The Restaurant Economics of BTG: The Importance of Flexibility and Bracketing
Eric Segalbaum recently wrote:
“A well-curated BTG program can be a lifesaver for most restaurants. This extends far deeper than simply having an interesting selection; a BTG program is the true workhorse of beverage program profitability. The right selections at strategic prices can pave (and pay) the way for revenue driving options that might bring in more dollars even if they carry higher COGS percentages.”
As they say, there's a lot to unpack here for the hospitality industry, restaurant industry and restaurant owners. But you also don’t need to be a wine economist to drive a high profit margin restaurant business.
Understanding Wine Contribution Margin vs. COGS Percentage - the Impact on Restaurant Economics
Segalbaum emphasizes that a restaurant by the glass offering should include a mix of wines with both higher and lower Cost of Goods Sold (COGS) percentages. Interestingly, a wine, e.g., an expensive cabernet sauvignon, with a higher COGS percentage might generate more profit than a wine, e.g., pinot grigio, with a lower COGS percentage due to the concept of Contribution Margin.
Consider this example:
Wine A - the pinot grigio
COGS: $6
BTG Price: $18
COGS Percentage: 33%
Gross Margin per Glass: $12 ($18 - $6)
Daily Sales: 30 glasses
Contribution Margin: $360 (30 glasses x $12)
Wine B - the super premium cabernet sauvignon:
COGS: $12
BTG Price: $30
COGS Percentage: 40%
Gross Margin per Glass: $18 ($30 - $12)
Daily Sales Needed for $360 Contribution Margin: 20 glasses (20 x $18)
Wine B has a COGS percentage of 40% compared to 33% for Wine A. On the basis of purely COGS percentage Wine B is a less attractive wine commercially. But wait, Wine B has a gross margin of $18 compared with the gross margin of $12 for Wine A - the lower COGS percentage BTG.
Enter the concept of Contribution Margin
In this case, basically how much money do you have at the end of the day from your wine sales and revenue to pay for all your overhead, labor, etc? From Wine A you have a Contribution Margin $360 for the day (30 glasses) to use to pay for overhead, etc. As for Wine B what does that look like? Well, to get the same Contribution Margin from Wine B you have to sell only 20 glasses of Wine B compared with 30 glasses of Wine A.
In other words if you could only sell one of the two wines, you would be more profitable if you sold 21 glasses of the expensive, high COGS percentage Wine B versus 30 glasses of Wine A even though the latter has a lower COGS percentage. Of course if you sold 30 glasses of Wine B you would be widely more profitable.
Embracing Flexibility in Your Wine By-The-Glass Program
In reality, it's not about choosing one wine over another but finding the right balance. Each restaurant operator and venue, depending on its location, target market and customer base has its own price elasticity curve - basically the demand relationship between price and volume and the degree to which higher prices reduce volumes and lower prices increase volumes. All of which drives consumer behavior and consumer spending decisions.
To maximize a restaurant’s Contribution Margin and overall profitability, restaurant operators should offer a blend of less expensive and more expensive BTGs tailored to its customer base. Even better, consider adjusting by the glass offerings based on the day of the week, special menu items, events or perhaps specific loyal customer and wine lover reservations on a given night..
“Another creative solution is to change up BTG offerings more frequently. This allows an operation to continually serve wines at higher price points or with more appealing margins without guests feeling gouged.”
Implementing this flexibility and dynamic pricing requires thought, research, and time but can significantly impact your restaurant’s wine sales, revenue and profitability. When it comes to flexibility, the right menu management tool, digital wine platform and technology integration can make a big difference for profit margin.
Utilizing Bracketing Strategies
Employing a Bracketing strategy for your wine list enhances your BTG program by influencing customer behavior and restaurant spending through psychological pricing and perceived value.
As explained by TastingTable:
“Bracketing plays on the psychological concept of anchoring bias, the idea that people place a lot of weight on the first piece of information they're presented with, i.e., the anchor.
Marketers and restaurant menu designers use this to their advantage by grouping like-priced items together at varying prices in hopes of the customer gravitating toward the mid-range or priciest option rather than the cheapest.”
By strategically arranging your wine list and BTG selections, you can guide customers toward higher-margin, expensive wines without them feeling overcharged with expensive wines and higher prices.
Leveraging Technology Integration
Implementing flexibility and bracketing to improve your restaurant’s by the glass economics might seem daunting, especially for independent restaurant operators, but restaurant technology can simplify the process. Imagine your wine list and BTG menu on digital platforms—tablets, iPads, eReaders, smartphones, or via QR codes—integrated with an advanced wine menu management system that integrates and communicates with your restaurant POS.
An effective and adaptive menu management system should allow you to:
Maintain a Master BTG Wine List: Easily activate or deactivate wines with a click, automatically updating your digital menu and POS.
Drag and Drop Functionality: Restaurant managers, wine program managers and sommeliers rearrange wines into desired orders and sections, implementing your bracketing strategy easily in minutes.
Real-Time Wine List Updates: If an item is 86’d (out of stock), your POS communicates with the menu management system to remove it from the menu.
Seamless Additions: Adding new items updates both your wine list and POS in synchronization.
By leveraging such technology, and especially integrated technology, your BTG program becomes easier to manage, more dynamic, and significantly more profitable.
Conclusion
Your BTG program and your restaurant BTG economics just became a lot easier to manage and maintain—and more profitable. By understanding the economics of Contribution Margin versus COGS percentage, embracing flexibility, dynamic pricing, employing bracketing strategies, and utilizing advanced technology, you can optimize your wine offerings to match customer preferences, maximize your revenue, contribution margins and profit.
