Basic math

Dear media:

You continue to commission, or write uncommissioned, stories about the mark-up in restaurants. These are poorly researched, damaging, and infuriating to those of us who understand how the business works.

So I am not going to rant and rail against these hatchet jobs. I am going to show you why and how these articles are incorrect and damaging. With any luck, some consumers might read this and learn a thing or two.

1. Comparing retail price points with on-premise (that is restaurants, cafes, bars, pubs etc) is a fundamentally flawed argument.

Retailers – particularly the oft-mentioned chain liquor outlets – buy at a very different price from restaurants. Why? Because restaurants do not have the space to store, or the seats to which to serve the copious volumes required by retailers. Especially the chains. Many of the chains have ‘preferred pricing’ from their suppliers (who are more often than not the producer) – which basically means that they get a cheaper price for the same product, but have it available at most stores. Which equals volume. Like when you, dear consumer, go to a warehouse retailer, or Costco, or wherever it is, and buy loo paper at apocalyptic volumes, super cheap. Same deal.

Restaurants? Restaurants are kinda like the corner store. Or the servo. They buy small volumes, usually from a middle man, the distributor. Who takes a cut, obviously. The wines go from producer, to distributor warehouse to restaurant. Extra transport costs here. Might not seem like much, but this adds up. It cannot be absorbed, and continually increases. This cost, naturally, is added to the product: the wine. So, purchased at a higher price = sold at a higher price.

This is not rocket science.

2. A restaurant is not your living room.

A restaurant is a place selling an experience: food, wine, service, the opportunity to not have to cook, serve and clean up yourself. They have expenses, which make this happen: staff costs; training costs; rent; cutlery; glassware; fitout; cleaners; insurance; security; rates; licence fees; fees to play music; possibly storage costs; countless other fees which you fail to notice in your nice bar, with attentive, knowledgeable staff and food you like to eat with wine/beer/softies/cocktails you like to drink.
They are not doing this for your benefit. A restaurant – at risk of stating the obvious – is a business. It exists to make a profit. That is not the easiest thing to do, but there are a number of people making a great go of it. A part of the profit in a restaurant is acquired through drinks sales. Which essentially means that if you wish to pay the same price for Bottle X as you paid at retailer Y last week, go to that retailer, pick up a bottle, and drink it at home.

Wash up your own glasses, prepare your own food. Clean up after yourself, and then factor everything that went into drinking that bottle over and above the purchase price. How much was your glassware? Did you break one? Double that cost. How about the dining room in which you ate? How much did that cost to be there, available for you to use, and decked out appropriately? How about the cleaning products you used, the petrol or bus ticket to get you to the shop and back? What about the food you bought and served, and the plates on which you served it? What about the table, the seats? What about your time making everything ready for your dinner? Add up the cost. Or don’t. Because you never do. But a restaurant does. Because it is a business.

3. Restaurant pricing is not some massive trick designed to gouge and defraud the poor customers

Mostly because restaurants rely on return business – that is you – actually returning. Funny that.
Restaurant pricing involves a whole host of cost inputs.
Retail pricing involves a whole host of cost inputs. Different ones.

Like tax. On wine, the venue pays WET and GST. And then they sell it on, and collect the GST for the government on that sale, and hand it over. They have payroll tax, and rates and it might just send you mad just considering all the taxation implications in a glass of wine if you were to consider every layer added on.

Do you know what each restaurant you visit might cost to run? And how it costs money even when there is no-one there? Because every little cost associated with having a glass of wine in your house is amplified. Because it is not a glass of wine on the couch. It is a glass of wine, often carefully researched by the sommelier, or the owner, or the manager. This research takes time – and it is not just drinking. They look at the wines which best fit their business, which suit their clientele, which work with the food. They work with their chefs and their suppliers to make the best list, and then try to make a small profit. The time putting wine lists together? Immense. And the hours spent doing this cost money. There are people who do this for a living. That should show you the time, and the investment it requires.

Simply put, a restaurant is not a glass of wine on your couch. If you insist on comparing retail prices with restaurant prices you are continuing to do the industry a disservice. The articles are merely click-bait, and pander to the self-righteous who claim that their Corona at a bar – a clean, prepared, leased, serviced bar – served by a person – trained, paid, uniformed – should be the same price as the Corona they buy (by the case – ie: in volume) at the bottleshop.

There have been countless of these articles over the last few years. Each recycling the same figures. And often followed by an article about failing restaurants a few months later. Funny that. Attacking the hospitality industry – which is one of the biggest employers in the country – is irresponsible. And given the lack of adequate research, contemptible on the part of the writer and the editor/publisher.

If you are going to talk mark-ups, talk about all the costs that enter the equation. Not just the cost of the actual product, but the cost that goes into the location and the service of that product.

It is basic math.

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12 comments on “Basic math

  1. Rosemary says:

    Kate – this is so well put. Thanks for putting in the time and effort to explain it all so well. 🙂

  2. Not filthy rich says:

    A relatively well known local restaurant with ~$35 mains is charging $61 for a Cab Shiraz that retails when not on special for ~$17. A markup of $44, Is that reasonable? I’d eat out a lot more if that wasn’t a common theme.

