By Roger Kamholz from Serious Eats

Unlike the people who drink them, not all cocktails are created equal. Or at least that’s what their prices seem to indicate. The mixed drinks at one bar in one city might be double what they cost at a cocktail-conscious watering hole in another part of the country.

But it doesn’t even take a supersonic bar-hop across America to observe this phenomenon. A house cocktail at New York City’s Pouring Ribbons, an innovative establishment slinging impeccable drinks, will cost you $14. Not too far uptown, at the stately bar at the NoMad Hotel—where the drinks are similarly innovative and well executed—an original cocktail sells for $16. Then there’s ZZ’s Clam Bar, in Greenwich Village, where sipping on one of chief bartender Thomas Waugh’s elegant liquid creations will set you back $20—or nearly 43 percent more than the cost of a drink at Pouring Ribbons.

By Roger Kamholz from Serious Eats

Unlike the people who drink them, not all cocktails are created equal. Or at least that’s what their prices seem to indicate. The mixed drinks at one bar in one city might be double what they cost at a cocktail-conscious watering hole in another part of the country.

But it doesn’t even take a supersonic bar-hop across America to observe this phenomenon. A house cocktail at New York City’s Pouring Ribbons, an innovative establishment slinging impeccable drinks, will cost you $14. Not too far uptown, at the stately bar at the NoMad Hotel—where the drinks are similarly innovative and well executed—an original cocktail sells for $16. Then there’s ZZ’s Clam Bar, in Greenwich Village, where sipping on one of chief bartender Thomas Waugh’s elegant liquid creations will set you back $20—or nearly 43 percent more than the cost of a drink at Pouring Ribbons.

Complicating things further, there are plenty of bars and restaurants that go out of their way, it would appear, to price their house cocktails consistently—say, all for $12 apiece—suggesting to a casual observer that, perhaps, all these drinks are an equal value.

I reached out to several managers of serious cocktail destinations in order to better understand what accounts for the broad swings in price we encounter from place to place as we ply the now-extensive craft-cocktail landscape, as well as why some cocktail menus are priced uniformly.

A cocktail by nature is a combination, in differing ratios, of a set of ingredients that each have costs, so many cocktail bars spend a lot of time and effort crunching the numbers behind their drinks. Setting prices for a cocktail-focused list can take a lot more work than menu-pricing might take at a wine or beer bar. That’s certainly the impression I get from Jeffrey Morgenthaler, the bar manager at Clyde Common in Portland, Oregon. He approaches the pricing of his cocktail menu with a great deal of mathematical precision, coupled with a small dose of professional intuition.

In addition to bartending, Morgenthaler maintains a blog about his craft, and pricing strategy has been a recurring subject over the years. He’s even released Microsoft Excel spreadsheets to his readers, many of whom are in the service industry, as instructional tools. The charts are basic versions of the ones he uses at Clyde Common to calculate pour cost and, by extension, sales prices for drinks.

Pour cost is pretty much what it sounds like: the cost a bar incurs by pouring a given cocktail. But pour cost is typically expressed as a percentage of the sale price of a drink rather than a raw number; so if it costs a bar $2 in goods to produce a drink that it sells for $10, the pour cost of that drink is 20 percent. “Some places need the pour cost to come in at 18 percent,” Morgenthaler tells me, “others are fine with 25 percent. It all depends on the business operations.” In other words, a bar might decide upon an acceptable range in which its pour costs must fall, given how other aspects of the business factor in, and then calculate the price of drinks based on that range. Between two drinks sold for the same price, the one with the higher pour cost earns the bar a smaller profit.

At what point does price come into consideration when a bar like Clyde Common—which is located adjacent to the Ace Hotel and has gained a reputation for quality and innovation—comes up with new drinks for its cocktail menu? Morgenthaler says, “When I’m developing a drink for the menu, my first concern is that it tastes delicious. So once I’ve got something I’m happy with, then I take it to the computer.” Here he runs the numbers on what the drink’s recipe would cost the bar in goods. “Sometimes it’s fine as is, sometimes we’ve got to swap ingredients or adjust proportions to make it work, and occasionally we have to scrap the entire drink because it simply doesn’t fall within our menu’s price range.”

That range usually includes some drinks that guests can buy for just $7, up to more elaborate ones costing as much as $12. At Clyde Common, offering a range is important, Morgenthaler says, in that it “ensures that we’re opening ourselves up to as many guests as possible. We realize that not everyone is comfortable with $10 to $12 drinks, and we want to cater to everyone.”

