Understanding retail and restaurant wine pricing leads you to better wine for the money

There you were, sitting at the restaurant peering down at the bottle prices on the wine list, making a split second decision about the value of what you planned to order. Perhaps you had previously tried that bottle from your favorite wine shop, loved it, but were now confounded as to the price difference at your favorite restaurant.

Knowing what kind of value your getting is tough when you don't know how what you're buying is priced, wine or otherwise. Naturally, no two bottle shops or bistros are the same, so we can't make absolute statements about any of them, but a little knowledge about wine pricing will go a long way helping you navigate the list.

So, in general, wine prices in both restaurants and bottle shops fluctuate a bit by geography; almost everything is more expensive in the big city, and wine is no exception.

However, in general, bottles of wine retail for about 33% more than their wholesale price. For example, a bottle whose retail price is $15 probably wholesales for about $10, meaning that the wine shop you're buying it from for $15 probably bought it from a distributor for around $10. Because the retail price is the knowledge most of us have to work with, you can assume that Wholesale = Two times Retail divided by Three (that's W = 2xR / 3 for you math lovers out there).

Wait, but why do we care?

Well, for starters, a little empathy for your friendly neighborhood wine merchant is a good thing. Unless you're into really high-end wine, he or she is probably not making a killing off of you. This is actually relevant to you, because many wine shops run standing discounts on wine by the case, i.e. 10% off when you buy 12+ mixed and match bottles, or 20% off if you buy 12 of the same bottle (called a solid case), etc. Our favorite Washington, DC area shop -- The Vineyard in McLean, VA -- offers 25% discounts on solid cases. Returning to our $15 per bottle retail example, a 25% case discount means that the wine shop is buying the wine for $10 and selling it to you by the case for $11.25, a mere $15 per case profit. That's a great deal for you, less of a great deal for the shop. Now, granted, often times it is through distributor discounts that these discounts to you are made possible, but the theory holds. Case discounts are a great deal.

So back to the restaurant... here we're working with bigger markups, and the numbers fluctuate more widely depending on what kind of restaurant you're in. However, in general, we've found that a restaurant markups are going to fluctuate somewhere between 2.5 and 4 times the wholesale price. Therefor, that bottle that retails for $15 is going to run you anywhere from $25 to $40 at the restaurant. Could be higher, could be lower (though we seriously doubt lower), but you're in a good range with this math. Again, in general, the lower the wholesale price, the higher percentage the markup (up towards that x4 range); the higher the wholesale price, the lower percentage the markup. Of course, if we extrapolate this to a bottle that retails at $40, we can use our handy formula to guesstimate a wholesale cost of around $27, and thus hope to order a bottle for the table in the $66 to $106 range.

You see how a little knowledge can be useful, especially in restaurants?  There are two big takeaways from this:

First, cheaper bottles are almost always a worse value for the money in a restaurant. 

Second, if you see a restaurant bottle that you know from the retail, you can do some simple math in your head to determine if you're getting an above or below average deal in the restaurant (I'd use a 3x restaurant markup as your "average" benchmark, at least in the realm of wine purchasing that most of us do in restaurants on a typical night).

...But one more thing. There are any number of reasons that the same wine can cost different amounts in different restaurants, or even in the same restaurants on different occasions. These reasons are all other stories for other times, but remember that just because you see wine in a restaurant that you feel is on the higher end of the markup spectrum, that doesn't necessarily mean that diners are getting a raw deal. That wine may be more expensive in the place you're visiting, or the restaurant may have paid more for it because they purchased less of it, or it may have been a more popular or lower volume wine with the distributor. Seeing a higher than expected markup on a bottle isn't an indication that there's a problem with the wine or the restaurant, but rather just an indication that that particular wine may not be the best choice for you on this particular evening.