Tastings: Gouging by the glass of wine

Pittsburgh restaurants are inflating wine prices far beyond the industry-accepted models



It is hard to believe there was a time when the greatest wine bargains were found on the wine lists of the world's finest restaurants.

Those restaurants bought cases of top wines when they were released and stored them in cool cellars for decades. When they were ready for consumption, they were priced at a modest multiple of the purchase price and often remained at that price until the stock was depleted. That meant that in many cases the bottle price was far below the replacement cost.

This phenomenal bonanza for the wine-loving crowd sadly disappeared once computers brought revamped pricing to cellar inventories. But isn't it ironic that restaurant wine prices today are the topic of conversation -- not for the bargains wine drinkers can find but for the gouging they represent.

Jack Brice -- host with his wife, Kate Freed, of "Off the Grid" wine dinners and creator of the informative wine blog jackbricewine.wordpress.com -- and I had been discussing some of the more egregious examples and decided to collaborate on reporting some solid figures. Jack is a bank consultant who is a natural-born number-cruncher so he compiled the database we have used for this column.

While Pittsburghers enjoy our current restaurant renaissance, many of those who order wines by the glass or bottle are being asked to contribute more than their fair share to the restaurants' balance sheets. One might expect that competition would bring better value and pricing to Pittsburgh, as happens in other markets, but evidence points to the contrary.

Let's look at some numbers. In the past several months we have compiled data from 20 restaurants, on more than 240 individual wines, and compared the prices with the Pennsylvania Liquor Control Board's prices for licensees (10 percent off what consumers pay). This data does not cover every wine or every establishment, but it does show that Pittsburghers regularly pay far more than industry-accepted models -- up to four, five and six times the retail price for a glass or bottle of wine. In one case, a more-than-1,000-percent markup was extracted from probably unsuspecting diners. Is this acceptable?

Historically, restaurant wine lists were created because much of Western European food culture includes wine with the evening meal. The amount of profit in each wine should adequately reward the restaurant for choosing, storing and serving it. Typically, restaurants budget food costs that are 30 percent of retail price, meaning the raw materials are marked up slightly more than three times to pay for those ingredients, labor to create the meal, rent and other costs. Unlike food offerings, wine requires no manipulation or creativity to be prepared for serving. It's already made, and generally can be stored safely much longer than food ingredients, so doesn't carry the waste cost that food does.

In a 2013 Sommelier Journal article, Randy Caparoso (a former Restaurant Wine & Spirits Professional of the Year) examined the pricing plan used by one of the world's most successful wine directors: Kevin Zraly, who led the wine program at New York's storied Windows on the World, and penned several books on the subject. Mr. Zraly marked up inexpensive wines the most, then reduced the markup as the bottle cost increased, thus rewarding customers for ordering more expensive wines. Mr. Caparoso updated the Zraly model to suggest that wine pricing should target a cost factor of 31- to 35 percent of sales. In other words, in the same range as food pricing.

Many Pittsburgh restaurants do not provide value on par with these guidelines.

A way to test this is to take the PLCB licensee cost of a bottle and divide by 31 percent, or .31, to get a target price for the restaurant consumer. For example, the Louis Latour Grande Ardeche Chardonnay that costs a restaurant $8.66 including tax. Divide by 31 percent and you get a target price of approximately $28. While many in the industry consider this to be a fair price, this very wine at a local restaurant is priced at $48.

Another example would be a J Lohr Cabernet Sauvignon that cost the restaurant $16.99. Using the Zraly/Caparoso 31-percent factor, this wine would be priced at $55 per bottle, but in a local restaurant the price is $65. We found more than 100 examples of restaurants pricing wines above the 31-percent factor.

Why do many Pittsburgh restaurants decide to mark up wine much more than food? Are diners thought to be an easy target if they like a glass of wine with dinner? Are diners who enjoy a glass of wine viewed as wealthy, and therefore undeserving of standard mark-ups? The evidence is clear that restaurants commonly practice wine price-gouging. It has been suggested that as food costs rise, the wine customers these days are subsidizing food costs.

 

Gouging by the glass

Selling wines by the glass is a common way for diners to have some wine, or try an unknown wine, without the cash or volume commitment of a full bottle. An additional advantage is the opportunity to explore a second glass of a different wine.

Most restaurants sell five or six glasses of wine (4 or 5 ounces per pour) from each 25-ounce bottle. Wines by the glass afford restaurants the ability to offer a broad variety of wines to patrons at lower prices than full bottles. The industry recognizes the extra effort and potential for occasional spoilage in an opened bottle by marking up by-the-glass wines at a higher rate than bottle-only ones. But should Pittsburgh diners expect to pay as much or more for a single glass as the restaurant pays for the entire bottle? That's the case at many Pittsburgh restaurants.

One popular place recently sold un-suspecting patrons a glass of Chateau de Campuget, Le Campuget Blanc 2012 (PLCB No. 32915) for $15. The restaurant paid $6.73 including tax for the whole bottle! For every five glasses of this wine sold, the restaurant could purchase 11 more bottles. While this is the highest markup we found, there were 51 more examples where glasses were priced at what the bottle cost or more. This markup of roughly five times cost is substantially higher than the typical food markup. In total, we found 85 examples where at least 90 percent of the entire bottle would be paid for by the first glass sold.