One of the tests of a good bar manager is to balance effective cocktail-pricing strategy and innovative menu development. In a 2011 blog post, Morgenthaler shared the following hypothetical:

Let’s say, for argument’s sake, that you’ve got a two-drink cocktail menu, consisting of Drink A and Drink B. Drink A is a complex cocktail that requires a little more attention from the bartender and uses some more obscure, expensive ingredients. It costs $10 but comes in at a 32% pour cost, but it’s designed to appeal to a smaller segment of the customer base, and therefore you only sell ten of them a night. You make up for this with Drink B. Drink B costs $8 but comes in at a 17% pour cost. It’s appealing to a much larger audience, and therefore you sell 150 of them a night. Drink A is called a loss leader; it keeps your bar on the cutting edge, is there for the cocktail geeks, and helps stimulate the sale of Drink B by bringing in a constant flow of new guests to the bar.

By this reasoning, the markups on higher-priced cocktails can sometimes be thinner, as a percentage of price, than those applied to their cheaper counterparts; that said, pricier drinks serve the bar in more indirect ways than simply by pulling in straight profit. And knowing how to write a cocktail menu that can thread this needle takes experience.

“If you see a drink that contains Green Chartreuse and it’s under twelve bucks—get that.”

“I can’t say that there’s any way to be 100 percent certain that a certain drink will sell better than others,” Morgenthaler tells me. “I’m constantly surprised by what is less or more popular on our menus. But with as much experience as I have, I would say I’ve got a pretty good idea of what’s going to sell and what’s going to appeal to a more connoisseur crowd.” His advice to the value-seeking drinker who’s after quality of spirits and complexity, all in one sublime beverage? “If you see a drink that contains Green Chartreuse and it’s under twelve bucks—get that.”

Jackson Cannon echoes many of Morgenthaler’s insights. Cannon is a fixture of the cocktail scene in Boston, Massachusetts, as co-owner and bar director at The Hawthorne and bar director at Eastern Standard. The latter is large and features a robust dining component, while the former is more of an intimate drinking den with a focused menu of small plates. Between the two, Cannon has a lot of experience setting cocktail menus aimed at a range of sales volumes.

No matter its size, Cannon points out that “a restaurant will be successful over the long haul if it can pocket”—meaning earn in net profits—”10 cents on the dollar.” In other words, for an establishment pulling in $1 million a year in revenue, the owner is fortunate to have $100,000 to show for it after expenses. “That’s a tough order,” Cannon adds. “Robust liquor sales at solid cost of goods are one of the reasons you can get to that 10 cents on a dollar.” Astute cocktail pricing (say, pour costs around 21 percent or less, on average) can be a critical component of a restaurant’s overall business strategy and health. “That would make [liquor sales] its best-performing center, if their food targets are right around 30 and their wine is around 33.”

At high-volume bars, the numbers are slightly different. “Your big, busy bars that are relying on much more of their percentage of goods in liquor—as opposed to restaurants and fine dining—they tend to be a little bit happier at 16 or 17 percent” pour costs, Cannon says.

When Cannon and his team revise their cocktail menus, he says they try to price drinks destined for the greatest popularity so that they have the lowest percentage pour costs. For a prospective top-selling drink, “we need to make sure that that one is in a very solid cost of goods range, maybe a point or two below our target, because if a number-one mover that is refreshing and easy to [drink] is priced right, it allows you some wiggle room on some other esoteric things, where the ingredients are more expensive.” He adds that, “We’ll take a few lumps on this really cool drink that [the bartenders have] created, and it will be great conversation. Meanwhile, the gin sour…this is going to do the heavy lifting for us.”

Cannon says that pricing is usually the last consideration when setting a drink menu. He says that Katie Emmerson, bar manager at The Hawthorne, is “looking for balance in so many other ways first. She’s looking for great, balanced individual cocktails to begin with, whatever it may take to make them. She’s looking for a spread of different things that speak to a little something for everyone. The last part of that is to make sure the internal math matches that sense of balance. That doesn’t drive her creative process, per se.”

Carefully selecting rail spirits (the lower-cost bottles used for standard drink orders) and negotiating volume discounts on bulk orders with distributors are among the ways in which Cannon’s establishments manage their liquor costs and, by extension, keep their cocktail prices in check. But not all bars may have such tools at their disposal. Each U.S. state has its own regulations on how liquor is distributed; for instance, in so-called control states, liquor distribution is government-run and prices may be fixed.

The process of developing new cocktails touches pricing in more ways than one. Zach Tirone, general manager at the LCL: Bar & Kitchen, located in the Westin New York Grand Central, drills his bar staff to record their spirits usage whenever they experiment with new recipes.

