Restaurant Wine Prices: Ouch!

The way most American restaurants sell wine is a disaster.

Many restaurants charge too much for wine; many restaurants store wine badly; many use terrible glassware; many have staffs who pronounce the word “wine” as if it had an h in it (as in, “But I don’t know howwww to use a corkscrew”).

Pricing wine isn’t easy. But for decades restaurant managers and accountants have followed a pricing strategy that I feel is sadly out of date--multiplying the cost of a bottle by a fixed figure to get a wine list price. This may work well for some products, such as shoes, but when high percentages are used to mark up wine in restaurants, the result can be grossly out of proportion to the retail price.

Jeff Prather, restaurant director and cellar master at the Culinary Institute of America at Greystone in the Napa Valley, says, “There’s an old saying: ‘You don’t take percentages to the bank--you take dollars to the bank.’ When I was at Ray’s Boathouse [in Seattle], I showed the owners that by lowering our [wine] prices, we would make more money.”

It’s outrageous for restaurants to charge three and four times the cost for a bottle a wine. This makes a bottle of wine for which the restaurant paid $10 cost $30 on the wine list. Such prices, usually dictated by formula pricing, mean that in many cases the restaurant owner makes more on the bottle than the winery.

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Before the repeal of the Fair Trade laws in California in 1978, formula pricing wasn’t perceived as very odious because retail shops all marked up wines a standard 50%. Deep discounting was forbidden. So the wine that cost $10 wholesale was always $15 at retail, and the $30 charged in a restaurant didn’t look so bad.

Today, however, discounting is legal and widely practiced at retail, though restaurants have failed to acknowledge this trend. This means that the “$15 retail” wine often can be found for $9.99 in discount retail stores. This makes the $30 you’re charged for it in a cafe look like a rip-off. And it is.

True, restaurants usually pay more for many wines than discount shops, but there are many kinds of special deals that offset some of the pain, including some that retail shops can’t get. Rarely do restaurants pass these discounts along to the consumer, though.

Eventually, high wine pricing can lead to empty seats in restaurants. Consumers, tired of paying $75 for a simple meal for two because the wine was $35, may stage an undeclared boycott and, instead of telling the restaurant owner they felt the wine was overpriced, simply stay home or dine at those (few) places with reasonable pricing.

Empty seats, no matter how created, lead most restaurant owners to blame fate, but sometimes a restaurant will use a low-cost wine promotion to solve a problem of no business.

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One example is a restaurant named Cite. Because it’s located in the heart of the New York theater district, it always emptied out at curtain time, leaving the place looking like a morgue after 8 p.m.

“The pre-theater people leave, and we needed something to encourage later diners,” says Beverly Barbour of the New York Restaurant Group, which owns Cite. “So [owner] Alan Stillman thought it would be a good idea to give away wine with dinner after 8 p.m. Everyone thought we were crazy, but it’s been incredibly successful.”

Barbour says Cite offers a three-course, $39.95 dinner that features “unlimited quantities” of four wines. This month’s choices are Taittinger Brut La Francaise Champagne; 1993 Robert Mondavi Fume Blanc; a 1992 Premier Cru Meursault, and 1991 Kenwood “Jack London Vineyard” Merlot.

“The promotion has increased traffic amazingly,” says Barbour. “From a handful of people, we now have a crowd.” The cost of the wine is minimal compared to the cost of paying a full service and kitchen staff to handle a room full of empty seats, she says.

Restaurants must become more creative with all aspects of their wine programs, says Steve Mitkowski, who runs the beverage program for Cornell University’s hospitality school. Doing the same thing year after year leads to stagnation.

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Mitkowski says formulas for pricing wine should be tailored to the restaurant’s clientele, menu and goals. One idea, he says, is for a restaurant to ask itself how much it wants to make on a bottle of wine: “Should it be $10 per bottle, or $12? Then the owner could add on the cost of service, say $2 to $3.

“This encourages wine lovers to try more expensive wines,” he says.

Wendy Webster, a spokeswoman for the National Restaurant Assn. in Washington, says special price-related promotions on slow nights can be one way to entice diners in.

“Americans have really become cost-conscious when eating out,” she says. As a consequence, “menu price inflation was only 1.7% last year, the lowest annual increase in more than a decade. The market is so competitive, if the guy across the street slashes his prices, you have to too,” including wine.

Says Jeff Prather of the CIA: “Restaurants must gear their wine pricing toward building and maintaining a strong customer base, and wine lovers are a great base to have.

“What is a regular customer worth? Should you encourage these people to dine at your place regularly with modest wine prices, or should you keep them as only occasional diners by charging a lot of money for wine? The short-term gain of a few dollars could end up in a long-term loss. Give me the loyal diner every time.”