Above: Steve Wildy (left), wine director for the Vetri restaurant group in Philadelphia. The group’s flagship restaurant, Vetri, is considered one of the best Italian restaurants in the U.S. Steve has to pay retail prices (not wholesale) to maintain its superb wine list (image via McDuff’s Food & Wine Trail).
Others (notably Joe Roberts, author of 1WineDude) have written about the dismal situation in Pennsylvania, where the state monopoly on wine and spirits requires restaurant wine buyers to pay retail prices for their wines.
After reading Steve’s note, I felt it was important to share it here. (See also “The PA State Monopoly on Wine & Spirits: A Systemic Failure” by Joseph M. Norton, professor of history, SUNY Dutchess, Poughkeepsie.)
If we are to grow as a nation of fine wine lovers, we need to fight arcane, anachronistic, fascist-era regulation of wine sales in states like Pennsylvania, where young wine professionals are stymied by egregiously restrictive and counterproductive oversight (Texas is another major offender).
I recently received wind of online comments made by Jason Malumed, a wine distributor, in response to Philly Mag food writer Trey Popp’s review of Petruce et al. These comments elicited a response from the critic called “A Second Look At Petruce et al: The State of the Markup.” (You should read it – http://www.phillymag.com/foobooz/2014/05/27/second-look-petruce-et-al-state-markup/#comment-1410210035) Malumed’s comments sought to point out many factual inaccuracies and outright untruths. Unfortunately, Popp’s second look doesn’t apologize to Petruce co-owner and wine director Tim Kweeder for misquoting his average markups as 3x instead of 2.6x as much as it takes the opportunity to further rail against restaurant wine pricing in general.
Popp may not be alone in his opinions on the matter, but as a journalist whose readers regard him as an authority on the subject, I’d like him to take another look. There are several serious issues with his critique that show a fundamental lack of understanding of the wine business, and in fact how restaurants operate in general.
It’s this lack of knowledge—given Popp’s wide platform and long reach—that has the potential to irrevocably harm a slew of honest and hardworking small businesses. Why? Because his misinformation, even if it’s un-willful, potentially discourages a large swath of people from dining at a restaurant for fear they’re being ripped off.
The conversation on restaurant wine markups is justifiably ongoing and has heated up lately with more and more calls to action by reviewers, consumers, and restaurateurs alike. As someone who deals with it on a daily basis I’d like to respond with some points on selling wine specifically in Pennsylvania. What I hope will be obvious here is that Trey Popp, the consumer and I all want the same thing: for wine to be more affordable in restaurants. Popp has made his opinion clear that restaurants should just charge less to make that happen. Here’s what’s wrong with that.
First, to be sure we’re all clear on the terms Popp uses, here’s what we mean by a “3x” markup: list price is three times the cost of the bottle. So, a bottle that costs $10 for the restaurant would be listed at $30. Trey Popp considers 2x, or $20 in this scenario, to be fair and standard. 1x would be zero profit.
Secondly, if anything is sly here, (as Popp accuses Kweeder of being for serving a $14 cocktail with beer in it), it’s the use of the term “retail.” “3x retail,” 2x retail” and the like are frequently used to describe wine list markups nationwide. But the terminology only makes sense in free states, where a restaurant can purchase wine “wholesale”—or dramatically cheaper than the end consumer.
That $10 bottle mentioned above in NYC doesn’t cost $10 when you walk into a wine shop. It costs $15. So, let’s uproot Petruce and move them brick-by-brick to NYC for a moment. Ok, now they charge their 2.6x average markup for the wine and list it at $26. How much more than retail is it? 1.73x retail. Trey’s markup compass, Mr. Popp Sr., would be a happy man. And hey, in this scenario Petruce really doesn’t need to struggle on minimal margins because the Popps are just as happy to pay a fair and standard “double retail.” So, they can mark their wine up to $30, make a little more money, and everyone is happy.
As an aside, actual industry standard for a $10 bottle is 4x to 5x. Here are two recent articles from some of the country’s leading wine professionals who have no qualms disclosing their by-the-glass price typically equals the wholesale bottle cost.
