Martinis can be hazardous to your wallet.


At Katana, the hip eatery on the Sunset Strip, a martini made with Ultimat Vodka runs a cool $18. At the Standard Hotel's Rooftop bar downtown, a Grey Goose vodka martini rings in at $14, while a classic vodka martini at the venerable Hotel Bel-Air can be had for about $16.


This year, cocktail prices have soared, not only because bar owners and restaurateurs are faced with rising costs but because they know their patrons will keep drinking.


"If I was going out, I would not have a problem paying, but wow, they are expensive," said Christian Corben, executive manager of restaurants Katana and Sushi Roku. But he added that $15 martinis wouldn't "deter me from going back if the food was amazing."


At some of L.A.'s hippest establishments, pricey drinks have become a kind of cover charge for everything from an ocean view to a steady procession of beautiful people.


"When you go out, you are there to spend money, and you are also out for an experience," said Warner Ebbink, co-owner of Dominick's and 101 Coffee Shop. "If you go to the rib joint and drink beer, you are not going to pay more than $4 or $5. Hotel bars, like at Disneyland or someplace with a captive audience, they just kind of stick it to you. They can charge you pretty much whatever they want."


This is especially true in glitz-minded Los Angeles, where any number of new restaurants and bars Mood, Geisha House and the Tropicana Bar, to name a few have pushed prices to new highs. "If you are the new hotspot, you can get $15 for a martini," said Loren Dunsworth, owner of Lola's, where martinis top out at $12. "I don't know if that gives a venue longevity."


Ultra-premium markup
An alcoholic drink which could be beer, wine or a cocktail costs an average of $8.26 in Los Angeles, according to the Zagat Survey's 2005-2006 review of regional nightlife, up over 23 percent from $6.70 two years earlier. During the same period, the price of an average drink in New York increased only 6.4 percent, to $8.83.


Both New York and L.A. fall behind Las Vegas, where the average drink is $9.42. San Francisco's drinks average $7.27, and in London, it's $8.38 a pop.


Part of the reason prices have shot up is that the hottest restaurants and bars often make their exotic drinks with ultra-premium liquor. Wholesale prices for a bottle of Stoli Elite or Ultimat can top $40, compared with under $7 for standard vodka like Seagrams.


It's easy to see why bar owners and restaurateurs push the expensive stuff the margins are better. A survey of 300 operators by consulting firm Technomic Inc. found higher profitability by selling fewer pricey drinks. "The price elasticity of beverage alcohol depends on the venue that consumers are in and the occasion that they are out," said David Henkes, a senior principal at Technomic.


Restaurants typically charge more for a drink than clubs because clubs rely on their customers to buy more than one round. Higher-end restaurants, especially those in hotels where business travelers might be staying, charge even more.


Restaurants and bars have a three-tiered price structure: alcohol is either "well," "call" or "premium." Customers will get well alcohol when they ask for a generic drink, say a rum and Coke. Call is the next step up, when customers name a drink with a relatively inexpensive alcohol say a Jack Daniel's and Coke. Then comes premium.


At all levels, the markups are considerable. On an $8 drink, the cost of ingredients for a restaurant is typically $2.


Boa Executive General Manager Brent Berkowitz finds there is a consistent correlation between the price of valet parking and cocktails. In ritzy areas with little parking, the price for valet parking often hits $10 and cocktails often go for between $14 and $18. On Sunset Boulevard, where the valet can easily creep up to $20, drinks run in the $15-$20 range.


"Whenever I look at the valet, I know more or less the drink prices," he said. "There's the snooty factor, (and) the rent factor. Generally, places that are expensive in valet, there aren't a lot of places to park."


If prices keep climbing, there's always the possibility that patrons will begin opting for less expensive items or even stop buying drinks altogether. To avoid that, Henkes expects price hikes to slow down. In the Technomic survey, fewer operators said they would raise prices next year than they would this year.


"Going out to eat may be part of the lifestyle, but having an alcoholic drink tends to be an add-on, a bit more of a special item," said Henkes. "There is probably going to be a value ceiling."

For reprint and licensing requests for this article, CLICK HERE.