Snatch the Pebble from My Hand, Grasshopper!

Tyler Cowen teaches Ezra Klein one of the arcana imperii:

Ezra Klein: Drinking Strategies: I'm not yet finished with my copy of Tyler Cowen's Discovering Your Inner Economist (it's very good, though!), so maybe this is included deeper into the book. But given that Cowen upholds that expensive drinks subsidizes food, particularly at fine restaurants where they make hefty margins off wine, etc, do we have any data on what the average mark-up is? If it's high, presumably the most cost-effective strategy be to forego drinking in fine establishments -- what you can't get at home is such fine cooking, and this way it's being subsidized for you. If it's relatively modest, there's certainly some added utility, even if it's partly imagined, to pairing a nice meal with good drink, so maybe it's worth it...

Alas, my highly favorable review of Discovering Your Inner Economist is still in the editorial process at the Chronicle of Higher Education.

But I will say that I did once try to convince Bob Hall at a restaurant in Palo Alto not to order wine: the fact that the wine would cost four times retail would, I said, depress me and lower my utility. Even though I wasn't paying for it, I would still feel as though I was being cheated, and as I drank the wine that would depress me more than the wine would please me.

He had two responses: (i) "You really are crazy." (ii) "Think, instead, that it's coming straight out of the Hoover Institution endowment, and order two bottles."

Comments

[save_the_rustbelt]

Accountants actually track these issues (one publisher does an annual report of the margins in several thousand business categories - snooze).

Back in the day when I did a some fine restaurant accounting there was 300 - 400% markup on wine (the markup % usually dropped for the really expensive stuff). I think there is more competition and less regulation in the booze business these days, this could have improved (varies by state).

A $30 bottle of whiskey or Scotch could generate $80 - $120 of revenue, depending on 1) the skill of the bartender, 2) the corruption level of the bartender, and 3) how much the staff was snitching. This is lower of course in an establishment without the "fine dining" label.

Generic booze for mixed drinks could generate even more.

A good restaurant manager should be able to gauge the honesty and competence of the staff by looking at the financials (assuming proper inventory accounting), the margins should be consistent and in line with the industry.

[save_the_rustbelt]

Accountants actually track these issues (one publisher does an annual report of the margins in several thousand business categories - snooze).

Back in the day when I did a some fine restaurant accounting there was 300 - 400% markup on wine (the markup % usually dropped for the really expensive stuff). I think there is more competition and less regulation in the booze business these days, this could have improved (varies by state).

A $30 bottle of whiskey or Scotch could generate $80 - $120 of revenue, depending on 1) the skill of the bartender, 2) the corruption level of the bartender, and 3) how much the staff was snitching. This is lower of course in an establishment without the "fine dining" label.

Generic booze for mixed drinks could generate even more.

A good restaurant manager should be able to gauge the honesty and competence of the staff by looking at the financials (assuming proper inventory accounting), the margins should be consistent and in line with the industry.

[save_the_rustbelt]

Accountants actually track these issues (one publisher does an annual report of the margins in several thousand business categories - snooze).

Back in the day when I did a some fine restaurant accounting there was 300 - 400% markup on wine (the markup % usually dropped for the really expensive stuff). I think there is more competition and less regulation in the booze business these days, this could have improved (varies by state).

A $30 bottle of whiskey or Scotch could generate $80 - $120 of revenue, depending on 1) the skill of the bartender, 2) the corruption level of the bartender, and 3) how much the staff was snitching. This is lower of course in an establishment without the "fine dining" label.

Generic booze for mixed drinks could generate even more.

A good restaurant manager should be able to gauge the honesty and competence of the staff by looking at the financials (assuming proper inventory accounting), the margins should be consistent and in line with the industry.

[save_the_rustbelt]

Accountants actually track these issues (one publisher does an annual report of the margins in several thousand business categories - snooze).

Back in the day when I did a some fine restaurant accounting there was 300 - 400% markup on wine (the markup % usually dropped for the really expensive stuff). I think there is more competition and less regulation in the booze business these days, this could have improved (varies by state).

A $30 bottle of whiskey or Scotch could generate $80 - $120 of revenue, depending on 1) the skill of the bartender, 2) the corruption level of the bartender, and 3) how much the staff was snitching. This is lower of course in an establishment without the "fine dining" label.

Generic booze for mixed drinks could generate even more.

A good restaurant manager should be able to gauge the honesty and competence of the staff by looking at the financials (assuming proper inventory accounting), the margins should be consistent and in line with the industry.

[wkwillis]

I don't drink, so I am concerned that I am free riding on the restaurant.

[andres]

"Think, instead, that it's coming straight out of the Hoover Institution endowment, and order two bottles."

I'll drink to that ;-)

[Emma Anne]

wkwillis: I rarely drink myself. But then I am rarely found in fine dining establishments, so my free-riding is limited. :-)

[Justin X]

“…it's coming straight out of the Hoover Institution endowment…”

Yes, this trough yields boundless rewards to those who drink from it, doesn’t it?

[Bernard Yomtov]

"A good restaurant manager should be able to gauge the honesty and competence of the staff by looking at the financials (assuming proper inventory accounting), the margins should be consistent and in line with the industry."

Don't forget to watch the bartenders, to make sure they don't bring in their own bottles and sell drinks out of them.

[David Graves]

Then there are all the individual state's rules about who can get what--can a winery offer a special low price just to restaurants to get on the "by the glass" list? What about retailers--must they be offered the same deal? Some states will not allow wholesalers to offer credit to their buyers--all cash on the barrelhead (as it were..). And in most states, the wholesaler tier is mandatory--a winery can't sell directly to retailers or restaurants. It goes on and on. But 2x retail for a cr*p wine list is the norm in too many restaurants. Vote with your wallets, wine drinkers--we can only drink so many glasses in a lifetime, so let's make 'em count!

[wcw]

These days, when I see 3x retail, I won't buy a bottle. Good places can offer 2x retail for bottles you can no longer get easily, that go with their fine food. That's perfectly fair.

Eating in Palo Alto, on the other hand.. I mean, c'mon, you're in B-Town, where you're spoiled for good food. At worst, you meet halfway in SF for even better food. What possesses anyone to eat an expense-account meal in PA?

FD: I currently am working in PA. I live in SF. I went to Cal. Any other questions?

[John Emerson]

I used to know a guy who would go to buffets, calculate the most expensive selection, and eat only that. I lost a bit of utility going out to dinner with him the one time I did so.

As for overpriced booze, when you go out you know you're paying for ambience and sometimes sociality. In the limit case (no sociality and mediocre ambience), you're just paying to drink somewhere other than at home, just because you want to get out.

[John Emerson]

About 25 years ago a Japanese friend told me that depending on where you are, in Japan the same glass of standard beer will vary in price 100x. It was partly status-seeking, partly potlatch gift-giving (or maybe bribery), and partly a unique labor-intensive esthetic experience.