Hate math as much as I do? Just read Popp’s statement again and know that every time he uses the word “retail” he is using it incorrectly, whether he means to or not. I’d ask him to substitute it with the word “wholesale,” but wholesale essentially does not exist in the Pennsylvania wine and spirits market—wine costs more in restaurants because of it. Restaurants make less money than free state neighbors because of it. Everybody pays. Every conversation I’ve ever had about it with peers in those free states elicits the same response: total and complete shock. I don’t make a habit of talking about it with guests because frankly it’s just bad dinner conversation. But please know this: for all intents and purposes, wholesale wine does not exist for restaurants in Pennsylvania.
Here are a few examples of just how absent the wholesale distinction is for wine buyers in PA:
- No volume discounts: 15 miles away in New Jersey I can purchase three, five or 10 cases of something and receive a better price on it. Not the case in PA.
- Double taxation: Wine, liquor and beer are double taxed. In Philadelphia we pay 8 percent tax on all goods we buy from the state and beer distributors. Not the case in NJ and beyond. In almost every wholesale arrangement—including our food purchases in PA—purchases are exempt from taxation, since they’re taxed again upon resale. PA restaurants mark wines up based on the cost INCLUDING tax, so that 8 percent gets marked up as well.
Ok, I lied, we do receive a wholesale discount as a license holder in PA: 10 percent off retail price. But I frequently forget about it, because two factors confuse this already slim break: the 8 percent double tax above, which all but negates it, and the fact that in a shocking number of instances, retail is cheaper than “wholesale.” This is because the buying power of the Pennsylvania Liquor Control Board (PLCB) affords them the right to the aforementioned volume discounts that restaurants miss out on. These buys are made with retail shelf placement in mind, and passed onto the consumer at a standard retail markup (1.5x). Now, if a restaurant orders directly from the distributor, there’s no volume break, and the results can often be amazingly lopsided in favor of retail.
Here are a couple of examples from the PLCB’s search catalog that I’m painfully familiar with:
- Mastroberardino Radici Taurasi DOCG : $51.99 consumer, $56.99 restaurant
- Pio Cesare Barbaresco: $59.99 consumer, $68.99 restaurant
- Nino Negro Quadrio Valtellina: $17.99 consumer, $24.99 restaurant
Now if Tim Kweeder marks Nino Negri up 2.6x from $24.99 to $65, it’s all too likely that a guest will enjoy it, look it up for purchase when they get home, and surmise that a $17.99 bottle was marked up 3.6x. Nice going, Tim.
More wholesale quirks:
- Vendors cannot deliver directly to restaurants as with most wholesale transactions.Instead each order is delivered to the PLCB where we eventually go to purchase it. An average visit to the PLCB can easily take a paid employee an hour, not counting travel time.
- Restaurants pay COD to pick up these orders, while almost all other wholesale transactions operate on terms.
- Restaurants are required to take their purchase off the PLCB premises themselves. There are paid delivery services available at $45-$85 per delivery that we and many others use. I would be shocked if this cost was passed on to the consumer by any restaurant, and feel confident in saying that 99 percent of restaurants, ours included, absorb it as part of doing business.
What does this absence of a wholesale market mean? Essentially, if I order a wine from Jason in NJ as opposed to in PA, I can (1.) get it delivered to my door the next day, (2.) pay for it in 30-day terms and (3.) pay substantially less for it. How much less? Easily 1/3, and in large volume situations half the bottle price. HALF. And also no delivery charges.
Clearly, Popp’s statement doesn’t acknowledge these factors, which I and many other buyers struggle with. He does, however, delve into some other areas that attempt to rationalize his call for lower markups. He continues on the non-apology trip with a strange correlation between gratuity and markup that no matter how many times I read I just can’t make sense of it. In defense of his wonky math he says, “For one thing, these markup factors don’t include gratuity, which makes a big difference. With a 20 percent tip, a 2.19x markup becomes 2.63x, and a 3x markup rockets to 3.6x.” Is he saying restaurants should absorb a 20 percent loss in revenue for every bottle sold to account for gratuity? Does he know what 20 percent means to the bottom line of any operation? Should we do this with the 10 percent liquor tax too? Heads up, if you’re accustomed to tipping on the entire bill, that 3.6x markup just rocketed to 3.96x. Tim, you should be ashamed.
