Wine Focus: Profit and price

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Ben McFarland advises on how to make your wine choices turn into profits.​

Pubs don't have to invest in rare Bordeaux vintages to profit considerably from wine. With 30 million wine drinkers in the UK - three times as many as beer drinkers and a lot more than spirits - and a glut of suppliers offering competitive deals on wines from both the new and old worlds, wine offers a great money-making opportunity for licensees.

However, the extent to which wine improves the look of a profit and loss sheet depends greatly on the pub's approach to wine pricing.

The traditional method, used by most pubs, puts wine pricing in the same category as that of beer and spirits - an across-the-board application of a 70 per cent margin seems to be standard.

However, the age-old adage of not mixing the grape and the grain rings true when comes to setting the price of your wine. The 70 per cent mark-up works perfectly well on a pint of beer or a measure of house spirit as the price differentiation rarely exceeds a pound for different brands and, as such, is unlikely to panic customers.

In contrast, the wholesale price of a 70cl bottle of wine can vary hugely. By only using a profit margin of, let's say, 70 per cent, licensees are likely to make the cost of the better wines prohibitively expensive and, worse still, alienate their regulars.

This will force customers to stick to lower end wines where quality is inferior, do nothing to raise the profile of pub wine and dissuade legions of wine lovers from visiting the local.

"Applying a similar margin to lower priced wines is OK but you can get into problems if you apply the same percentages with more expensive wines," says Martin Pinner, brand manager for Waverley TBS. "Wine should be priced so that it sells and in a way that encourages customers to trade-up to better wines."

An alternative strategy, and one often favoured by suppliers such as Waverley and Jacob's Creek, is to replace percentage with a cash margin across the range.

"Licensees should be looking at a cash margin as it's pounds that you bank not margins," says Jenni Archibald, head of category management at Pernod Ricard, home to Jacob's Creek and Wyndham Estate. "Providing a steady pricing ladder will increase the rate-of-sale of the better wines, raise the profile of the venue as a place to drink wine and perhaps attract a new kind of customer."

The pitfalls of profit margin don't seem to have made an impression in the trade, however. According to The Publican Wine Report, compiled in association with Waverley and Jacob's Creek, only 18 per cent of licensees price their wines according to cash margin while, ironically, 70 per cent let percentage dictate the price.

There's no reason why pubs can't pick and choose the approach to suit their business. Some may apply a percentage margin to lower priced wines, where the bulk of sales is usually found, and opt for a cash margin in those cases where a percentage mark-up would thrust the selling price over a figure deemed too high for their customer base.

Whatever method you use must suit your business. Waverley suggests adopting a more flexible approach based on a pub's customers and the surrounding competition.

"You should always work back from what you think your customers are willing to pay for," adds Martin. "Speak to your customers, visit other venues in the area to see what they're charging for the house wine and similar brands and then work out your prices from there. You know what you'll be able to get away with and what kind of wines your customers expect."

"Research conducted in the take-home sector has revealed that the consumer associates quality with a certain benchmark price and a similar trend is emerging in the on-trade," says Jenni. "The £10 tag seems to be a perceived mark of quality with £15 being the next rung up.

"But, at the end of the day, people are much more concerned about value for money than actual price. Regardless of how much they pay, people will feel like they have got a good deal if a quality wine is served at the right temperature, in the right glass, in nice surroundings and by a well-trained member of staff."

Upsize your profits​

Licensees still serving 125ml glasses of wine are missing a trick and, worse still, irritating their customers (do you think they'd pour such a measly measure at home?).

"Pub-goers do not like 125ml glasses, they're a bad shape and generally give the impression that the pub doesn't take wine seriously," explains Jenni Archibald. "Research has shown that a 250ml is good for those sharing a bottle but for everyday drinking, 175ml glasses are ideal."

Getting customers to "go large" in glass size not only improves the experience, it's also a tremendously efficient way of cranking up profit over the course of a year.

Trading up to a 175ml or 250ml from the 125ml could potentially add thousands onto the bottom line, depending on how many glasses are sold.

• Tenanted Pub in the Midlands selling 20 glasses a day:​

• 125ml: £1.54
  Annual turnover: £11,242

175ml: £2.18
Annual turnover: £15,914
Additional Profit (compared to a 125ml serve): £4,672

250ml: £3.04
Annual Turnover: £22,192
Additional Profit (compared to a 125ml serve): £10,950

Average prices for the three different sizes according to The Publican's Wine Research:​

• Managed High Street Pub in South East selling 30 glasses a day:​

• 125ml: £1.75
  Annual Turnover: £19,162

175ml: £2.30
Annual Turnover: £25,185
Annual Profit: £6,023

250ml: £3.25
Annual Turnover: £35,588
Annual Profit: £16,425

Amid all this talk of glasses, whatever you do, don't lose your bottle. Persuading punters to opt for a bottle of wine with a meal is likely to bring a better cash margin than serving them a solitary glass of wine and, say, a bottle of lager.

Alternatively, single serve wines, such as Oliver & Greg's Intro 2 range, are a great way to deliver good profit and value for money.

Many ranges are available in the single serve bottles and most have a recommended selling point of £2.50-£3, "Minis are a little profit rocket" says Jeremy Dunn, brand manager at Waverley TBS.

"The price point put single serves firmly in line with a pint of beer or a spirit and mixer. However, there is a significant advantage in that the customer gets more than just a glass of wine. They get something tangible, a glass of freshly opened wine and an 18.75cl bottle with some left over to top up. While the pub gets an improved consistency of quality wine to serve without the hassle of opening and storing 75cl bottles.

Brands​

Publicans reluctant to stock established brands often cite price as a major factor. The theory is that customers will be unwilling to pay £10 for a brand they can get from the supermarket for half the price.

Adhering to this theory, however, is a false economy according to Martin Pinner. "It's not a consumer issue it's a trade issue," he says. "The same mark-up is used with beer and spirits but somehow that's different in the minds of the trade. Everyone is a