Understanding the costs Why is wine so expensive?

IF I asked you to tell how much a tube of toothpaste cost, not many could give the cost of that gel-infused paste. If you did know the price, have you ever complained or questioned the amount, or is it simply an accepted cost?

What if you asked the same question in relation to a bottle of your favourite vino in your favourite restaurant?

Most consumers only seem to question the price of a bottle of wine when they sit down to dine and are confronted with a wine list that presents their favourite drop as costing them at least twice what the bottle shop down the road would charge. Why is this so? How can a restaurant justify this seemingly enormous hike in price?

Where does the markup come from and what is reasonable?

In the running of a restaurant it is important that wine, beer and spirits sales are treated as a separate department within the operational aspect of the restaurant.

Like other parts of the business, the alcohol component should deliver its own profit. It should be accountable for the cost of running the services involved in getting beverages onto your table.

Those costs, which will account for the ‘markup’, will include some, if not all, of the following and give some justification to the additional costs added to your bottle of wine.

p Printing and maintenance of the actual wine list.

p The storage cost of the beverages. It is unlikely you will store a bottle of Grange with the cabbages and peanut oil.

p Refrigeration of the beverages. As many will remember their mother yelling at them as they opened the fridge for the 10th time inside an hour, the fridge costs a lot to run.

p Ice or ice machine

p Service of the wine, including training, napkins, opener, ice bucket or cooler, glasses, washing of glasses, including detergent and dish washer.

p The annual liquor licence fee.

p The Federal Government’s cut.

p Freight.

p Profit for the company that sold the stuff to you.

p A percentage of credit card charges, bank fees and other general restaurant administration fees.

p An allowance should be made for ‘cellared’ wines in terms of cash flow.

p Those with an exclusive cellar list will need to factor-in holding costs and appreciation.

p Profit for the restaurant.

What sort of dollars and cents are you talking about in order to meet the above costs?

It will depend on the individual restaurant but, in general terms, if you buy a bottle of wine for $10, approximate costs will be about $6 before the restaurant adds its profit.

If the restaurant is not adding about 20 per cent then there will be a “for lease” sign hanging around there door handle before too long.

This equation means an approximate cost for that $10 bottle of $19.20. Round that up and you will get a list price of $20.

Many will tell you that a rule of thumb is a mark up of 100 per cent on the cost of the wine. But punters will need to be aware that there are a number of factors that influence the final costing.

You can see that it is not simply a case of pulling a bottle out of the pantry and popping it on the table as we do at home. Even at home we take into account the price of wine in some form – the wine in the pantry has been budgeted for.

The price of a wine on wine lists will always cause discussion. It may help if the number of restaurants listing the usual suspects would move outside of the square (or state) we live in and list wines less commonly discounted in bottle shops.

The public is now an educated one.

Staff training also should be included in the cost of the wine. Staff should be encouraged to recommend a wine if it presents more profit and is of quality. A restaurant also should be aware of the prices and products offered in establishments around them and carefully monitor sales, replacing wines that do not cut the mustard and introducing those which will be to their advantage.

Next time you are out for a meal and are presented with a wine list, don’t cringe at the prices listed, but remember you are not leaning into your pantry at home.

As for a good wine list and who in Perth excels, well, that is another topic we will investigate another day.

Next week I will give you a rundown on how the vintage 2001 has fared across WA, and through areas like Coonawarra and the Barossa.

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