Among Popp’s other diversions from wine cost in his piece are some similarly erroneous examples of food and beer costs, and a bizarre defense of the markup standards for both. Ever wonder why Philadelphia’s easily one of the country’s greatest cities for beer, but struggles to stay relevant on any national roundup of greatest wine lists? Strangely, beer distribution in PA mirrors free states and in most cases has more abundant selection and cheaper pricing, including volume discounts. So, why then is Popp okay with 5x markups on beer? He qualifies this with cost of refrigeration, line cleaning and “managing the special delivery and return of kegs.”
Almost all wine in a high end restaurant is refrigerated in some way—and takes up way more space than beer. Forget the cost of glassware, sommeliers, education, etc., for a second, I serve draft wine at a few of our restaurants and certainly don’t take line cleaning and tap maintenance into consideration when pricing it out any more than I calculate the cost of recycling for all the empty boxes we dispose of from wine packaging.
And in what scenario is it likely that 50 liters of anything would be less cost efficient than 750ml? Is it possible that instead of understanding beer costs in any meaningful way Popp is used to purchasing actual retail beer like the rest of us and doesn’t mind that a bottle of beer is $2-$2.50 in a deli and $5 at Petruce because it only seems like 2x? That bottle costs $1.25 wholesale and nobody bats an eye at the bars and restaurants that charge 4x markup or more and nor should they. If the same $1.25 bottle was sold by the PLCB it would land (well be picked up) at $1.88 on the low end. Bargain for retail. But Petruce has to sell it for $7.50 to make the same margin. Which side is to blame in this scenario? Is it fair for a restaurant critic to ask that anyone drop their markup to 2.65x so he can continue to enjoy it at $5? Goddammit, Tim.
Nowhere does Popp’s statement go more off the rails than in its closing moments, when it ties in a hypothetical scallop dish that is marked up a noble 2x in comparison to the unseemly 3x markups on the wine list. “And do you know what makes more sense? Not relying on wine, or alcohol in general, to generate the lion’s share of your profits. Because why should a restaurant sell a scallop appetizer for twice the cost of its ingredients—laboriously transformed into a delicious dish by who knows how many prep cooks and sous chefs…”
Ok, find me any chef who works on 2x, or 50 percent food cost. Or any that works above 40 percent (2.5x) and still has a job. Industry standard for successful restaurants—read, not shuttered—is 33 percent. Efficient and extremely successful restaurants operate in the 25-28 percent range. That scallop dish that Popp rightfully lusts after for martyring itself at the skilled hands of countless, unappreciated cooks and sous chefs to appear on the menu at $16, unfortunately, costs way less than $8. The juxtaposition of this line, a tribute to Mr. Popp’s food critic credentials as someone who holds beautifully-cooked food in higher esteem than most things, next to this one “…but charge three times the cost of a wine bottle …. for the service of storing and opening it?” has me considering another possibility.
Does Trey Popp simply just not enjoy wine as much as he enjoys food? Fair enough, but this “labor is already in the bottle” notion serves as a mechanical, cold and detached dismissal of the very existence of a dedicated wine professional like Mr. Kweeder. It is further proof of a sheer inability to understand what it is about the contents of that bottle that inspired Tim to devote his life to them in the first place. It’s an indescribable and vagarious tempest in a bottle waiting for the right hands to release it at the right time, in the right setting, into the right glassware, waiting for the right mind to pair it with the right dish, to give it a proper introduction to its rightful suitor, to make a meaningful connection to not just its contents but to history, life, memory, love, philosophy, everything. The labor in the bottle? People like Tim can tell you about the hands that picked the grapes and the grandfather who held them steady when he taught them how. Popp agrees there is some value to this. So, what is it, a $10 flat fee per bottle for the service of storing and opening it?
Let’s be clear. I want to make money doing this. I want our wine programs to be profitable. I love doing business in Philadelphia and I appreciate that even without a wholesale structure the PLCB allows us to operate what I hope are exciting and enjoyable wine lists. Let me talk wine to anybody and I’ll be happy no matter what. But here’s where Trey and I agree: it should be cheaper. And seeing that the two most outspoken proponents of wholesale restructuring I know are the tireless Tim Kweeder and Jason Malumed, it just may be a reality in our future. Until then, I’m hopeful Trey and our community of restaurant critics and diners find value in the contents of this letter. If we can agree on some basic facts on restaurant markups first, I’d love to see the discussion continue from here.