Other examples of high mark-ups we found (assuming a 5-ounce pour or five glasses per bottle):

▪ Marques de Caceras White (PLCB No. 55966)

Price for a glass: $26.00

Restaurant's full cost for the bottle (including tax): $10.97

▪ Fleur du Cap Cabernet Sauvignon 2011 (No. 532247)

Price for a glass $26.00

Restaurant's cost per bottle $14.72

▪  Kenwood Chardonnay 2010 (No. 32385; no longer available but was at the time of this research)

Price per glass: $9.00

Restaurant's cost per bottle: $ 5.77

Asked about their high wine prices, Pittsburgh restaurateurs often cite the PLCB's licensee-pricing model, which gives restaurants only a flat set 10-percent discount from what consumers pay, whereas in most states, restaurants are allowed to negotiate with and purchase wine direct from wholesalers. But all Pennsylvania restaurants are in the same boat. Why, on several wine lists in Zagat's "10 Most Exciting Wine Lists in Philadelphia," are there many examples of by-the-glass wines sold at a more industry-typical two- or three-times cost?

It appears that here in Pittsburgh, diners at many popular restaurants are commonly charged $10 to $15 for a glass of wine from a bottle that likely cost the restaurant $7 to $12, whereas in Philadelphia diners are commonly charged the same for wines that cost the restaurant $15 to $30 per bottle.

 

Gouging by the bottle

Famous restaurants are known for extensive and expensive wine lists. Some of the most noteworthy bring a huge tome to the table and diners comb through it, typically passing (unless extremely wealthy) multiple vintages of top-growth Bordeaux and Burgundy, in favor of recent vintages of solid and affordable wines. One can imagine the effort involved in carefully choosing the very top wines of past vintages and properly storing them for many years -- and for this effort, and for having wines virtually nonexistent in the market place, a proprietor could expect to be paid something extra. A 1962 Chateau Latour, for example, is nearly impossible to find, so a restaurant that has one or two bottles would be expected to charge a premium. But 99 percent of the dining public never will be faced with choosing vintage wines for thousands of dollars per bottle, certainly not at most Pittsburgh restaurants. Instead, local bottle lists typically contain commonly available wines marked up for large profits.

At one local establishment that claims to have a serious wine program, one bottle listed for $187 actually is a recently available vintage listed at the PLCB for $53.34. In other words; the customer pays a more-than-$130 markup for that $53 bottle to be brought to the table. A bottle of Promesa Rioja Reserva that cost the restaurant $19.99 is sold for $68, giving the restaurant a margin of $48. Even if the Promesa Crianza is a good wine for under $20, would diners happily order it for $68 if they knew the true cost?

Here are some of the most egregious mark-ups we found:

▪ Chateau de Campuget, Le Campuget Blanc 2012 (No. 32915)

Restaurant's price: $60.00

Restaurant's cost: $6.73

Mark-up: 791 percent

▪  Marques de Caceres White (No. 20070)

Restaurant's price: $96.00

Restaurant's cost $10.97

Markup: 775 percent

 J Lohr Cabernet Sauvignon (No. 9897)

Restaurant's price $65.00

Restaurant's cost $16.99

Markup: 341 percent

▪  Anna de Codorniu Cava (No. 33033)

Restaurant's price: $58.00

Restaurant's cost: $8.66

Markup: 570 percent

 Fleur du Cap Cabernet Sauvignon 2011 (No. 532247)

Restaurant's price: $96.00

Cost $ 14.72

Markup: 552 percent

▪  Cakebread Cabernet Sauvignon Napa 2010 (No. 48321)

Price: $161.00

Cost: $60.66

Markup: 165 percent

 

Gouging on the tasting menu

One might expect that purchasing multiple courses and multiple pours (typically sized at 2 to 3 ounces) on a tasting menu would bring a certain value to the customer. After all, this is a great opportunity for the restaurant to further impress already committed guests. Unfortunately, the opposite seems true in wine-value terms. A popular local chef-driven restaurant offers a five-course chef's tasting menu, with wine-pairing for an additional $35 per person. Each of the pours is from the existing by-the-glass wine menu -- no special bottles or off-menu wines.

Only a person's individual taste can determine if the pairings are successful but value can be calculated. We did it, and the wine pairing price of $70 for two people seems high, when considering that this pairing cost the restaurant less than $15. Is this any way to treat your customers?

Let's not forget, on any wine purchased in Allegheny County, customers also must pay the "drink tax" of 7 percent.

How do you find value? When people ask "What restaurant has the best wine list in Pittsburgh?" my response is, "Your favorite BYOB restaurant," because if you bring your own bottle you are assured a wine you like at a price you know is fair. Many people don't realize that nearly all restaurants (even if they don't advertise it) will allow customers to bring a bottle in exchange for a corkage fee. In Pittsburgh that fee varies from $10 to $20 a bottle. Pay it. This may be the best value in town!

I'm not saying that all Pittsburgh restaurants take advantage of their wine-loving customers with every single sale of a glass or bottle, but our research shows that Pittsburgh restaurant-goers have every right to expect better wine-list values. Indeed, Pittsburgh restaurants have a great opportunity to harness some of the new dining-scene enthusiasm and raise their wine game, catch up to other markets, and deliver their wine-loving customers industry-standard value.

Elizabeth Downer: elizabethdowner@gmail.com.


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