“Why is wine so expensive in restaurants?”
I wish I had a cent for every time I have been asked that question. If you are confused or annoyed by the prices charged by restaurants and hotels, you are certainly not alone.
Wine and other drinks play a key role in the profitability of a restaurant. A typical gross margin is 60-70 per cent, and sometimes even higher for wines by the glass and house wine. One source told me this can rise to 75 per cent and even 80 per cent in some city-centre Dublin restaurants.
Let’s take 70 per cent as our end point. This would see a bottle of wine costing €10 excluding VAT from a wholesaler ending up at around €40 on a restaurant wine list. Often, this works out as two and a half to three times the retail price. This may seem a lot, but the formula is often similar for food, unless restaurants elect to take lower margins on dishes where most people are very familiar with the purchase price – a striploin steak for example. The fact is though, there are hundreds of different bottles of Bordeaux, so finding one that’s new to customers will not be impossible. And some restaurants and hotels (where margins are typically higher) source exclusive labels that won’t appear in a wine shop or supermarket.
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The main thing to remember with Irish wine prices is that they will be heightened by our high taxes; duties and VAT on alcohol are far higher here than in almost every other European country. In addition, we are among the most diligent in applying expensive but valuable EU health and safety regulations.
It’s also worth noting that we are not unique in having high margins. Upmarket restaurants in big cities such as London, Milan, Copenhagen and Paris work on margins of 80 per cent or more. City-centre restaurants, especially in Dublin, tend to have higher prices, but then they pay higher rents. However, they will also have a higher turnover.
Despite these lofty numbers, it seems not all diners are buying less expensive wines from restaurants’ lists. “Some people are looking for value, but there is a lot of wealth out there. Some people want to spend and to be seen to spend,” said one importer when I asked about this. Another told me that €50 - €90 is the sweet spot on most wine lists, where the best value is to be found.
The system does punish wine lovers who want to trade up, as they may have to pay €60 - 80 for a wine compared to €25 - 30 if they drink the same bottle at home. Some restaurants price their more expensive wines based on a set cash margin, making them more reasonable. It is sometimes said that restaurants price their food at cost and look to make their profit on drinks alone. One restaurateur told me this was unlikely.
“If you aren’t making 60 per cent on both food and wine then you aren’t covering everything. 60 per cent will give you a 10 per cent net profit,” they said. Another pointed out that while we may grouse about the price of wine, margins on cocktails are frequently far higher.
Possibly the best value of all can be found in wine shops that double as wine bars, serving simple food. Some of these allow customers to pick any bottle off the shelf and pay €10-20 corkage, making wine much cheaper than in a restaurant. For instance, you could enjoy a wine retailing at €30 for €40; the same bottle would be €70 in a restaurant. Yet several wine bar proprietors told me customers objected to this system, feeling they were being conned, and some have reverted to a percentage profit system.
[ Neighbourhood wine shops and bars are popping up everywhere. Who’s behind them?Opens in new window ]
Another way to avoid high wine prices is to bring your own bottle. In general, restaurants are not keen on customers bringing their own wine and will charge corkage. This can be as high as €50 a bottle. There are exceptions; Hawksmoor in Dublin 2 has a €5 corkage on Mondays and The Vintage Kitchen, also in Dublin 2, charges €7 on Monday and Tuesdays. However, there are many Indian, Chinese and Mediterranean restaurants that do not sell wine and are quite happy for you to bring your own for a nominal corkage fee.
One wine importer I spoke to meanwhile came to the defence of restaurants, telling me that he didn’t know how they survived: “I see the costs; if you look at the rents and operating costs, especially paying anything from €40 – €100,000 rent ... Then there are increased wages and the pension contribution. I don’t know how they do it. They are amazing business people.”
Ultimately, you are not paying for the wine, or other drinks when you eat out. You are paying for the experience, the ambience and the service. I judge a restaurant on the final total bill, including wine, other drinks (including water) and the food and ask myself if it feels like good value. If it does I will return. If not, I won’t.
[ Restaurant customer doing ‘dry December’ quoted €40 corkage for alcohol-free wineOpens in new window ]
