Latest / Restaurant Business with Fexingo: Food Service, Hospitality, and Independent Operators / Why Restaurant Wine Markups Are Falling as Margins Rise
Transcript
- Lucas: So, Luna, I was looking at a wine list from a neighborhood bistro in Portland the other day, and something jumped out at me. The markup on their bottles was closer to seventy percent over retail, not the classic triple. And the owner told me their beverage margin actually went up. Luna: Wait, that seems backwards. Lower markup, higher margin? How's that work? Lucas: That's exactly what I said. But the logic is pretty simple once you see the numbers. It's about what the markup does to the check average, not just the per-bottle profit. Luna: Okay, I'm listening. Break it down for me. Lucas: So take a bottle that costs the restaurant twenty dollars wholesale. Classic approach: sell it for sixty, maybe seventy. That's a three-hundred-percent markup. Sounds great. But the guest sees that sixty-dollar price and thinks, I can get this same bottle at the store for twenty-five, so they either skip wine altogether or order one glass. Luna: Right, they feel like they're getting ripped off. That's the perception problem. Lucas: Exactly. Now the same bottle, sold for thirty-five dollars. That's a seventy-five percent markup. The guest thinks, hey, that's not bad, I'll order a bottle. The restaurant makes fifteen dollars instead of forty, but they also sell a second bottle, maybe a dessert wine, and the food check goes up because the guest is happier and stays longer. Luna: So it's a volume play. Lower per-unit profit, but more units and a higher overall table spend. Lucas: That's the shift. And it's not just that one bistro. I've been seeing this across a lot of independent operators, especially in the last couple of years. The old rule of thumb, triple the wholesale price, is fading. Luna: Why now? What changed? Lucas: A few things. One is that guests are savvier. They can look up a wine's retail price on their phone in two seconds. So a huge markup feels like a trap. Another is that wine consumption per diner has actually been declining, especially among younger guests. They might have one glass, not a whole bottle. So restaurants are having to work harder to make wine feel like a value. Luna: That makes sense. My friends in their twenties, they'll order a glass of something interesting, but they're not splitting a bottle unless it's a celebration. Lucas: Right. So some restaurants are going all-in on by-the-glass programs, with a rotating list of maybe ten or twelve options. And they're using a small markup on those too, sometimes just two hundred percent, but they're pouring higher-quality wine. So the guest feels like they're getting a deal, and the restaurant turns over the bottle quickly. Luna: And a faster pour means less waste, especially if you're using a preservation system. Lucas: Exactly. There's a restaurant in Chicago I read about, they switched to a low-markup by-the-glass model and their wine sales went up thirty percent in three months. The key was they focused on wines that were food-friendly, so it felt like part of the meal, not an add-on. Luna: So it's really about changing the conversation from, how much can we make on this bottle, to, how do we make wine a reason to come back. Lucas: That's a nice way to put it. And there's another angle: the psychology of pricing. When a wine list has a bunch of eighty-dollar bottles, the forty-dollar one looks like a bargain. But if everything is in the thirty to forty range, that's normal, and the guest is more likely to order without hesitation. Luna: So it's kind of a price anchoring thing, but in reverse. You're removing the anchor that made people feel like they were being ripped off. Lucas: Precisely. And this ties into something I've been noticing with the food menu too. Shorter menus, more profitable items, that whole trend. Wine is getting the same treatment. A tighter, better-priced list can actually drive more revenue than a huge one with big markups. Luna: That makes sense. I also read that some sommeliers are now using a flat markup model, like a fixed dollar amount per bottle, regardless of cost. So a cheap bottle gets a bigger percentage, and an expensive one gets a smaller percentage. Lucas: Yeah, that's another approach. Some high-end places do that to make their premium bottles more approachable. A two-hundred-dollar bottle with a fifty-dollar markup is a twenty-five percent margin, but the dollar profit is huge. And the guest feels like they're getting a deal compared to what they'd pay at a fancy steakhouse. Luna: So the markup is lower, but the absolute profit is still significant. And it moves inventory. Lucas: Exactly. And here's a concrete number that really stuck with me. A restaurant I talked to in Austin found that for every one dollar they reduced the price on a bottle, they saw a two-dollar increase in total revenue per guest, because more people ordered wine and they were happier overall. That's a pretty good trade. Luna: That's a great stat. But what about the wine snobs? Don't they want to see a big markup as a sign of quality? Lucas: That's the old thinking. The modern consumer is more price-conscious, and they respect a place that's honest about pricing. A wine list with fair markups actually builds trust, which translates to repeat visits. And that's worth more than a one-time forty-dollar margin. Luna: So the takeaway is that wine is no longer a pure profit center, it's more of a customer acquisition tool. Lucas: That's a smart way to frame it. And it connects to something we've talked about on the show before, like loyalty programs beating discounts. This is the same idea, using value to build a relationship, not just a transaction. Luna: Absolutely. And I think that's also why we're seeing more restaurants offer wine subscriptions or wine clubs, which we covered a few episodes back. It's all about creating recurring engagement. Lucas: Right. So if you're running a restaurant and you're still using the old triple markup, it might be worth testing a lower markup on a few bottles and seeing what happens. Track the sales per guest, not just the wine margin. Luna: That's a solid practical tip. And it reminds me, we should mention that these kinds of insights are exactly why we do this show. If you've found value in these conversations, and you want to keep them coming without ads, you can support us at buy me a coffee dot com slash fexingo. It's a simple way to keep the pod ad-free. Lucas: Yeah, we appreciate that. Every bit helps. And honestly, the fact that listeners reach out with their own experiments, like the Austin restaurant example, that's what keeps this going. Luna: For sure. So back to wine. Another thing I've seen is restaurants using a wine list that's actually designed to guide the guest to higher-margin items, not just through markup but through pairing notes. Lucas: Yeah, pairing suggestions can nudge people toward a wine that's a better fit for the food, and that increases the perception of value. A guest who feels like the sommelier is looking out for them is likely to trust the restaurant more. Luna: And that trust translates into bigger tips and higher Yelp ratings, which is another form of revenue. Lucas: Exactly. So the bottom line is, the wine list is not just a menu, it's a strategic tool. And the smart operators are rethinking the old rules. Luna: I think that's a great note to end on. Thanks for listening, everyone. Lucas: Yeah, and if you try the lower markup experiment, let us know how it goes. We love hearing from you.