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."
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