What is the average markup on liquor

The current retail marketplace for liquor is the result of Prohibition, which was repealed in when the 21st amendment to the Constitution was ratified. That amendment gave the states broad control over the manufacture, distribution and sale of alcoholic beverages within their borders.

About a third of the states exercise that control by operating retail liquor monopolies — that is, in those states, the states own and operate all the liquor stores, and in some cases distribution as well. The other two thirds of the states follow a license system of control, tightly regulating all aspects of the industry within their borders by restricting the licenses issued.

In the states that operate monopolies in the retail liquor industry, the price of liquor sold in Alcoholic Beverage Commission or state stores is set by the state government and is uniform throughout the state. The markup varies from one state to the next, but ranges from around 25 percent to 45 percent. Some states also routinely hold sales on different products that may lower the markup.

States that issue licenses to liquor stores allow those stores to set their own prices, but prohibit stores from selling liquor for less than the wholesale price.

Stores may not engage in the customary marketing practice of taking a loss on one product to encourage sales of other, more profitable items. We explain what goes into price-setting and what a healthy profit margin could look like for your business. You can do this, in part, by wisely setting your retail prices. Once you know what your costs are, you can start to figure out selling prices and profit margins, but first, you need to figure out your cost per unit.

The cost per unit should take all the factors listed above into financial account [ 2 ]. A simple formula for calculating cost per unit takes your total fixed costs plus your total variable costs and divides that number by the total units produced [ 3 ]. Now that you know how much each case of beer is costing you, you can set a reasonable retail price based on your desired or allowed profit margin and location. Of course, the profit margins your store has are going to vary greatly depending on the types of alcohol you choose to sell, the type of business you have, and your location [ 5 ].

We take a closer look at each below. So, a simple liquor store no groceries, gas, sit-in bar areas, or cooked food will tend to have lower profit margins than restaurants and bars but may have higher margins than grocery stores and gas stations that are involved in the sale of alcohol.

Believe it or not, beer, wine, and hard liquor are generally marked up at different rates. These states may also have strict regulations regarding the distribution and sale of alcohol that you must follow. As with any business, location makes a difference [ 8 ]. Knowing that you can go granular when looking at pour costs, like looking at your cost per ounce, it's important to point out that you can and should look at your pour costs by different types of alcohol.

Your costs and potential profits for wine and beer will be different, and both those drink types will have different costs than your spirits. So it's important to track your costs and margins by drink types so you know which drinks perform the best at your bar.

And be sure to consider mixed drinks with spirits as well, because the cost of the mixed drink not only comes from the alcohol, but all other ingredients as well. You can even look at individual products to see which items are your best performers.

Another common question is what is the average liquor cost for bars and restaurants? It's great to work with industry benchmarks, but the average pour cost across the U. That's because there are unique factors that must be taken into account for every venue. Rent in New York City is much higher than rent in rural Nebraska.

So two bars with the same pour cost, may have drastically different net profits. But as a starting point, industry averages can help you find the right path to determine how your bar or restaurants' beverage costs compare, and where you can improve.

The industry average for total beverage programs is somewhere between 18 - 24 percent. Below is a breakdown of average pour costs across different drink types. In the above infographic, we see that different drink types yield different average costs.

That's just one reason industry benchmarks shouldn't be used exclusively as a ballast for determining where your beverage cost should land. Another reason, as mentioned earlier, is that pour costs are a measure of margin, not profits. As you can see above, pour costs for wine tend to be much higher than beer.

Different establishments will have different pour costs. A wine bar is likely to have higher costs than a college bar serving mixed drinks with cheap liquor. So it's important to recognize that while industry average liquor costs can serve as a guide, don't read into them too much.

If you've read this far, you'll have picked up on a major theme of this post: liquor cost plays a big role in your profits. But so far, we've looked at profit from the perspective of a bar's costs, but not necessarily the prices they charge for menu items and bar selections.

A beverage program's gross profit margin is the inverse of their beverage costs. Your 20 percent cost is an 80 percent margin. Which is pretty good. And that's why we started this post saying how a bar program is the engine that powers profits. If you take a holistic approach to restaurant profits, you'll see that its quite costly to run a restaurant. Two of the major factors affecting restaurants are food and labor costs. And looking at these numbers highlights just how important a successful bar program is.

