Knowledge of wine earns sommeliers credentials and opportunities, yet what it takes to keep a position and advance is the ability to provide excellent service while running a profitable business. Successfully managing inventory, working with distributors, navigating legal issues, and training staff are essential—but often learned on the job. This guide explores these aspects of the industry, focusing on wine program management in restaurants.
No business can survive without sustained profitability—which requires more than simply selling wine above its purchase price.
The first term to understand is markup, or the percentage increase between the cost of goods and the selling price. For example, a 33% markup on a bottle that cost $100 results in a $133 selling price. Rather than specific percentages, however, the terms 2x (two times), 3x (three times), and so on are often used to define markup. The markup percentage is calculated by dividing the gross profit by the initial cost and multiplying by 100. Thus, at the outdated “standard” bottle markup of 3x, markup is not 300% but 200%.
Initial Cost: $10
Markup: 3x
Listed Price: $30
Gross Profit: $20
$20/$10 x 100 = 200% Markup
Cost of goods sold (COGS) is calculated by taking the starting inventory of a period, adding the purchases of that period, and subtracting the ending inventory. It represents the cost of bottles sold, incorporating factors such as waste, over-pours, breakage, spillage, complementary pours, and inventory errors to reveal true product cost. Because sales can fluctuate dramatically day-to-day, financial performance is evaluated based on longer periods of time, such as a month, quarter, or year.
Fred, I would add that it is important to consider credit terms in the management of a program. Some states are cash states which changes the ROI for a beverage program. However if the best price is at bottle 1 it can benefit inventory terms.
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I do the same thing not just with my glass selections but bottles as well. I am a firm believer in a scaled markup structure. It's a fine line to walk with upper management because some are only concerned with cost percentage whereas revenue dollars are just as important. Having a low cost doesn't help if your not selling any product.
Great job! I just want to share one key factor that I take into consideration with my wines by the glass pricing is the firm understanding of my expected Product Mix (P-mix). I don't use a standard markup formal per pour but rather I make sure the lower priced wines offer value to the consumer but also a better mark up for me. Better wines by the glass don't have the same consumer and therefore need to be marked up less so that you can move them and offer value to a discerning/educated guest. I create a spreadsheet that shows my cost and price for each glass I offer and see what the theoretical cost would be based on selling just one glass of each. My goal is 28-32% but I have better glasses that might cost me nearly 40/45% but those are not wines I expect to be my most popular sellers in my P-mix. Your better cost items will hopefully be your top sellers and you less profitable glasses that bring in more dollars but less profit will hopefully round out your wines that sell less. Your goals should be to offer value from top to bottom in your glass program and overall with a good balance of cost per glass you will achieve an overall profit that is mutually beneficial to the restaurant and the guest. In short know your P-mix and make sure your top movers is priced accordingly.
Very educational and perfect for the next study guide topic. Thank you Fred