Cocktail Pricing Strategies for Super-Premium Brands

Dateline:  Miami

Location:  A luxury hotel somewhere in South Beach

While working the trade in Miami, I had a great interaction with a bar manager/mixologist on pricing cocktails. 

Jeffrey Morgenthaler (http://www.jeffreymorgenthaler.com/) is a very well-known mixologist and writer who has a solid following.   I’ve found him to be balanced and to have a lot of knowledge about the business.  This article from a few years ago on his blog http://www.jeffreymorgenthaler.com/2011/how-to-price-a-cocktail-menu/ has some fantastic information for bar managers on how to price a cocktail menu.  I don’t see anything here that I disagree with.  It’s very important that as trade-facing staff we understand trade math and how these decisions are made.

He manages his bar based off of Pour Cost.  To refresh your memory, Pour Cost (also known as “PC”) is a measurement that shows the customer the percentage of each drink that it costs them.  For instance, a drink with a pour cost of 22 means the drink costs the account 22% of the selling price.  The lower the Pour Cost, the better.  A lower Pour Cost means that the account has successfully lowered their cost-of-goods (cost of the ingredients), and/or raised the selling price to generate more profit.

You calculate Pour Cost by dividing the Cost per Serving by the Selling Price of the drink.

Here’s an example of a completed Pour Cost calculation:

Pour Cost Calculator
Case cost	$204.00	← Fill In Cell
Pack size	12	← Fill In Cell
Bottle cost	$  17.00
Bottle ounces	33.8	← Fill In Cell
Pour size	1 oz	1.5 oz	2 oz
Drink cost	$    0.50	$    0.75	$    1.01
Addt'l ingredient costs	$    1.00	$    1.00	$    1.00	← Fill In first Cell
Selling Price	$    5.00	$    5.00	$    5.00	← Fill In first Cell
Profit per drink	$    3.50	$    3.25	$    2.99
Pour Cost	0.10	0.15	0.20
Margin per drink	69.9%	64.9%	59.9%

At this account, the bar manager works off of a target PC of between 15 to 18.   That’s fairly typical; I would guess nationally that 18 is the average target PC.  You need to know how your Key Accounts analyze their pricing and what their target PC or margin is! 

With premium bottle costs averaging above $30.00, it can be a challenge to reflect a Pour Cost that it is within range, but just doing the math for the customer can put you in a strong position.

Here’s where I think we have an opportunity:

Let’s look at wine pricing for a minute.  While there are certainly market variances, on average most accounts mark up the cost of a bottle of wine 2 ½ to 3 times,  That is, a bottle of wine costs the account $20.00, they will typically sell it somewhere between $50.00 and $60.00 on the list.  Then, depending on the size of the by-the-glass pour, they will divide that selling price by 3 or 4 and add a dollar per glass to make a full bottle a better bargain and to help cover the costs of spoilage if an open wine goes bad.

Example:   Wine PTR (Price to Retail) is $20.00.  3x mark-up is $60.00.  They pour a six-ounce glass, so $60.00/4 = $15.00; add a dollar per glass to get to $16.00.

However, the big exception to this rule of wine pricing is for wines that cost over $100.00.  In this case, most accounts then switch to a “Cost Plus” model of pricing.  They’ll take the cost of that expensive wine and then add on a flat amount, such as $100.00, depending on market conditions and the competition. 

This accomplishes two things:

• ·        It keeps the price of their high-end wines still somewhat reasonable (as opposed to marking them up 3 times)
• ·        It encourages customers to reach just a little bit out of their pricing comfort zone and driving higher dollar rings

So what does this have to do with premium brands?  If you’re talking to account about a higher-priced brand –anything about $50.00/bottle, you should shift the discussion away from Pour Cost and towards dollar ring.  Remember that accounts don’t take percentages to the bank – they take dollars.

Spending just a little bit of time studying the financial measures of your accounts and your market can really pay off for you and can help keep our brands accessible, but still premium priced.

In Summary:

• ·        Know your Key Accounts financial targets and how they measure success
• ·        Get comfortable with Business Math; analyze a few drink menus and compute the Pour Cost or Margin
• ·        Look for wild variances to ensure that your accounts are not underpricing or overpricing their drinks
• ·        Always talk profit as our pour costs can look high because of our pricing, and always talk quality as super-premium brands are priced high for a reason