Liquor sales tied in to restaurants' profitability [moved from Minnepolis/ St. Paul board]
[NOTE: We've moved this discussion from the thread at http://chowhound.chow.com/topics/967119 -- The Chowhound Team]
Why does liquor make that much of a difference? I gather the markup on wine is tremendous, and most people order more wine than they do cocktails. (This may be different at places with full and busy bars.)
10-20% percent cost for liquor. 30-50% cost on wine. Even a "tremendous" markup would have a hard time dipping below a 33% cost of goods. Downtown steakhouses are really the only ones that can get away with any wine cost lower, and thats through sheer audacity.
Even at the relatively conservative standard of a 300% markup on wine, it has to be cellared, it is temperamental, multiple vintages might need to be available, corked inventory is a concern, and has soft costs of upkeep of the program (typically the job of 1/2 a manager).
Compared with the equally conservative 1000% markup on a bottle of vodka at the same establishment which requires none of the maintenance soft costs above, it affords an establishment the equivalent of a couple FTEs.
I'm genuinely curious about the claim that a liquor license makes SO much difference in the profit margin and staffing of a restaurant.
My own experience (as a customer) has been that if a restaurant has liquor, some patrons will order mixed drinks instead of wine, and some won't. (I think that the spread of custom cocktail menus is meant to market the liquor better.) So, if a four-top would otherwise order a bottle of wine for the table, they might instead split their order into two glasses of wine and two cocktails. I assume that creates a higher margin than the wine would, but it's incremental.
Places that have bar areas that attract people just to come and drink probably do a lot better with the margins. That applies to a place like La Belle Vie in Minneapolis (which has the bar/lounge separate from the restaurant) but not many of our smaller establishments, which might have a bar with a few seats for people waiting for a table or dining alone, but not as a separate gathering place.
I'm not claiming any special expertise here, but this seems to make sense to me.