How do restaurants price their wine?

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A recent article in the Wall Street Journal tried to demystify the pricing used in restaurants for their wine lists. I say ‘tried’ because, while they discovered a lot of information, the real answer still remains, “Who the *@#$ knows?”

The article is entitled “Cracking the Code Of Restaurant Wine Pricing” and here are some excerpts:

Never mind trying to understand oil prices; for complexity, inscrutability and sheer customer frustration, it’s hard to match restaurant wine pricing.

Even within a single chain, the numbers can vary widely. While a diner at Ruth’s Chris Steak House in Dallas can get a bottle of 2005 Duckhorn Merlot for $96, that same bottle costs $160 at Ruth’s Chris in Pittsburgh.

That seems pretty odd to me. I understand that there can be regional variations in prices, but not only is $64 a huge variation, it would seem to me that one of the benefits of eating at a chain, albeit an upscale one, is consistency in service, quality, and pricing.

The article goes on to say:

To crack the pricing code, The Wall Street Journal interviewed nearly three dozen sommeliers, beverage directors, alcohol distributors and academics. These wine experts helped assemble a strategy for finding the best restaurant deals — or at least not falling for the worst ones.

The findings: Sometimes, more-expensive wines are the better deals. Wines from regions like Argentina and Spain are likely to be marked up less than ones from Napa or Bordeaux. And if you’re looking for value, don’t order wine by the glass.

That is sound advice, but not exactly ground breaking news for anyone who drinks much wine and dines out. I almost quit reading at this point since I already know what regions provide bargains and always assume that translates into bargains at restaurants and wine bars. That would have been a mistake, as the really good stuff was in the second part of the article.

The first step to finding better deals on wine is understanding the formula behind most restaurant wine pricing. The standard restaurant markup is about three times the wholesale cost, or about twice the retail price. In most restaurants, the markup decreases as the wholesale price of the bottle increases: An inexpensive bottle might be priced three to four times its wholesale cost, while a pricey wine may be marked up only 1.5 times. This so-called progressive markup helps sell more expensive wines.

The first step to finding better deals on wine is understanding the formula behind most restaurant wine pricing. The standard restaurant markup is about three times the wholesale cost, or about twice the retail price. In most restaurants, the markup decreases as the wholesale price of the bottle increases: An inexpensive bottle might be priced three to four times its wholesale cost, while a pricey wine may be marked up only 1.5 times. This so-called progressive markup helps sell more expensive wines.

For anyone who drinks wine when they go out or anyone who runs a restaurant, there is a lot more good information contained in the article.