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Feb 2, 2010 02:22 PM

America's Biggest Rip-offs

Restaurant wine is one of America's Biggest Rip-offs, but we already knew that:

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  1. If you think wine in a restaurant is a rip-off, don't order it. Then you won't get ripped off.

    In our restaurant we've had a great deal of success with our wine program by offering them at a slightly lower mark-up than many of our competitors. But in doing this we have to keep a manageable list of wines to offer.

    The reason most restaurants mark-up wine so much is because it costs a lot of money to establish a wine inventory. Money tied up in inventory is money that can't work for the business. When you pay $150 at a restaurant for a bottle of wine that you could perhaps buy for $40-$50 at a wine shop, you're not paying for the wine. You're paying for the fact that the restaurant made that particular wine (which we'll assume pairs perfectly with your dinner) available for purchase to you in the first place, by seeking a good vendor, researching the wine, putting the wine on the list and into inventory, and providing the tools/glassware appropriate for serving the wine.

    3 Replies
    1. re: shaogo

      this is a fair condition, or at least your explanation. what you describe is in fact quite a markup, though, to quite a few consumers.

      i agree with the 'if you think it's a rip, then skip it' idea--- further, if you find things like that to be 'rips', then perhaps you should choose an entirely different kind of dining establishment. agreed?

      1. re: vinoemmie

        I applaud shaogo's practice of a lower mark-up. Although Americans comfortably order wine more frequently than they used to, I think there is still a perception that high prices on restaurant wine are just pretension, which fits in with the long-established wine-snobbery notion.

        I get the reasoning behind substantial mark-ups myself, and am comfortable with them, but if the objective is to get more people to order wine more often, it is a nice idea to turn down the price levels. Maybe maintain a less-fancy cellar, for example.

        There was a thread on this board awhile back where someone was citing lower prices = increased wine sales, but can't remember when/where.

      2. re: shaogo

        Going back many years, the restaurant industry did a study. I have searched for it, and begged for it, but to date, no one has found it. In that study, the markup of wines vs profits were studied in many US restaurants, across the country, and at many different levels. The findings were that restaurants, that had lower margins, just enough to cover ALL costs, and still return a profit, sold much more wine, and made more profit in the end.

        I am a big fan of the fixed markup, regardless of whether the bottle cost US$5, or US$50 at retail. Still, so much will depend on the wine list, and what it has cost to get those wines.

        Too many writers and diners fail to really do the math. A bottle of Jos. Phelps Insignia, that they bought via the wine club for the current vintage, will not equal the price for a bottle of the '02, that has been cellared since release. They will look at the current price, and scream at the price of an earlier vintage, not realizing that there are differences.

        Few realize that there are differences year to year, and decade to decade. They stop by BevMo and look at the prices for what they thing might be similar, and then protest.

        As above, just get "take out," and have that BevMo wine in your own wine glasses, back in front of the TV.

        Good luck,


      3. There have been many threads on what goes into the prices of wines in restaurants. The author took some examples, and just did "the math." Much more goes into things, and they have been discussed until they induce nausea.

        If one wishes to have a bottle from Trader Joe's at home, so be it. If it's only about the cost/btl. at home vs the cost/btl. at a restaurantt, then maybe a beer would be a better choice.

        To me, this is a perfect example of "sensationalism in journalism." It's all about the headlines, and a few sound bites - nothing more.


        2 Replies
        1. re: Bill Hunt

          Do we think the wine industry will be sending a Christmas card to CNN.Money this coming year?

          Not exactly what the industry needs right now! .........Especially given that the writer seems to be almost totally oblivious to the reality of the restaurant business as well as the variations among restaurants in handling wine pricing.

          1. re: Midlife

            Wow, somehow I missed reading the original article until now. What a simplistic, sensationalistic piece.

        2. What I don't get is when people throw a fit because they have to pay corkage on the wine they bring themselves.

          1 Reply
          1. re: jpc8015

            Yep. Would they expect the restaurant to provide plates, silverware, wait staff, etc for their brought-in KFC? I don't see a lot of difference.

          2. I know that many people will disagree with me here, but you also have to take into account the fact that in our area, restaurants pay a hefty tag for their liquor license. In the small, one square mile town that I live in here in NJ, a liquor license costs $250K. How does someone open a restaurant in town with a pricetag like that? Well, for the most part, the new restaurants we get are BYO. But $250K is cheap compared to other areas here in NJ where I have heard they cost upwards of $750K.

