Where the money goes on wine...

Wine pricing is one of those subjects that restaurants don't always love discussing. Margins can look massive at first glance, and it's easy to assume that a mid-range bottle on a wine list is simply a cheap wine with a big mark-up that you could buy in the supermarket for much less!

As ever, the reality is more nuanced once you dig into the details…

Let's talk about tax!

Before we get anywhere near restaurant margins, though, it's worth starting with the bit that applies to every bottle, everywhere: tax

Our cheapest bottle of red is £35, it's a lovely little Pinot Noir from the Loire and we think it's great!

Of that £35 the government takes:

20% VAT from us (£5.80)

Duty from the wholesaler (£3 more or less depending on the ABV%)

VAT on the Duty (50p)

So that's £9.30 in tax from a £35 bottle‚ just over 25%

It feels like a lot‚ but we've shared our views on the tax burden before so let’s move on and think about where the rest of the money goes. Especially how much of it makes it to the farmer who made the wine in the first place. Hint: It's less than you think!

Breaking it down

Back to that £35 bottle‚ it costs us £9.5 from our supplier, so after paying the VAT we're left with £19.70. This covers the costs of the staff who serve it, the costs of storing it and contributes to the other overheads of the restaurant that we've talked about before. These include rent, rates & utilities as well as those lovely (but very breakable) Riedel wine glasses! If you want more detail on how this works you can check out our previous blog on the subject here

Meantime, what happens to the £9.5 we paid for the wine?

We chatted this through with one of our suppliers to get clear on the details

Firstly, there's the duty we mentioned earlier plus the VAT charged on the duty‚ that's £3.50. Warehousing in the UK costs maybe 50p per bottle depending on how long it's in storage, distribution from the warehouse to Ladywell is around 30p and the costs of getting the wine to the UK from the Loire is circa 30p again‚ so in total that's another £4.60 in costs.

What's important here is that these costs are fixed. Every bottle, whether it's our £10 bottle of pinot noir or a top end Burgundy at 5 times that price attracts the same £4.60 in costs to get from the vineyard to the restaurant.

The wholesaler also adds a percentage, typically around 20% to cover their costs including salaries, premises, samples etc, and hopefully they end up with a modest profit at the end of the day

Back at the vineyard

Finally we arrive in the Loire, where the wine maker receives the remaining £3 for each bottle. This has to cover all the costs of producing the wine including growing and harvesting the grapes, making and storing the wine, bottling and labelling the wine…it’s not much, which is why the £35 bottle on our list is the entry level

Something to think about

Remember those fixed costs we talked about earlier? Well, at this point they have a distorting effect on the value chain which means that as prices rise, quality rises significantly faster‚ because those costs don’t change

It’s also the case that most restaurants (including us) reduce their margins as prices increase, which compounds this effect in a positive way

For example, if we DOUBLE what we pay for the wine at the vineyard from £3 to £6

the cost to us as a restaurant only increases from £9.50 to £13 (those fixed costs again) and the price on the list increases to circa £48 at a slightly reduced margin

So, that extra £13 you pay has the effect of doubling the quality of the wine in the glass!

What’s the take away?

At the cheaper end of the list, wines need higher percentage margins because tax, shipping and service cost the same no matter what's in the bottle. But, as we go up the list a big chunk of the extra cash flows straight to the vineyard, plus restaurants reduce their percentage and cap their margins. The result is that quality rises faster than price, and spending more often means significantly better value in terms of the quality of the wine in the glass!

If you fancy putting all of this theory to the test, Thursday is a good place to start. As well as offering BYO we also take £25 off the price of any bottle on our list. So it’s a great opportunity to trade up, explore the list, try something a little more special and decide for yourself how value and quality relate once the usual margins are stripped back

We’re always happy to chat wine both on the night or any other time, and would genuinely love to hear what you think!