paying a markup, but most people don't know exactly how that number gets set. Luna: And a lot of diners assume it's just pure greed — like, the restaurant is marking it up four hundred percent and laughing all the way to the bank. Lucas: Right. And the reality is more interesting and more structural. The industry standard is what's called a three-times markup — that's the shorthand. If a bottle costs the restaurant ten dollars wholesale, it goes on the list for thirty. But that's not pure profit. That thirty dollars has to cover the cost of the wine, the glassware, the storage, the sommelier or the manager's salary, the cost of spillage and spoilage, and the fact that maybe twenty percent of that bottle gets comped or discounted for regulars. Luna: Plus the cost of money — they have to buy the wine upfront and sit on inventory. That's a real cost. Lucas: Exactly. So a three-times markup actually yields a gross margin around sixty-seven percent. That's the target for most beverage programs. But here's the thing — that markup is not uniform across the list. The most expensive bottles often carry a lower multiplier, sometimes two or two-point-five times cost. And the cheapest bottles — the ones under thirty bucks on the list — they often carry a higher multiplier, sometimes four or five times cost. Luna: Which is why the cheapest bottle on the list is often the worst value for the diner. You're paying the highest relative markup. Lucas: That's exactly right. There's this paradox: if you want the best value on a wine list, you should actually go for something in the middle — say, a bottle priced between forty and sixty dollars. That's where the markup tends to compress. The restaurant makes less margin percentage on it, but they make more dollars per bottle, and they move it faster. Luna: So what about by-the-glass? That's a whole other animal. I've seen glasses priced at what the restaurant paid for the whole bottle. Lucas: Yeah, by-the-glass is where the real margin lives. A typical by-the-glass program targets a pour cost of around eighteen to twenty-two percent. So if a glass sells for fourteen dollars, the cost of the wine in that glass is about two-fifty to three bucks. That means the bottle — if it's a standard seven-fifty mil — yields about four to five glasses, and the total revenue from that bottle is fifty-six to seventy dollars. On a bottle that might have cost them twelve dollars wholesale. Luna: So that's effectively a five-to-six-times markup. That's where the wine program makes its money. Lucas: And that's why a lot of sommeliers say the by-the-glass list is the most strategic part of the wine program. It's where you can take risks on interesting producers, because even if you only sell a few glasses, the margin covers it. But it's also where diners can get burned — you pay a premium for that flexibility. Luna: There's a restaurant in Brooklyn — I think it's called Gersi in Boerum Hill — that tried something different a few years ago. They slashed their wine markup to essentially cost plus a flat fee, like fifteen bucks over wholesale. So a bottle that cost them twelve dollars went for twenty-seven. They said they wanted to make wine more accessible. Lucas: I remember that. It got a lot of press. And it's a fascinating case because it shows what happens when you break the convention. They reported that their wine sales volume went up dramatically — like, forty percent increase in bottles sold per table. But their overall beverage profit actually dropped slightly because the margin per bottle was so thin. Luna: Right, they made it up on food, I think. And on table turns — people drank more, so they stayed longer, but they also ordered more food. Lucas: That's the trade-off. Most restaurants don't have the luxury of that experiment because their rent and labor costs are already razor-thin. The three-times markup is a convention that's been around since the 1970s, and it persists because it works in a tough business. But there are outliers. Some high-end places have moved to a more nuanced model: they mark up based on the wine's ageability or scarcity, not just cost. Luna: So a bottle of Burgundy that's from a great vintage might carry a two-times markup, because they know it'll sell regardless, and they want to be seen as fair to serious collectors. Lucas: Exactly. And that's where the sommelier's skill comes in — they're not just pouring wine, they're managing hundreds of SKUs with different velocities, different margin profiles, and different customer segments. A good wine list is designed to make you feel like you're getting a deal at every price point, while still hitting the restaurant's financial targets. Luna: It's almost like yield management, like airlines do. They have a certain number of seats at each price, and they want to fill them all. Lucas: It's exactly that. And I think the diner who understands this can actually navigate a wine list much better. Look for the bottles that aren't the cheapest, aren't the most