            For someone to complain about corkage to me is absolutely ridiculous. I would rather pay a $50 corkage fee and bring my own wine, than pay $1000 for an '88 Sassicaia. Anytime I can bring something special from home from our cellar to a restaurant on a special ocassion, I do.

            My wife and I are hardcore foodies, and when looking for a new restaurant to blog about, or to feature in one of the local papers I write for, we search out BYO's. We love to bring something nice from our cellar, so we don't have to pay over inflated prices for good wine.

            On the other hand, we too have restaurants where we visit, and we've made friends with the sommelier or the owner, and they'll cut us great breaks off of their wine list. Is this fair to other customers? Not really, but when we frequent a restaurant multiple times a month, it is a nice gesture on behalf of the owner.

            Interesting comments by shaogo about "paying for the fact that the restaurant made that particular wine (which we'll assume pairs perfectly with your dinner) available for purchase to you in the first place." I never thought of it that way, but that is a very valid point, and makes perfect sense to me.

            Just my 2 yen. -mJ

            8 Replies
            1. re: njfoodies

              It's really nice to see a non-restaurant person who's aware of the cost of a liquor license. What you didn't add was the $3,000-$10,000 annual restaurant liability insurance premium, then an additional premium of between $800-$2000 for liquor law liability coverage. Some states mandate coverage levels (but that's just common sense). I'm in Connecticut, where it's much cheaper to get a liquor license than New Jersey. You see, in New Jersey, there are only so many licenses available in a particular area/township. That's why they're bought and sold at such a high price.

              Bill Hunt mentioned hereinabove a restaurant study that shows that restaurants sell more wine when the mark-up is lower. Wine companies, while crowing about the "profit potential" for the restaurateur that their particular portfolios harbor, secretly wish that we'd all lower our mark-up and start generating some serious volume. Although I'd like to direct Bill to tangible proof that such a study is out there, I, too, looked and couldn't find it.

              The good news is that plenty of restaurants have been impelled to reconsider their pricing structures given the current state of the economy. There are better bargains in good wine being offered than ever before in restaurants. And wine sales, adjusted for the recession, are brisk at the places that're more progressively pricing wine. Broad by-the-glass programs are generating more profits for restaurateurs than ever, and are providing value for the customer.

              To the OP: as soon as you can develop a wine program for your restaurant that enables you to sell your wines at only a liquor-store markup, and make a living doing it, please tell me the secret!

              1. re: shaogo

                You are spot on with the number of licenses in certain municipalities here. That makes it very hard, and very expensive.

                While I agree that there are bargains in good wien out there, what I am sick of is seeing the Red Truck's, Turning Leaf's, and other "crap wines" as the only wines by the glass, and seeing restaurants getting $8-$10 per glass for them. That drives me absolutely nuts, and a great reason to have a cocktail or a beer. But those too can be at ridiculous markups.

                That brings me back to the whole BYOB scene, and why we search them out! Doesn't get any better! -mJ

                1. re: njfoodies

                  Like the time I found a wine on a restaurant menu, for $32, that I sold in my own shop for $7.99 (cost $5). *#%!#!!

                  The only conclusion I can come to on that is that some restaurants have a minimum price at which they feel they can do wine service.

                  1. re: Midlife

                    We have a local restaurant/bar, Jesters Cafe, that does that as well. One of the reasons we hang out at another restaurant/bar down the street, The Farnsworth House. Better food, and much better drink prices. And the owner will let us BYO with corkage just because we go there so much. If we're having dinner there, we may BYO, but if we're hanging out at the bar for a sandwich, we'll drink off their list. A few weeks ago we were there and the owner gave us a 1999 Beaulieu Vineyard Cabernet Sauvignon Georges de Latour Private Reserve on the house just for being good customers! Not bad! -mJ

                  2. re: njfoodies

                    I have been involved in transactions in NJ where the liquor license at places at the Shore have hit the 7 figure mark - more than the real estate transferred. Keep in mind that this is some of the most expensive real property in the US! I do not begrudge any establishment for charging for the cost of having such a rediculous cost of doing business - especially if they have a well thought out list (and offer a good selecletion of gins!).

                    I also think it worth noting that since most restaurants don't buy in the volumes that the mega-stores do, they buy wholesale at a higher price. Thus, the markup is less than it may appear.

                    Finally, I enjoy discussing wine with the sommelier, manager. owner, or (my favorite) the chef who chose the list. If you share your thoughts and tastes, you are more than likely to benefit from their efforts - just be honest.