The average food cost for restaurants can run between 28 to 35 percent , leaving a 72 to 65 percent gross profit margin. About 10 percent higher on average than liquor costs. If you couple that with labor costs, which can run anywhere between 22 percent and 40 percent, then a big chunk of sales goes into staffing and food, resulting in a much lower net profit margin than liquor.

Generally, the labor required to prepare and cook food is much higher than the labor required to pour wine or mix a cocktail, especially because kitchen employees earn hourly rates and don't rely on tips to subsidize income. So the labor impact on food is significant. Generating the money to staff a restaurant and pay labor puts a lot of responsibility on a bar program, so it's key that liquor costs are low and beverage margins are high. There are a lot of things to consider when pricing drinks, but there is an easy way to establish a baseline for pricing to hit your target margins.

Let's again use the Belvedere vodka example from above. If we want to yield 80 percent on all Belvedere vodka sold, then we can use the cost per ounce to determine the price that we should charge. Here's the formula for finding your pricing:. Desired Pour cost. The formula can be re-written as:. The average industry liquor costs infographic from above shows that different drink types have different average costs, so they also have different average margins.

You'll have to find the right margins for different areas of your beverage program that make sense for your bar or restaurant. Pricing wine has a lot of variation compared to other types of alcohol. From the goldmine of glass pours to markups on bottles, there is a lot to consider when pricing wine. And wine cost is important, both for you and the consumer. A survey from Wine Business found that 72 percent of customers said price is the most important factor when making wine purchasing decision.

Industry standards for wine bottle markups are generally said to be around 2. But don't be surprised to find some restaurants with 4x markups on bottles. While 2. It's a lot simpler than mixing a 5-ingredient cocktail, and even easier then opening up 2 or 3 beers during the course of a meal. Also consider that wines generally sell at a higher price than other drink types, so while the gross margin will be lower, the gross profit can still be higher.

And in the end, gross profit is almost always more important. Except it likely took the server two minutes to find, open and pour the bottle of wine compared to 10 minutes for bartenders to make ten separate drinks.

Obviously, you want to serve the wine all day. Another element of wine pricing to consider is that the markups you charge on a bottle will be dependent on the cost of the bottle.

A premium wine, one that is more expensive, will probably have a smaller markup than a more affordable wine. This is because, as noted above, profits increase with price even at lower margins. You don't want to price out your guests from premium wines, so having a graduated pricing structure is a good strategy. From a psychological perspective, guests may think it is unfair for you to make the same margin on a premium wine as an economy wine, when the labor going into providing both is relatively the same.

Make sure you're familiar with your state laws regarding wine and liquor, because some states, like Utah, have restrictions on how much a bottle can be marked up. A wine by the glass program can generate big profits, particularly for restaurants. It's not uncommon for restaurants to charge the wholesale cost of a bottle for a glass of wine. This also reduces the risk of glass pours in general, because if no other customer orders the same wine before the opened bottle needs to be tossed, at least you've recovered your cost on the first purchase opening the bottle.

Glass pours also appeal to a wider audience of people who may not want to commit to a full bottle, either because they don't have the time to consume a bottle, are dining with a non-wine drinker, or maybe they want a glass with lunch but have errands to take care of later.

That's why glass pours are crucial for a successful wine program. When thinking of wine, France and Italy come to mind. But there is a growing wine market with wines being produced around the world. Looking for high value wines from countries up-and-coming wine production like Argentina, Croatia, or even Spain whose wine exports are growing can provide you with great wines for a lower cost per bottle. Because cost is a big factor in wine consumers buying decisions, you must walk a fine line with wine pricing.

That's why finding high value wines from your vendors is important. Especially if the demographics of your restaurant skew towards the late 20s to early 30s crowd.

These consumers, millennials, seek a balance between value and experience. It's important to try a variety of price points and offer a selection at varying price points and find what works best for your restaurant or bar.

Part of this is attributed to the increased popularity of wine preservation systems and devices like the Coravin, where wines stay drinkable longer. Beer isn't expensive, but it can yield pretty good margins.

Especially with draft programs. So it's important to consider how you use your draft and bottle lists. We saw earlier that draft beer can yield around 80 percent gross margins on average, while bottled beer clocks in slightly lower at around 75 percent.

But that's not the only difference. Draft beers also give you more options in terms of serving size, and make for great drink specials. You also have the advantage of rotating draft options which can keep your beer menu fresh and allow more flexibility with your beer program. An important thing to consider when pricing beer for your menu is the size of the keg.