Is the (almost) cheapest wine on the menu actually the most profitable? Well…
Have you heard this theory before, or do you even firmly believe it? That the second-cheapest wine on a wine list (or in the café) is actually the worst deal for you, because it supposedly has the highest profit margin… Many people think this is true. Why do they think that, and what research has been done into the truth behind it?
The reason this theory is so often taken as fact is based on the following idea: many guests do not want to appear stingy, so they do not choose the cheapest bottle of wine on the menu but settle for the second-cheapest. And because restaurant owners would know this, they supposedly choose to mark up that particular wine the most, in other words, charge the largest margin on its purchase price. But is this actually true?
Bottle after bottle after bottle
That is what two economists wondered too, so they decided to set up a study to get to the truth, down to the very last drop. The study was published by the American Association of Wine Economists. David de Meza, a professor at the London School of Economics, and Vikram Pathania (a professor at the University of Sussex Business School) ran 470 wine lists (white and red) from 235 London restaurants through a price-comparison model to find the most affordable retail price. This allowed them to make calculations for a total of 6,335 bottles, an average of 13 per restaurant.
Surprising result
They chose to use the retail price rather than the purchase price because the former would mean more to guests if they made comparisons themselves (“what does this wine cost me in a shop versus what does it cost me in a restaurant?”). And what did they find? None of the three cheapest wines on the menu had the highest profit margin!
A distinction can be made between a fixed markup on wine (where a restaurant owner charges a fixed amount on top of the purchase price of a bottle) and a percentage markup (“marking it up by so many times”). The researchers found that in the latter case, margins peaked in the mid-range segment. For example, the two most expensive wines (in descending order of price) had a markup of “only” 280 percent, while from the third bottle through to the tenth, markups of more than 300 percent were charged, before dropping again from bottle number eleven onward.
Toasting above your calculator
Interesting, right? Although we can tell you this: it will not stop us from ordering one less bottle of Chardonnay. Because restaurants are opening up more and more, and we are celebrating! So pop away, as far as we are concerned, and cheers!
Read also:
- This will make your jaw drop: elite wine club turns out to be a hotbed of sexual misconduct
- LIFEHACK: this is how your wine glass will ALWAYS fit in the dishwasher
- Deliciously decadent: eating fruits de mer in a vineyard (near Amsterdam!)
Source: Food and Wine
