What The Bartender Won’t Tell You – Profit Margins Edition

Ever wonder why a bottle-o-suds at your favorite watering hole costs 3 or 4 times what you’d fork over at Manuel’s bodega? Well dear readers, I’m going to break it down for your reading pleasure. Hopefully, you’ll still frequent my bar and continue to hand over your cash for wildly overpriced hooch.

A “business,” by definition, is an operation whose primary purpose is to generate revenue and in turn, a steady stream of profit. No profit = No business – period. This is just about the only reason why you see bars and restaurant doors shuttered… they haven’t been able to operate in the black for whatever reason. A huge part of a successful bar is properly pricing your products. There are many factors that go into those decisions including (a) neighboring/competing establishments’ prices (b) the type of clientele you’re trying to attract and image (c) supply/demand (d) availability/desirabilty and of course (e) cost baseline.

That last one is the most critical. If you haven’t gone through a costing exercise, how the hell can you ensure you’re making a worthwhile profit once your product has been sold? The truth about bars/restaurants is that they make gigantic profits on booze – usually, much more so than with your typical kitchen dish (50 – 200% food markup). Unfortunately, there are many restaurateurs and bar owners who either neglect the costing exercise entirely or screw the whole damned thing up – often by not accounting for labor, tools, and/or environmental factors.

So an icy cold Heineken can cost $1.75 at the bodega yet you get reamed for $8 (or more) at the bar. Why the disparity? Easy… although the bodega may in fact purchase in bulk from the same beer distributor at more or less the same cost, Manuel’s overhead is far, far lower than that of your typical New York City bar owner. He has far lower labor, rent, utility, equipment, maintenance, and promotional costs. He’s made a much smaller investment (usually) in construction, licensing and insurance costs and has fewer risks to consider. As a result, he can be content with – let’s say – a 40% margin on said beer. A bar, conversely, has a much larger overhead and investment to try to recover.

Let’s take a look at some specific examples, much to your dining/imbibing dismay (or shit-eating grin, if you’re the owner).

Wine By The Glass. You love you some rotten grape juice don’t cha? Well, from a consumer perspective, that $10 or $12 or even $15 glass of the good stuff isn’t such a bad deal right? What it really costs: As low as $4 a bottle when bought in bulk and by the case – which it just about always is. There are usually 4 – 5 glasses per standard 750ml bottle – depending on the pour. Wine merchants will often give away a case or two to bars in an effort to stimulate new contracts/sales. In those cases, the cost basis is, you guessed it, a big fat $0. Pretty good business, ay?

Draft Beer. Profit marging 300 – 600%. Draft beer is usually the biggest money maker behind the bar. This is assuming of course you’re bright enough to (1) keep beer runs as short as possible (2) the runs are properly insulated (3) the taps are routinely serviced/cleaned and (4) your bartenders aren’t pouring 1/4 of each keg down the drain – more on that later. It’s bought in bulk – kegs… er, “half-kegs” technically – 15.5 gallons (165 x 12oz or 124x 16oz servings). The shittier and more pedestrian the beer (read: Bud, Miller, Coors, etc.) the better – from a pure profitability perspective. The crap beer is significantly cheaper and an easier sell than quality craft or artisan suds. Let’s say a half-keg of uber-crap Bud Light runs you $85. The same measure of Lagunitas Pils might run you $150.

Liquor (Individual Serving). “To get your girly in the mood mo’ quicker” – borrowing a line from Ice Cube. Liquor is yet another massive money maker. Why do you think New York has neighborhoods where some blocks can claim to have a bar, every other store front? It’s because (a) people love to get licka’d up and (b) there’s big money to be made enabling the alcoholics to do their thing. A “fifth” (750ml) of spirits contains 22x 1.5oz shots (by the book). Accounting for spills, over-pours, buy-backs and Martinis (doubles),  let’s say that number is closer to 18 shots per bottle. An average highball in trendy areas of Manhattan is $12 these days – ballpark. It’s more in clubs and less in pubs. For argument’s sake, let’s use the $12 number. That translates to $216 in revenue per bottle. Guess what  the wholesale cost is for a bottle of Georgi Vodka, Montezuma Tequila, or Castillo Rum is these days? It’s peanuts. Charmer or Empire (New York State authorized liquor distributors) will sell you that well crap – by the case – for maybe $6/bottle. Whoa – $210 gross profit per bottle (neglecting ancillary drink expenses)! That’s a lot of kaYsh! Hell yeah it is. Of course, the higher-end spirits cost a whole lot more. But the house is still making a wicked profit. Jamesons, Grey Goose, Chopin, etc. might set the house back $20/bottle. So what? There’s still a shit-ton of profit to be made there.

The bottom line is, when you sidle up to real bar to get a drink, you’re in effect paying “rent” to sit there, be waited upon, watch a game, listen to the bumpin’ beats, breath in their air, and interact with the general public imbibing right alongside you. All those things – and more – are factored into the price you pay to drink. That’s simply how bars get down.

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