Why The Hell Does Your Drink Cost So Much?

From:  Deadspin

I 'm not ambitious enough to be downright thrifty, but I try to avoid abject retail stupidity. I know better than to buy paper plates when the free magazines and underwear catalogs that clog my mailbox are perfectly capable of supporting even the hammin'est of sandwiches. I drink tap water, and I'm smart enough to turn a craving for one pound of almonds into three pounds of peanuts. I get by.

All I need to be a competent and enthusiastic shopper is basic information about what a thing costs. Gasoline is wonderful in this regard, with the price—down to the tenth of a penny—advertised on signs visible at a quarter-mile. We even get an involuntary peek at the prices along the supply chain, with newsreaders constantly telling us what a barrel of oil costs. Knowing a thing's price is good, and having some inkling of where that number came from is even better. I realize there's a ton of noise between oil well and gas pump, but it's still comforting to have so much information. It's almost enough to make me buy a car just to drive around looking for discount peanuts.

On the other hand, it's probably best that I don't drive, as I do most of my shopping in bars. This is fantastic but also frustrating, because booze-price transparency varies widely from drink to drink. Some of it is fairly intuitive; most patrons have an idea what they're paying for when they order a bottle of Bud—but it gets much trickier from there. Last week I paid $13 for a drink with brand-name rye and bitters, a couple other things that were probably also bitters, and something called Byrrh. It was a good drink, but was it a good deal? That probably depends on the price of Byrrh, as well as on what the hell Byrrh is.

In my never-ending quest to make us all the best boozebags we can be, I recently badgered several Boston-area bar managers into explaining where drink prices come from. (Boston is a relatively expensive city, but the underlying percentages and equations that inform the final price to the customer are similar around the country.) I also combed through some invoices. I learned a few things, and now you can learn them, too.

The first thing that jumped out at me is that bars don't get as much of a volume discount as you might expect. The percentage varies from market to market based on how distribution licenses are doled out—i.e., is it a closed-up mob scenario or is there actual competition?—and even within the same market, the biggest places are going to get the best prices. And that's about the last caveat I care to issue before we get down to the math. These numbers are drawn from a medium-sized neighborhood bar in Boston.

Bottled Beer

A case of Budweiser costs the bar $20.55, or 85 cents per bottle. (At the closest liquor store, it's $24.99.) The bar sells those bottles for $3.75 apiece, which makes their cost 23 percent of the customer's price. The standard industry goal is to keep liquor cost at around 20 percent, which makes a Bud bottle a relatively good deal for the drinker. This is fine by the bar, because a bottle of beer is the easiest thing to serve. It comes in its own container and requires no mixers or garnishes, and it takes the bartender five seconds to complete the transaction. You can also only mark up a bottle of beer so much, because we can all do the math in our heads. We know what a bottle of Bud costs retail, and we correctly assume that it's at least somewhat cheaper wholesale. So the bar settles for a modest 341 percent markup (yup, this is low).

Draft Beer

Draft beer creates an extra layer of fog, because the liquor store doesn't sell pints. The bar pays $93 for a 15.5-gallon keg of Bud (plus a refundable deposit, which I'm stripping out of all keg prices). That keg theoretically holds 124 16-ounce servings, although some could be lost to foam run-off when the keg is first tapped and what not. Way too many dastardly bars try to recoup this loss, and then some, by screwing you with 15- or even 14-ounce "pints." That's pure bullshit and you should avoid those bars, especially after you light them on fire. Foam takes up about four times more of a glass's volume than straight beer anyway, so a properly poured one-finger Bud head reduces your 16 ounces down to 15ish, which means a tightly run ship can squeeze damn near the full 124 servings out of a keg without ripping anyone off.

At 124 pints per $93 keg, the bar is paying $.75 for the pint it sells for the same $3.75 it gets for a Bud bottle (it's common practice for a 16-ounce draft beer to cost the same as a 12-ounce bottle; bottles are for suckers­—and for people drinking in dirty bars where the tap lines and pint glasses can't be trusted). So the markup on a Bud draft is 400 percent, giving the bar the magic 20 percent liquor cost. Draft beer takes a little bit more work from the bartender and it requires glasses, which are breakable and need to be washed. And, in theory anyway, you sell less Bud to a pint drinker than to a bottle man, as the former gets his hypothetical fill of 48 ounces in three transactions to the latter's four. From the bar's point of view, these minor draft hassles on their end combine with the added novelty value to the customer to justify the slightly higher vig.

Fancy Beer

What if you're too damn something-or-other to drink crappy beer? The bar gets 15.5-gallon kegs of several different craft beers for $150 (plus deposit)—Lagunitas IPA, Brooklyn Lager, and Mayflower Porter were all on the invoice I saw. That's $1.21 for a pint they sell for $5.75, which makes the markup 375 percent and the product cost 21 percent.

