The Cost Of A Well Made Drink

About a year ago I was having a conversation with a fellow bartender and he mentioned that the Dallas Observer had run a survey of its readers to find out why they thought that restaurants and bars presented them with a cocktail menu when they sat down at the bar.  The overwhelming response:  Because they want to charge the customer more money for the same amount of booze.  Now seeing as how all I do is make and sell cocktails this is definitely something I think should be addressed.  This post is not here to say that a lot of these places are justified in their cocktail menu pricing.  What I want to do here is give you a quick insight into the financial workings of the bar and restaraunt industry that will help you gauge what your getting for your money a little better. 

Establishments that really care about having a beverage program that is top notch take on a lot of costs that other bars don't have to deal with.  The labor and cost of squeezing fresh juices and making fresh syrups, the liquor that goes down the drain when testing out new recipes, the use of only quality spirits, the additional equipment that is needed to properly execute the drinks on the menu, the extensive amount of training that is necessary to get the bartenders up to speed on how to properly create a drink, etc.  Let's also not forget about the absence of rotgut liquor behind the bar.  Whereas a lot of the bar industry gets to pad their pockets with high margins on well mixed drinks, a really good bar does not have such luck.  It's also important to take into account the time it takes to actually make a cocktail.  At one of my establishments (the one where it's really cheap to drink at and I make more money) the average time it takes to make a drink is 6 seconds.  At The Usual the average time it takes a bartender to produce a drink is 35 seconds, and that's if someone doesn't order 5 Mojitos and a Ramos Gin Fizz in the middle of Friday night service.  The real cost that lies in the opporunity cost that is incurred by not "slinging" drinks over the bar is quite significant, especially when you think of it on the scale of 140,000 cocktails going over the bar in a year.

All that being said, here's a real cost analysis on The Aviation recipe that we use at The Usual.  Some people may hate me for posting this on the internet, but I really think customers would appreciate some transparency on this issue.

The Aviation
2 oz. Beefeater Gin  (Cost: $1.41)
.5 oz. Luxardo Maraschino  (Cost: $.51)
3/8 oz. Creme de Violette  (Cost: $.29)
.5 oz. Lemon Juice (Cost: $.04)
1 Luxardo Maraschino Cherry  (Cost $.04)

All told it costs $2.29 to produce this drink.  We sell it for $9.  That's a difference of $6.71.  At this point that sounds like a very high margin, but wait, there's more.  Let's take into account Taxes, Labor, and Overhead.

Taxes are 14% on every dollar that comes into the bar.  That's before the associated but fairly nominal Sales Tax.  (Cost: $1.26)

Overall labor cost of 12%.  Some of this is associated with things like cleaning crew, door guys, other miscellaneous labor, and employee taxes, but hey, the money's got to come from somewhere.  (Cost: $1.08)

Overhead includes the rent, utilites, cost for computer systems, coolers, regular maintenance, etc.  We enjoy a low level of overhead for our industry at 9.7%.  This cost can be significantly higher in prime locations and with the addition of a kitchen.  (Cost: $.87)

These three things will shave another $3.27 off of the profit made on this one drink.  We had a profit of $6.71.  Now we're down to $3.44.  That means we're retaining 38% of the money paid for this drink as profit at this point.  Most businesses would be really happy to retain that much of their income.  So would we. 

We have to also consider Marketing, Miscellaneous fees such as minor repairs, Accounting, Janitorial and Soft Good expenses, and Credit Card processing fees.

Our marketing budget is 5% of our income.  That a standard number for a small business.  (Cost: $.45)

Miscellaneous expenses usually sits around 2%.  Always expect the unexpected.  (Cost $.18)

Accounting fees will vary month to month depending on things like tax season, quarterly filings, and what not things that you have to pay accountants for, but with the guy we use it works out to be around 2%.  (Cost $.18)

Soft good and Janitorial expenses cover things like the chemicals used to sanitize tables and wash dishes, those fancy paper towels in the bathrooms that are to be expected at places that charge premium prices for drinks, replacing broken glassware, and the like.  We're talking 4% here.  (Cost $.36)

Merchant Service fees are what we pay for being able to run credit cards.  This is always the first bill that I get at the beginning of the month so I get a little irritated with this one.  At around 3%, it's small, but it counts.  (Cost $.27)

These expenses tend to be small, but they add up in the end.  In this case it's another $1.44 out the door from this one drink.  That makes the final profit on this cocktail $2.00 even.  That means we have retained 22% of the income on this drink as profit.  Compared to what I see in other industries that's a sign of a well run business that isn't gouging it's customers.

With that info you should have a better perspective on where your money's going when you purchase a cocktail.  I will say that there are a lot of factors that will cause prices to differ from one place to another.  A lot of times at nice restaurants that have large kitchen staffs high margins on booze is what subsidizes all that additional labor.  Places located in prime locations will have much higher rent to pay which typically ends up as smaller food portions and higher drink prices.  Places that have just opened generally have not found the most efficient way to produce their product and take care of their guests.  There are a lot of behind the scene variables in this business. 

Personally I don't like paying $10 for a Tanqueray and Tonic and a nightclub, but I do like paying $12 for a great drink at The Cedar's Social.  I do like the $6 Full Sail Lager and Jameson's special at Vickery Park, but I don't like the lazily made $12 Manhattan variation I had at Samar.  I really enjoy the food at Samar and the service at the table was spot on (btw).  I really hate places that still serve $12 Appletinis.  When will that ever go away?