Business

Which bottle of wine at a restaurant has the biggest markup? The answer may surprise you

As millions of diners get set to return to restaurants after the pandemic, a new study from British researchers attempts to answer the age-old question of which bottle of wine is the best value on the menu — and the answer may not be the one you think.

Researchers put urban legend that 2nd-cheapest wine has highest markup to the test

British researchers examined wine lists at 249 restaurants in and around London and drew some interesting conclusions about which wines present the best value for money. (John Kolesidis/Reuters)

With diners taking their first cautious steps back into restaurants this summer, millions of Canadians will soon be grappling with a familiar pre-pandemic problem: ordering a bottle of wine.

On top of taste preferences and food-pairing concerns, one of the biggest factors that goes into the decision tends to be price. Many diners opt for either the house wine or the cheapest one on the menu. Oenophiles, meanwhile, tend to reach for something more pricey, but most diners go for something in the middle — with no idea where the best bang for the buck lies.

A recent study from British researchers at the London School of Economics and the University of Sussex attempts to answer that age-old question — and the numbers hint at some counterintuitive conclusions.

The researchers looked at 249 restaurants in London that had wine lists posted online. In total, the restaurants that were examined had 6,335 different bottles of wine listed online — a large database that the researchers were able to cross-reference against retail prices for those same bottles.

In a finding that will come as no surprise to anyone who's ever ordered a bottle of wine to go with dinner, the price of a restaurant wine was found to be, on average, about 300 per cent more than it would cost at the retail level. And while markups vary depending on the restaurant and type of wine, there were some broad trends in the numbers that drinkers may want to quaff.

'Is the second-cheapest particularly bad?'

A well-trod urban legend has it that the most popular wine on a restaurant wine list is often the second-cheapest, because most people like the idea of buying a cheap wine, but not necessarily the cheapest. "It is based on the idea that people don't like looking cheap when they sit in a restaurant," said Vikram Pathania, an associate professor of economics at the University of Sussex who co-authored the report.

"You don't want to go to the cheapest because, well, your dining partner or the waiter stare at you ... so you study the wine list hard and long — then go to the second anyway," he said in an interview with CBC News.

Following that logic, conspiratorially minded diners have long suspected that restaurants are aware of that impulse and will therefore adjust their wine list so that the wine that is cheapest for them to acquire will be priced second-cheapest to compel diners to buy it, in order to maximize their profit.

"The argument goes that people who run restaurants know this, and they can actually charge a fat markup on the second, exploiting this stigma of ordering the cheapest," Pathania said.

But according to his research, the theory doesn't hold up — the second-cheapest bottle of wine on the menu is actually a decent value, with the markup only about 25 per cent more than one would pay for the cheapest bottle of plonk on the menu.

"To be fair, you are being ripped off if you buy bottles of wine in the restaurant. But the question is: Is the second-cheapest particularly bad? And no, it's not particularly," Pathania said.

Where diners really get corked, the data suggests, is when they order wines numbered three through six on the menu. Then the markup can be more than 50 per cent higher, on average, than the best bargain on the list.

Markups in absolute terms are obviously higher for the most expensive bottles, but in percentage terms, higher-end wines are actually often a better value than the cheap offerings, the data suggests.

Even better news for frugal foodies is that the cheapest wine does actually tend to be the best value. "The cheapest is actually a relatively low markup, then the second-cheapest is slightly higher. Third is even higher. It kind of peaks in the middle, and then towards the high end, the markups start falling again," Pathania explained. 

Rules different in Canada

Toronto restaurateur Suzanne Barr has run kitchens and restaurants around the world, including more than one in Canada, and she says while it's true that alcohol sales can be a reliable money-maker for restaurants, they are less of a cash cow in Ontario because of the way the province regulates alcohol via the LCBO.

Unlike many other jurisdictions where restaurants pay wholesale rates, for the most part any business selling alcohol in Ontario pays the same price as drinkers. "What a lot of people don't understand is that glass of wine that we're selling for $15, we're maybe making, I don't know, $3 or $4 off of," she said in an interview.

Barr says most restaurant owners craft a wine list the same way they craft a menu, to make sure it follows a theme and goes with the overall atmosphere of the place. But they are obviously aware that there's money to be made on some bottles over others.

"It's like having a [go-to] dish on the menu," she said. "It's not gonna cost us that much to make, but we know we're gonna sell a whole ton of these."

Barr says that with the return of restaurant dining, she suspects customers will be compelled to splurge more than they did before the COVID-19 pandemic and buy that expensive bottle to treat themselves after they've been stuck eating at home for so long. "Because maybe when I go to the LCBO or the Wine Rack, I'm just gonna get that Yellowtail because that's really what I can afford."

WATCH | Suzanne Barr says pandemic has left diners in the mood to treat themselves: 

Restaurant owners expect diners may splurge after COVID-19

3 months ago
0:48
Toronto-based restaurateur Suzanne Barr says she expects people will be more willing than usual to spend big while dining out after being cooped up at home for more than a year during the pandemic. 0:48

Only time will tell what diners do as they return to eating in restaurants for the first time in more than a year in many parts of Canada, but Pathania's research offers some helpful advice for the millions of diners about to take the plunge.

"I have a rule of thumb: If you're paying the bill and you think the cheapest is drinkable, go for the cheapest," he said.

But given that high-end wines are often less marked up in percentage terms than the cheapest ones, "if there's a wine you really like and you know your wine, then go for it."

ABOUT THE AUTHOR

Pete Evans

Senior Writer, CBCNews.ca

Pete Evans is the senior business writer for CBCNews.ca. Prior to coming to the CBC, his work has appeared in the Globe & Mail, the Financial Post, the Toronto Star, Canadian Business Magazine and — believe it or not — Circuits Assembly Magazine. Twitter: @p_evans Email: pete.evans@cbc.ca Secure PGP: https://secure.cbc.ca/public-key/Pete-Evans-pub.asc

With files from CBC's Meegan Read

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