                    1. re: MGZ

                      7 figures in Jersey doesn't surprise me in the least here. Areas like Long Beach Island, etc are still bringing in big numbers on everything real estate related. There are however a few good BYO's still left on LBI.

                      I understand that restaurants pay different prices for wine, and I can appreciate that. I can also appreciate the fact that it takes space to store the wine, etc. What I really appreciate is restaurants that have been storing wine for years to get some age on there bottles. In talking to sommelier friends, I love listening to them talk about how they have case upon case of wine XXX in the corner of their walk in climate controlled cellars in the basements of their restaurants. They won't list these on their wine lists yet, as they don't want to be selling them yet. This is something that I can appreciate, although I am sure there are people out there who don't care, and would have no problem walking into a steakhouse in New York tonight and ordering a 2009 Opus One if it were on the menu.

                      I always make friends with the sommelier at a restaurant. It's just good practice, and we've gotten to taste many good wines because of it, or gotten a good tour out of it. Last time we were at Gordon Ramsay's restaurant we got a cellar and kitchen tour after making friends with the sommelier there. Good stuff. -mJ

                2. re: njfoodies

                  I was made aware of the difficulty and high cost of liquor licenses in NJ recently while visiting my daughter living at that time in NJ. Going out to dinner became high priced when wine was calculated in. In addition, it seemed from comments from restauranteurs that the density of licensed restaurants was also controlled. In view of that BYOB became an acceptable way out for both the restauranteur and the diner. Were we living regularly in the area, I would plan on that and have a ready supply to use depending on the cuisine of the restaurant we planned to visit.

                  1. re: feelinpeckish

                    Every municipality is different indeed, and most of them limit the number of licenses they sell, while some towns are dry and have no liquor licenses at all, but do allow BYOB. Haddonfield, NJ comes to mind here.

                    A ready supply is always a good thing indeed, hence the reason our cellar is always hovering between 600-700 bottles. ;-) -mJ

                3. I'm an accountant/analyst, so the type of study mentioned here (one that takes in all the restaurant's licensing, research, liability, holding costs, need to make a profit, etc) rings very true to me. And while I don't have the time nor the data to do such a calculation, I am usually pretty good at giving a scenario the "sniff" test. And when I sniff the typical wine list that shows a mark-up to 3 times retail (and by the way, as we all know, the restaurant is paying something closer to wholesale), something does not smell right to me.
                  As a result, I'm a big fan of BYOB. And I do not begrudge a corkage fee that covers the cost of owning and maintaining glassware, a license that allows the wine to be poured, and a modest fee for the restaurant. Further, I make sure that I tip the waiter appropriately for the work associated with the wine service.
                  What really irks me (and usually results in a cancelled reservation) is the restaurant that has an exorbitant mark-up and/or a lousy wine list but will not allow BYOB. That feels like a hostage siutation to me, and one that I'm not going to voluntarily become a part of. I understand the sentiment of "just don't order/bring wine". But for a nice relaxing dinner out with family or friends, wine is an integral part of the meal, and one that I'm not willing to forego.

                  12 Replies
                  1. re: chadrich

                    Let's see. I buy coffee at $12 a pound. That makes 60 cups or 50 cents a cup. Fancy restaurant sells it for $2.50 or a 5X mark up.

                    You buy a nice filet mignon for $16 a pound. Restaurant sells it to you for $32 for a 8 oz portion. 4X mark up.

                    All of a sudden the 3X mark up on wine isn't so bad.

                    1. re: dinwiddie

                      Exactly! But, for some reason, most people don't see it that way.

                      I've always believed it's because the comparison on wine is so easy and direct (you saw the exact same bottle on a retail shelf) AND because 'all' the restaurant is doing is opening it and pouring it. Not much perceived 'added value' from preparation or chef contribution (as with coffee or steak). Shaogo (above) explains what the restaurant adds in value, but it's a tough sell to a lot of people.

                      1. re: Midlife

                        I would argue that you also have to look at this in absolute dollars, not just percentage mark-up. And that the amount of labor and effort that goes into the cooking or brewing of that steak or coffee, and the risk of loss (waste of stale coffee, spoilage of meat) justify the $ mark-up moreso than the costs associated with providing and serving the wine. It wouldn't be worth your bother to brew coffee, soil a cup and saucer, provide cream and sugar, and drag it all to the table if you didn't make $2.00 on the effort, even though that is 5X. I'll also give you a $24 (4X) mark-up on the steak to provide it fresh, cook it right, serve it, and clean-up afterward. But I have more trouble giving you a $100 (or 3X) mark-up on a $50 bottle of wine. I probably need a spreadsheet, but just can't make the overhead (including all the items listed above) accumulate to enough to justify that.

