Recently, the BC LDB announced that they had missed their revenue targets, yet again. Here are some of the past excuses: heavy snow in the winter prevented customers from getting to stores, unseasonable rainy weather in the summer affected beer sales, a general economic downturn, the new drinking driving laws, and it goes on. A recent attempt to claw back money from licensees through the forced use of LDB branded credit cards has created widespread discontent. In this context, I recently read a Wine Spectator piece which appears to provide sage pricing advice to both restaurants and the LDB.
Here\’s an edited version of the argument in the context of restaurants:
[A London restaurant recently took a look at] shelf after shelf of unsold high-end wine, the owners decided to cut the prices and make it a feature.
Why is it so hard to find the right price for wine in restaurants? Most mark up what they paid for the bottles by a standard multiplier. Three is considered normal, which results in a wine-list price double the suggested retail. In San Francisco, where I live, it\’s more like 2.5. …
[A successful restaurant] owner in Palm Desert [now] offers everything on his wine list at retail plus $5 … \”People are tired of buying a wine at Costco for 10 bucks and then seeing it for $45 at a restaurant.\”
This idea is not new, but it homes in on the biggest flaw in restaurant wine pricing—marking up expensive wines and cheap wines by the same percentage. As one frustrated wine consultant told me years ago, \”You can\’t put percentages in the bank, only dollars.\” He encouraged his clients to try an experiment: Divide their total wine revenue by the number of bottles sold in that time frame, and apply that dollar figure to every bottle in the cellar.
When you think in those terms, better wines become less expensive than they were. Inevitably, customers traded up and spent more money, because better wines were more affordable. It was a win-win.
… Make better wine more affordable, and we all might pony up for one instead of choosing something less intriguing or settling for a glass or two, just to spend fewer dollars.
Now, imagine if the same argument was modified to apply to the BC LDB:
The BC government liquor monopoly recently took a look at shelf after shelf of unsold high-end wine and decided to cut the prices.
Why was it so hard to find the right price for wine in BC liquor stores? The LDB marked up what they paid for the bottles by a standard multiplier (123%). This was considered normal, which resulted in a wine prices double or triple what they were in neighbouring Washington state.
The BCLDB now offers everything at a standard wholesale price plus a flat markup of $3 … \”People were tired of seeing a wine at Costco for 10 bucks south of the border and then seeing it for $35 at a BC store.\”
This idea is not new, but it homes in on the biggest flaw in liquor board wine pricing—marking up expensive wines and cheap wines by the same percentage. As one frustrated revenue advisor told me years ago, \”You can\’t put percentages into government revenue, only dollars.\” He encouraged the Alberta liquor board to try an experiment: Divide their total wine revenue by the number of bottles sold in that time frame, and apply that dollar figure to every bottle in the system.
When you think in those terms, better wines become less expensive than they were. Inevitably, customers traded up and spent more money, because better wines were more affordable. It was a win-win.
… Make better wine more affordable, and we all might pony up for a nice bottle instead of choosing something less intriguing or buying out of province, just to spend fewer dollars.
The minister in charge of the LDB, Rich Coleman, has recently floated the idea of switching to a flat markup for wine, similar to the Alberta system. Seems to me this is an idea that is long overdue.