Michael Fridjhon: How wine adds to the meal, and the bill

There’s enough going wrong in SA (and elsewhere in the world) that outrage about wine list markups seems positively frivolous. The fact that an exploitive beverage pricing policy has been the norm since time immemorial shouldn’t diminish the anger. Slavery does not become less repulsive for having been around for millennia.

We all know that, in theory, the market decides. Those whose margins scare off their customers either change their model or quit their businesses. In the case of wine list markups, however, a conspiracy of silence has favoured the status quo.

Over the years — and not only in SA — liquor has subsidised the food side of the business. During the Covid lockdowns, restaurateurs traded at a loss — except for those that engaged in the sale of “special tea” to the customers they knew they could trust.

Consider a mid-price steak house selling a 350g sirloin for about R300. Food cost (steak, chips and so on) comes to a generous R70 yielding at least R230 revenue for the bum on seat. If you assume 100-150 covers a day every day of the week and no wastage (already an unlikely scenario), you arrive at a income net of food costs of R30,000 a day. Without liquor and extras (starters, desserts and beverages), this would have to cover the cost of rental, electricity, cooks, waitering staff, rates and taxes. You also need to factor in income for the manager, the owner and whoever funded the fittings and fixtures — an amount typically upwards of a couple of million rand.

The main course selling price is generally fixed by convention: a family-type restaurant cannot expect to sell any dish (except perhaps prawns) outside a given price bracket. As a result, every other revenue source has to be mined to exhaustion: mineral water, sides, coffees and desserts — and, of course, the fruit of the vine.

Wine is the easiest and most rewarding: here convention favours the establishment because no-one expects a R100 bottle to be offered for sale for less than R250. Since most wine is supplied by wholesaler/distributors on a weekly basis, there’s no real holding cost. It requires no investment or special skill to be served to the customer. Yet it contributes more net profit than everything else except perhaps the main course. No wonder the food business loves and depends on it.

We are so inured to the 200%+ markup that we treat it as normal; we take offence only when it’s palpably scandalous. Smart proprietors are aware of this, so the latest — and most visible — strategy to disguise the margins at the more mid- to upper-end establishments is to offer geekier, less well-known brands. This conveys the impression that a wine specialist has been out and about making vinous discoveries.

Here’s an example. A newly opened restaurant in Stellenbosch lists a few known value options: Rupert and Rothschild Classique for R798 (cost price less than R200); Seriously Old Dirt for R800 (cost around R200). If you are unadventurous, you have to bite the bullet. Otherwise, you are compelled to take a chance on an unknown (to you) selection like Kottabos Grenache Syrah 2022 for R550. Most customers forced to confront obscure names avoid buying the cheapest on the list. Next up at this establishment is the Tim Hillock Rooi at R580. You’ve no idea what it tastes like or what it costs.

This same strategy is evident in the champagne selection, where the Moëts and Clicquots (whose retail prices are well known to the kind of customers likely to be ordering them) have been replaced by lesser-known brands: Drappier Blanc de Blanc — for which the establishment pays less than R900 — sells for R3,500.

In places where you can’t solve a breach of the drink-drive regulations at an ATM, diners are beginning to skip the wine option. This may compel restaurateurs to rethink the pricing conventions. A fair markup on the wine and a true markup on the real cost of food service could become the high road to survival.