Whether you’re enjoying a steak dinner with red wine, spicy tacos paired with a light lager, or a classic cheeseburger and fountain soda, no meal is complete without a refreshing beverage. As any successful restaurateur or bar owner knows, quality beverages complement great food — and result in higher check sizes and more revenue for your business.
In the wake of pandemic-related supply chain challenges, beverages offer a welcome opportunity to improve profit margins and help your business thrive. In fact, many restaurants on DoorDash have seen firsthand how offering wine, beer and liquor delivery can be a real boost to profits.
It pays for restaurateurs to be savvy about what they pour into their pricing plan. Here, we’ll explore how businesses can optimize beverage costing and pricing and calculate beverage cost percentages, ensuring healthy profits.
1. Strengthen your menu pricing strategy
At a high level, your beverage costs and pricing factors into a greater equation: your menu pricing. The key to a successful menu pricing strategy is understanding the costs of creating food and beverage items on your menu, or the cost of goods sold, and charging enough to recoup them and still generate a profit. You can begin by following several steps:
Determine your direct costs (including raw price of ingredients for menu items, drip loss while storing, and food waste)
Determine your indirect costs (including labor and operating expenses)
Calculate and compare costs per dish (pricing the ones with higher direct and indirect costs accordingly)
Calculate your gross profit margin percentage (the ratio of the cost of goods sold to net sales)
Equipped with a clearer understanding of your costs and profit margins, you can start pricing menu items accordingly. For most restaurants, the most effective pricing strategy means promoting your most profitable dishes and improving the margins on less popular dishes in a process called menu engineering.
Popularity of various menu items is a factor as well. If a product isn’t selling, there isn’t much you can do to affect demand through pricing.
Additional pricing strategies include pricing by food cost, competition, or demand analysis. For example, you can calculate a liquor’s cost per ounce in your efforts to improve menu pricing:
Liquor Cost Per Ounce = (Container Cost / Ounces Per Container)
While these are good steps toward creating reasonable price points, keep in mind that every restaurant is unique. With different operating costs, customer bases, geographies, and more — everyone’s menu pricing strategy will look different.
2. Understand liquor costs and average pour costs
Once you have a high-level understanding of your restaurant or bar’s menu pricing and finances, it’s time to hone in on beverages. The strategy for pricing liquor and beverages is the same as it is for food items, but the profit margins are typically much higher per goods sold.
You’ll want to focus on two important metrics: liquor cost and pour cost. Liquor cost is the price restaurateurs and bar owners pay to purchase alcohol from distributors.
Average pour cost, or beverage cost percentage, is the cost of a drink’s ingredients divided by its sale price. This percentage is a useful metric that restaurants and bars rely on to measure profitability and seek out opportunities for improvement.
For example, the average bar pour cost for spirits is 15%. This is on the higher end of the profitability spectrum, because the costs associated with spirits are lower than average. Draft beer has a similarly low pour cost, averaging 20%, while bottled beer is slightly higher at 25%.
Wine, on the other hand, has an average pour cost between 30% and 40%. While slightly more expensive, selling bottles is a great way for businesses to increase check sizes because of the additional servings sold.
These figures provide a helpful benchmark for business owners to understand how their beverage pricing stacks up against industry averages. If your pour costs tend to be higher than these numbers, it signals that there’s room for improvement.
3. Calculate your beverage cost percentage
Now that you have an understanding of your restaurant finances and the average pour costs for different beverages, it’s time to figure out how to price your drinks to reach an optimal liquor cost percentage. The best place to start is by having an ideal pour cost percentage in mind — perhaps something that aligns with or beats the industry averages mentioned above.
Then you’ll need to calculate the cost of your drinks by adding up how much the ingredients and preparation costs. Next, divide the cost of ingredients by your target pour cost using the following formula
Price = Cost of Ingredients ($) / Target Pour Cost (%)
After calculating the initial price point, restaurant owners and bar operators should regularly review their costs and pricing to ensure they aren’t missing out on potential profits or opportunities for improvement.
4. Avoid over-pouring
The biggest threat to beverage profitability is over-pouring and underpricing. Estimates show that bars are missing more than 25% of their liquor, wine, and beer profits as a result of these common occurrences.
For this reason, operators need to enforce a clear set of standards for the amount of ingredients used in each drink, as well as the size of the pour for wine, beer, and single, unmixed liquor beverages. This ensures all the work you do to create reasonable beverage prices doesn’t go down the drain.
5. Introduce seasonal beverages
No matter what the season, there are profits to be made from introducing flavorful cocktails with attractive garnishes or pre-made batches of crowd favorites, like sangria. Many DoorDash restaurant partners began offering cocktail kits to go in recent years, and the trend continues to be popular with customers.
Anything that is inexpensive and easy to prepare in advance will translate into higher profit margins, since less labor is required for each order. Offering drinks specials as pitchers often means that customers order more.
Customers appreciate and will pay premium prices for seasonal, fresh items — something to keep in mind for your beverages strategy. Homemade kombucha drinks, coconut water, fresh naturally-pressed lemonades and limeades are all drinks that signal quality and command high prices.
Pour more profits into your business
In addition to pricing strategies, you can also add to the bottom line by negotiating good deals with your beverage suppliers — perhaps buying more of a product in exchange for lower pricing.
As a business, it also pays to keep an eye on the competition. Continue to evaluate your liquor cost percentage, then price accordingly. If you find you’ve been charging lower prices for your items, then roll out a new set of prices in $0.25 increments. At the end of the day, the right beverage pricing can pour more profits into your business — so a little strategy will go a long way in setting you up for success.
To further boost sales for your restaurant or bar, you may also consider selling liquor and other beverages on DoorDash. Interested in reaching new customers and increasing profits? Become a DoorDash partner today.