Highs and (Rare) Lows in Restaurant Wine Prices

ALTHOUGH I’LL ADMIT I’m particularly (perhaps even preternaturally) sensitive to restaurant wine prices, it seems as if they’ve gone up a lot lately—even more than they have in retail wine shops. Are restaurant wine directors actually paying more for their wines, or are they just taking higher markups? According to Chuck Ellis, president of the Newton, Mass.-based research group Restaurant Sciences, it’s actually a bit of both.

Restaurant wine prices for the same wines are definitely higher overall, said Mr. Ellis in a recent phone call, and the reason is “a mix of higher wholesale prices and higher margins.” Restaurant Sciences tracks thousands of wine, beer and liquor brands across tens of thousands of restaurants, nightclubs and bars in the U.S. and Canada, and in the past six months, the company’s researchers found an “absolute increase” in wine markups.

The markup of a wine—the amount of money a restaurant charges above the wholesale price—is a rather touchy topic for most restaurateurs. In fact, that was the first point that Bernie Sun, beverage director for the Jean-Georges restaurant group, made in an email to me. Mr. Sun, who oversees around 20 restaurants all over the world, sees the situation from two perspectives. He’s “a wine guy” who was once a sommelier, which means he wants wines to be accessibly priced. But he’s also a corporate director who knows that wine is a “revenue center.”

As a revenue center, wine has to support several other costs, said Mr. Sun. For example, there is the expensive stemware (Riedel), the salaries of the sommeliers (Jean-Georges has four) and even the cost of the wine list itself. For example, the 16 leather wine-list binders at the Jean-Georges flagship cost $500 apiece and every page in the book costs 15 cents a sheet. The list is 32 pages long and changes almost daily.

And then there’s the cost of inventory, particularly with wines that are kept for a period of years before they’re placed on the list. It’s expensive to buy wines and then store them. While these wines may be more pleasurable to drink after a few years of age, they restrict cash flow—and take up precious cellar space.

These are some of the more defensible reasons for a markup between two and three times the wholesale cost of the bottle. As Mr. Sun notes, the “conventional markup” at New York fine-dining restaurants sees bottles sell for around three times the wholesale cost. This seems to be true in other parts of the country as well, according to restaurant directors I spoke with from California to Cleveland. But there are exceptions to this rule—restaurants that mark up their wines to four times wholesale or more. (Generally speaking, the retail markup on a bottle of wine is one and a half times its wholesale price.)

Take, for example, Montmartre in New York. This simple French bistro doesn’t have a wine list in a fancy leather binder (it’s one page in a plastic sleeve) or a team of sommeliers, and I doubt that it has the wines in its cellar for more than few weeks. The restaurant has been open for only a few months, after all. And yet, the markup on its wine list is close to four times wholesale—and often more.

“One restaurateur marked up each wine only $20—but customers didn’t notice.”

The list features some nice choices, but the prices are high—not necessarily in terms of actual dollars, but in terms of markups. The bottle of 2011 Clos de Roilette Fleurie that I ordered cost $64 at the restaurant, but it’s only $15 a bottle wholesale in New York (and even less if more than three cases are ordered, according to its distributor, David Bowler Wines).

The 2011 Brick House Gamay, a lovely Oregon wine that costs $20 wholesale, was priced at $70 on the Montmartre list. And there was more. The 2010 Dashe Dry Creek Zinfandel, priced at $64, costs $17 wholesale. The seemingly reasonable 2011 Les Garrigues Côtes du Rhône (one of the cheapest wines on the list) was priced at $40 a bottle but costs only $7.33 wholesale—and that’s not counting possible quantity discounts. That seemed like a pretty fat profit margin to me.

When I contacted Gabriel Stulman, the owner of Montmartre and New York restaurants Fedora, Joseph Leonard, Chez Sardine, Perla and Jeffrey’s Grocery, he said the wholesale prices he’d paid were higher than the ones I’d found (though he couldn’t give exact figures). He also noted that his restaurants were very small and his expenses were high, including a “substantially higher payroll” for his staff than average (though he didn’t cite salary figures).

While it is certainly laudable to compensate a professional staff, such markups are still annoying to wine drinkers and to the winemakers themselves. When I emailed one producer to tell him how much his wine had been marked up on a list, he expressed great frustration, explaining that he only made a few dollars profit on the wine himself.

Why do restaurateurs indulge in this sort of outrageous stuff? “Because they can,” said Bobby Stuckey, the owner and wine director at Frasca Food & Wine in Boulder, Colo., which this year won a James Beard Award for outstanding wine service. And he had an interesting theory: It was because restaurant critics weren’t acting as watchdogs. “Restaurant critics don’t have the expertise about wine. If a journalist doesn’t know it’s an abuse, they can’t give a restaurateur an incentive to change,” said Mr. Stuckey.

There are restaurants that Mr. Stuckey simply won’t patronize on account of their wine pricing. Was that because he knew how much a wine actually costs? In fact, it was because Mr. Stuckey regarded the excessive markup as a red flag of sorts, a clue that the diner “might not be getting the greatest food product.” In other words, if they’re gouging you on wine, they’re probably not doing you any favors when it comes to the food. (Mr. Stuckey was careful to point out his theory didn’t apply to restaurants at the highest level that spend a great deal of money on glassware and staff education.)

Mr. Stuckey has changed his wine pricing structure over the years. For several years, he charged only $20 over the retail price of the wine on every bottle on his list. But it didn’t make a lot of fiscal sense, and worse, no one even seemed to notice they were getting a great deal—neither customers nor reviewers. Right now, the average Frasca markup is about 2.75 times the wholesale cost. The fact that the restaurant is now in its 10th year and is much-acclaimed would seem like a solid indication that this is a good route.

David Gordon has been the wine director at Tribeca Grill in New York for more than 20 years and presides over one of the most reasonably priced lists in the city. This is especially true of the wines with some age. Mr. Gordon doesn’t mark up wines he has had for years—even if they gain in value over time. That’s how he manages to offer wines like an eight-year-old Riesling from the legendary German producer Hermann Dönnhoff for a mere $40 and the 2007 Isabel Ferrando Colombis Châteauneuf-du-Pape for an incredible $120 (I’ve seen it priced at $125 in a store).

For his part, Mr. Gordon thinks that some restaurateurs believe they can get away with high markups because their customers won’t notice or complain. He’s clearly right—and yet, some drinkers do notice. For example, a friend of mine was so turned off by the wine prices at Montmartre that he went to its sister restaurant Chez Sardine instead. But the deals were no better a few blocks away. “I paid $67 for a German Weissburgunder that cost $16 wholesale,” he reported, adding that he found it in a nearby store for $23 a bottle. “They didn’t even have to keep the wine in stock—they could just send the busboy down the street to pick it up and they’d make a $40 profit,” my friend wrote, adding that this kind of pricing made him “angry at wine.”

More important, this sort of pricing can keep people from drinking wine. That evening at Montmartre, I noticed that both of the couples on either side of our table were drinking, respectively, water and cocktails. And that’s not a scene that any wine director, winemaker or wine lover is ever happy to see.

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