    I paid $35 for a good steak+prawns and veg at that restaurant, the ingredients were at least $15 worth if I had to buy them from the supermarket. It required skill from the chef to prepare, good timing to serve hot. It had no less overheads than the wine to supply to me, and in fact would cost more as the food had to be bought, and kept, fresh. Yet somehow the markup is less.

    I don’t expect to pay RRP, but I do expect the ‘corkage’ to be reasonable.

    • The balance of food versus wine costs are not even. Nor is the input of service charges, staffing, training etc. Much of the costs of a restaurant are recouped through beverage sales in order to keep food costs reasonable.

      And I certainly cannot comment on individual restaurants. I do not claim to know your local or its individual approach. I would suggest that even listing brands which have a strong retail presence indicates a less than resilient comprehension of wine hospitality.

      But my comment was about the repeated claims in the media that mark-ups are so very high in the hospitality trade with reference to retail pricing. The context must be understood. Blatantly trying to drum up anti-hospitality hysteria is not beneficial for anyone. Explain. Detail the context rather than indicating or outright stating that retail is more expensive than hospitality with no background.

      It is deficient “journalism”, pandering to a faux outrage.

      Sure. Some restaurants overcharge. So do some shoe stores and gyms. So do some pubs for beer and nightclubs for spirits. Vote with your feet. Choose your venue.

      But as a writer in a prime medium, research should be done and context added. Comparing retail with restaurant pricing is not not a balanced debate. It is not even the same discussion.

      That was the point. Apples and oranges. And an utter lack of professionalism on the part of journos who recycle this nonsense a couple of times a year.

      • Not filthy rich says:

        So people who don’t drink wine are subsidised by those who do? How is jacking up beverage costs so that you can lower food costs remotely sensible! Loss leading food? Should I be drinking water?

        Trust me it’s not faux outrage. As I said there is a reason that I and my friends extremely rarely eat at restaurants. Any restaurants. I’ve voted with my feet so many times I’ve lost hope I will see a decent markup. I can easily name 20 friends who rarely eat out.

        I don’t eat out, *I don’t have to*, and I am certainly not being enticed to. But then again, we also learned to cook, I’m no masterchef but I don’t feel I’m missing out.

        Feel free to name an Adelaide restaurant with reasonable wine markup and good food.

        Perhaps the journalists are also not rich, it’s a dying job after all, and perhaps they also are tired of being gouged should they wish a wine instead of water.

        The thing bothers me is the wine industry seems to be happy with the idea “mediocre wine is expensive” – when you pay $61 for a boring wine what do you think the uneducated consumer impression is? Do you think they’re going to buy your premium wine? I can’t count how many times I’ve been told ‘why pay more than $10 for a wine, they all taste pretty much the same, I can’t see the value in the expensive ones’.

      • The costs of running are restaurant are more than just food. These are – by smart restaurateurs – assessed, and pricing evened out to ensure meals are accessibly priced in order to draw people in. It is a part of running what is predominantly a food-based business.

        And maybe eating out either does not show a benefit for your costs – that is entirely up to you. For me? A different equation exists. I have plenty of favourites where the cost of eating out is more than meet by what that cost delivers. Lucky me!

        The faux outrage to which I referred was clearly that of the journos posting these articles. Not you. So please do not take offence at something that was clearly not levied at you.

        The wine industry is not, as you contend, happy with mediocre wine being expensive. We strive to create expressive wines every year to fit various sectors of the market. Should the buyer not be able to tell the difference, that then is an entirely different argument. Perhaps we need a stronger education campaign for drinkers? Force them to appreciate different styles before they are permitted to order in a venue…? Ha!

        Try asking a waiter or sommelier for something within your preferred budget, to your general assessment of your tastes. Not every venue can do this but in many you will be surprised with outstanding wines you may never before have considered.

        There is plenty of diversity and degrees of quality and style within the wine game. For me, I find venues who are happy to surprise me, and to work within what I can afford and prefer. They are rewarded by return business. I enjoy my time there. Deal done.

        Most restaurants are not “gouging”. And would be greatly offended if you were to suggest thusly to their faces.

        Some do. This is true. I avoid them. They are quite easily identified.

        But not all. Not even most.

        And not being able to identify what makes a wine expensive is far from where this began. And is, I believe, a discussion for another day. But if someone is happy with their $8 bottle of cabernet? Awesome. I am actually really happy that they have found something that gives them enjoyment. Because that is the point. Others might see that same wine as being unpalatable. Which is also absolutely ok. Everyone’s palate belongs only to them. And like/dislike is never a matter of right or wrong. But quality and price point is not that discussion.

    • Also? Writing a wine list, maintaining stock, training staff, providing glassware, bar equipment etc, and holding stock? NOT the same as “corkage”.

      If you want to pay corkage rates, go buy a bottle of wine and take it to the venue.

      But don’t forget to factor in your time buying the wine, the glassware, the staff serving and cleaning up after the bottle…. A corkage fee does not come close to covering that.

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