Wine

If you don't drink beer, well, then I don't know what to tell you, as far as your humanity goes. But I can tell you a couple things as far as your budgeting goes. Low-end house wine is simple. The bar tries to get one glass to pay for the bottle, for a relatively low 300 percent markup (25 percent product cost). They make up for that with more expensive bottles, where pricing policies get a bit wonky, but where the high raw numbers make the percentage less important: If you charge a measly 50 percent markup on a bottle of wine that cost your bar $100, you just made $50 for twisting a corkscrew.

Liquor

Pricing for basic liquor drinks is a bit more complicated, but we can still break down the basics. The bar pays $27.50 for a one-liter (33.8-ounce) bottle of Stolichnaya vodka. If we assume a standard 1.5-ounce shot, that means you get 22.5 Stoli-and-whatevers per bottle, for a price of $1.22 per serving. The bar charges $6.75 per dose, so when dealing with Russians or other masochists, the liquor cost is a mere 18 percent.

But most people don't drink shots of vodka. All the other crap that goes into a standard mixed drink—soda, ice, straws, lime wedges—is cheap for the bar but free to the consumer. Five gallons of Coca-Cola syrup costs about $80. The syrup is reconstituted into soda at a ratio of 5 parts water to 1 part goo; if you start with a 10-ounce glass, that leaves 4 ounces of soda after the liquor and ice are added, which is about 8 cents of Coke per mixed drink. If you figure another nickel for other accouterments, you're up to $1.35 worth of ingredients for a $6.75 Stoli and Coke, for a 400 percent markup (20 percent product cost).

The worst deal for the consumer is bottom-shelf liquor. The bar can get a liter of generic vodka for $7; now they're down to 31 cents worth of booze per drink as opposed to the $1.22 they shell out for Stoli. Throw in the 13 cents worth of soda and nonsense and it's 44 cents for a drink they sell for $5.75. That's a markup of 1,206 percent, with the cost to the bar only 7.6 percent of the customer's price. The bar actually makes a slightly lower net profit per drink that way (they pay 91 cents less for ingredients that they sell for a dollar less), but it's still a great deal for the house because the opportunity cost is so much lower on a bottle of cheap vodka—they have less money tied up in unsold inventory and lower exposure to loss, theft, and breakage.

And that's just the math of it; quality counts, too. Although a TON of marketing and hype and bullshit goes into the mid- to high-end liquor game, the true bottom-of-the-barrel stuff really is markedly inferior. If you've got a glass of Barton's or some similar garbage instead of Stoli, you haven't really saved one dollar; you've pissed away 5.75 of them.

Which brings us back to my $13 cocktail of Rittenhouse, bitters, bitters (?), bitters (?), and Byrrh (which turns out to be a French wine-based aperitif). This is where drink pricing gets harder to calculate, because the ingredients are so plentiful and esoteric and also because a reasonable customer understands he is paying for expertise and innovation. You can open your own bottle of Bud—but are you willing or able to develop this drink recipe, source or make the bitters, and stock the six different shapes of ice these joints rely on to put together a full menu of things they can sell for $13 a pop?

Paying double figures for a cocktail is like paying $34 for an entree: It ain't for everyone, but that doesn't mean it's a rip-off. If you're willing to forget the retail price of a pound of chicken and just enjoy the excellence of some weird-ass poulet énigmatique with 5 ounces of bird surrounded by three kinds of mushroom, purple carrots, and a grain you've never heard of but which you strongly suspect is grits, then there's no reason not to finish the meal off with a Byrrh-based cocktail.

Bars don't make nearly as much money as these drink price breakdowns may imply, because we haven't accounted for tons of other costs of doing business, such as lease conditions, payroll, equipment maintenance, employee theft, and general operating expenses. Plus the bar owner is often plagued by less savory sorts of overhead—cocaine, gambling, and back child support, say. These are significant factors, but none of them is the customer's concern. You can't go raising beer prices every time you suffer a particularly brutal garbage-time field goal; in that situation it's your responsibility as owner of a public accommodation to do what everyone else does and trade your JetSki to the bookie at 20 cents on the dollar. Leave my bar tab out of this, pal.

That said, the customer ultimately pays for fraud, waste, and inefficiency in every other business, too. I know that part of my peanut costs come from Planters forklift-drivers reading the Jamboroo on the clock. No business operates at peak efficiency, and the buck always gets passed. No one should come away from this thinking that bars are ripping them off any more than any other business is; the point here is just to help you make as informed a purchase as possible. No go forth and get thriftily shitfaced.