                        I would also argue that the costs associated with the wine are not "scalable" other than the cost of capital tied-up in the more expensive bottles. So perhaps a $10 retail bottle might in fact need to sell for $25 to cover the overhead and a profit. But seems like the $50 retail bottle should sell for something like $75 and more than amply cover that same overhead.

                        I don't know (and would be interested in hearing from someone who does), what the "spoilage" of wine in a restaurant is (ie how many bottles age in the rack and never sell before they're too old to be viable)? I'm sure a lot of that depends on the volume of the restaurant and the quality of the list itself.

                        1. re: chadrich

                          Valid points.

                          You are very right. The costs associated with wine are often not scalable. However, this is reflected in nearly every restaurant as well: The higher the price of the wine, the lower its percentage markup. The astute consumer, or a good sommelier, will be able to tell you where the jump occurs.

                          Spoilage of wine in restaurants occurs frequently, but not necessarily in terms of wine being too old to be drinkable. We have all had wines that have faded, and weren't drinking at their best. Again, a good wine program will be able to move these off their lists in one way or another, either through staff training, or offering them at a discount. It is very rare that a bottle of old wine goes "bad." Most wines are moved before that point.

                          There are lots of other spoilage issues, most of which cannot be controlled. While distributors offer credit for corked wines, other wine issues such as oxidation, and more and more often, volatile acidity, are often costs that the restaurant must bear, especially since they do not often appear until it is much too late for a refund or credit of the bottles.

                          1. re: mengathon

                            I'm also not sure where that US$50K wine cellar should come in, or the auction prices to acquire those wonderful '50s vintage wines. Guess that those need to just be ruled out, as the average consumer just picks up a bottle from BevMo, and never gives it any consideration.


                          2. re: chadrich

                            This is laboring under the assumption that all wine is perfect, there is no breakage of bottles, that there is no breakage of glassware, that the staff knows all wines perfectly, so that there is no training related to pairing with the foods for the kitchen (that day), and that the sommelier is wonderfully wealthy, and knows everything about every wine. Oh, I am sure that I missed a few high points, but what most see is an effortless "dance." It is anything but, and too few have a clue.


                          3. re: Midlife

                            Yes, the perceived value of opening and pouring wine is minimal to most people. I would even argue that the true added value of a good restaurant wine list is not the glassware, or the service involved. After all, many rational diners who are willing to eat out and spend a $50 for a 10oz New York Strip still cringe when they see the wine list. Instead of considering the wine as a whole part of the meal, it is treated separately. The added value of a good restaurant wine list, I would argue, and one that is often ignored, is access and options. A good list will provide something for every diner. There is value added in having the right wines to match the food, and having the right professionals serve it the way you would like it served.

                            1. re: mengathon

                              How right you are. No matter how "unreasonable" a flat mark-up rate is, it pays the salary of the restaurant's sommelier.

                              A sommelier's day is very long. A whole lot of work goes into crafting, putting into inventory and maintaining a list of wines that will accommodate most diners' taste and pocketbooks. When one pays a wine mark-up in a restaurant, it's like paying for the hours spent tasting hundreds of wines, and the long memory for most of them, that a great sommelier must commit to.

                              Ahem. Endless hours tasting hundreds of wines... and getting paid for it? HEY! I'm gonna become a sommelier! (hic!)

                              1. re: mengathon

                                Great points, and one seldom considered. Yes, the sommelier gets comp'ed tastings from the distributor, or importer, but then when he/she trains the staff, that wine is usually not comp'ed, but must be paid for somewhere along the line.

                                Consumers are very quick, should the sommelier's pick not meet their expectations, but seldom consider what might have gone into that single choice.


                            2. re: dinwiddie

                              Amen. Not to mention the fountain soda....

                              1. re: dinwiddie

                                dinwiddie: that was superbly put.

                                If you wanna play, you gotta pay. That's it. Those who feel ripped off by mark-ups can just avoid buying wine in restaurants, or BYOB.

                                The rest of us will order what we want, have a great time and some great wine, and be a few dollars poorer. It's only money.

                              2. re: chadrich

                                I agree with most of what you say. But it cant be, as you say, a hostage situation if you have the choice to volunteer!

                                Wine is also an integral part of the meal to me. Not always, but most of the time. I simply refuse to go to restaurants that either don't have a good list, refuse BYOB, or are too exorbitant in mark ups. As always, vote with your feet and wallet. Don't go to these places.