“Hopefully, if your bartender or beverage director is doing their due diligence, they’re probably making that [new] cocktail, if it’s an original cocktail, you know, at least a dozen to two dozen times, probably, just to make sure they’re getting it right,” Tirone says. “You have to account for product you’re using that’s not even being consumed.” Basically, a business needs to absorb and account for that waste, so it can be built into the overall pricing model.

The potential upside to rigorous development, of course, is that it pays for itself. “That’s a cost I have to eat that, hopefully, in the long run I’ll see the reverse effect [of], because [the drink is] selling and people like it,” Tirone says.

Not all bars price cocktails on a graduated scale—some favor parity instead. Eamon Rockey, general manager of Betony, a fine-dining restaurant located in Midtown Manhattan, oversees the pricing of the establishment’s entire beverage program. Unlike Morgenthaler, whose menu prices are tied to the cost of each drink’s production, Rockey prefers consistent prices across Betony’s cocktail list.

“I really, really love offering things at the same price,” Rockey says. “It’s something that has been consistent amongst the programs that I’ve curated over the past several years.” With only a couple of exceptions (such as its $17 Milk Punch, which requires two days to prep), the cocktails at Betony are priced at $15. “There are some cocktails where the ingredients are more expensive than others, there are some cocktails that are more involved than others, but, at the end of the day, what you’re actually seeking as a guest, I hope, is an experience. And if the experience of that drink is worth 15 bucks…then you’ll look forward to ordering another one.”

Rockey uses the example of an amusement park to help illustrate his philosophy: “You go to an amusement park…you pay to enter the park for the experience, and everybody pays the same amount. You don’t get upset when your friend gets an extra ride in here or there.”

In thinking about how the elements of a Betony cocktail might impact its price, Rockey says, “It’s less about parsing things down between ingredient to ingredient, milliliter to milliliter, and more about knowing that, regardless of whether your cocktail’s ingredients are a buck or two more a bottle…you are going to have a cocktail that is caringly crafted by somebody who was trying to produce something that is peak of quality for that exact spirit and for that exact list of ingredients.”

So how did Rockey arrive at the magic number 15? For one thing, it appears that Betony’s guests are willing to pay that price. And the number, he explains, “allows us to use fine glassware and very good spirits as a base…very fresh juices, and other modifiers, as well, that are the archetypes of their category. That price for a drink allows us to produce a sustainable cocktail program that takes into account labor, ingredients, glassware, ice, time, and so forth.”

In terms of the restaurant’s overall business model, Rockey and his business partner, executive chef Bryce Shuman, reject the idea of what Morgenthaler calls “loss leaders.” Rockey says, “The chef and I, my partner and I, don’t look at the restaurant and say, OK, we’re willing to lose money here as long as we make it up here. We want to be responsible on all levels. We want to ensure that we’re not hedging our bets one way or another, but rather thinking about things both on an individual basis, whether it be cocktails or wine or food, and also on the broader scale, as well, where we care for the future of the restaurant as a whole.

“I would not feel right if a person who came in for a cocktail and maybe a snack,” he goes on, “was paying a premium so the guys in the dining room were able to eat food that is in a more extravagant menu style… Everything should be in balance.”

Consistently priced cocktail menus such as Betony’s beg an important question: should us drinkers be overly concerned about shopping for “value” when it comes to our cocktail choices? Jackson Cannon, the Boston bar director, has some cautionary words: “I’m really sensitive to the idea that someone would be choosing their cocktail based on the cost of goods in it… I think that’s a really good way to get the wrong cocktail for yourself. My view is, you should be talking about the flavors that you like and leave the rest out of it.”

IMAGES:

Why does your drink cost $11 or $14 or $20? [Pouring Ribbons cocktail photo: Alice Gao]

20140722-Cocktails-ZZ-pineapple.jpg A drink at ZZ’s Clam Bar. [Photo: Paul Yee]

Morgenthaler at Clyde Common in Portland, OR [Photo: Katie Burnett]

The Charlie Horse at Clyde Common [Photo: Katie Burnett]

Jackson Cannon at The Hawthorne in Boston [Photo: J. Kenji Lopez-Alt]

The Hawthorne’s Mojito [Photo: J. Kenji Lopez-Alt]

Eamon Rockey at Betony in NYC [Photo: Roger Kamholz]

201400702-PouringRibbons-2.jpg [Photo: Alice Gao]

For more on this story go to: http://www.seriouseats.com/2014/07/how-cocktail-prices-are-determined-bar-price-profits.html