expensive — look in that middle band. Ask the sommelier what they're excited about that's under sixty bucks. Often they'll point you to something that has a better markup for them but a better experience for you. Luna: So what about corkage? That's another place where the markup logic gets interesting. A restaurant that charges a forty-dollar corkage fee — that's essentially a per-bottle service fee. But if you bring a bottle that retails for twenty dollars, you're paying double the price of the wine just to drink it there. Lucas: And that's why corkage makes sense for the restaurant only if the bottle you bring is something special. If you bring a hundred-dollar bottle, the forty-dollar corkage feels reasonable. But if you bring a fifteen-dollar bottle, the corkage feels punitive. Some restaurants actually scale corkage based on the bottle's retail price, but most don't. They just set a flat fee and hope you bring something interesting. Luna: Which also means the restaurant is essentially betting that you won't bring a cheap bottle. Because if you do, they lose money on the table. Lucas: Exactly. The table real estate has a cost. If you're sitting there for two hours drinking a bottle you brought, you're not ordering from their list. So the corkage fee is really a cover charge for using their glasses, their service, their ambiance. Luna: I want to come back to the Brooklyn bistro experiment for a second. You said their beverage profit dropped. But they also said customer satisfaction went up, and they got tons of press. Was that worth it? Lucas: It depends on what you're optimizing for. If you're a neighborhood restaurant trying to build loyalty and frequency, a lower wine markup can be a powerful differentiator. People remember: 'oh, that place has great wine prices.' But if you're a fine-dining destination where the wine program is a major profit center, you can't afford to give that up. Luna: And I think that's why most restaurants don't do it. The ones that try are either very established and can absorb the hit, or they're using it as a marketing gimmick to get people in the door. Lucas: Right. And there's a risk of a race to the bottom. If every restaurant started selling wine at cost plus fifteen, the margins would disappear and the quality of sommellers and wine programs would suffer. The markup isn't just profit — it's what pays for the expertise, the storage, the selection. Luna: So what's the takeaway for the average diner? If I want good value on a wine list, what do I do? Lucas: I'd say: avoid the cheapest bottle, avoid the most expensive. Ask the sommelier for something they're excited about in the forty-to-sixty range. And if you're with a group, consider buying two bottles in that range rather than one expensive one — you get more variety and often better value per glass. Luna: And if you're a restaurant owner listening, what's the advice? Lucas: Know your numbers. Don't just default to three-times markup across the board. Think about your customer base, your location, your food concept. A wine list that's too cheap can hurt your bottom line, but one that's too aggressive can drive customers away. Test different price points, look at velocity, and remember that a wine list is a marketing tool as much as a profit center. Luna: That's a good place to pause. If today's conversation helped you think differently about the wine list next time you're out, you can support the show at buy me a coffee dot com slash fexingo. It keeps these episodes ad-free and accessible. Lucas: Yeah, a few listeners chip in there each month, and that's what keeps the lights on. So thank you for that. Luna: Alright, let's shift gears a bit. One trend I've been noticing is that some restaurants are moving toward a more transparent pricing model — listing the wholesale cost of the wine on the menu alongside the retail price. Have you seen that? Lucas: I have. There's a small but vocal movement of restaurants that publish the producer price or the wholesale price. The idea is that it builds trust. The diner sees that the restaurant is being honest about the markup. But it's still a niche approach. Most restaurateurs worry that if customers see a twelve-dollar bottle going for forty, they'll feel ripped off, even if the explanation is right there. Luna: And does it actually work? Do customers respond well? Lucas: The data is mixed. Some studies suggest that transparency increases perceived value and tips. Others show that it can backfire if the markup is high. The key is context. If you're a casual spot with low prices, transparency might hurt. If you're a high-end place with a curated list, customers might appreciate the honesty. Luna: Makes sense. So ultimately, the wine list is a balancing act — between profitability, customer perception, and the pleasure of discovery. Lucas: Exactly. And that's why I love talking about it. It's one of those hidden layers of the restaurant business that most people never see, but it affects every dining experience.