Due to the different definitions of "markup" floating around, perhaps the question would be clearer if you rephrased the question. Something along the lines of "What is the maximum restaurant price you'd pay for a bottle of wine that would cost you USD $10 if you bought it yourself?" I had no idea that wine is cheaper at the winery in some countries, so this eliminates the issue of cheaper prices at a wine shop in the US vs cheaper at the winery in other countries. As many of the less expensive wines on a restaurant wine list are commonly available, I think it would be interesting to ask the same question with a higher price point (say, USD $50) as well.
in article wopoc.3278$ snipped-for-privacy@newsread2.news.atl.earthlink.net, dick at snipped-for-privacy@earthlink.net wrote on 5/12/04 6:11 AM:
In all those years I used to suggest that what we were all calling "mark-up" was actually 'mark-on' in other circles.... and people thought I was nit-picking. From your area of experience it's obviously true. But.... please.... I wouldn't tell you that "without any doubt..... the people at The Gap, Macy's and JC Penney KNOW" that mark-up and gross margin are the SAME. That is just how they use the terminology. The AMA glossary of definitions obviously agrees that there is more than one way to use the term.
Don't get me started. My father was the treasurer of Macys for 20 years. Owned his own retail mens clothing stores in Florida later in life. Markup and Gross margin are different. They are accounting terms and recognized by GAAP(Generally Accepted Accounting Principals--maker of enron). They are the same in retail in the USA. Does not matter the industry.
Now if you speak swahili, perhaps it is different in Africa.
What about this definition, from the American Marketing Association?
markup
- 1. (pricing definition) The amount of increase in price over total unit costs. 2.(retailing definition) The difference between merchandise cost and the retail price. It is also referred to as markon. 3. The increase in the retail price after the initial markup percentage has been applied, but before it is placed on the selling floor.
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Definitions 1 and 2 match precisely what everyone else has been saying.
Profit margin or gross margin which is expressed as a formula is the selling price minus the cost all divided by the selling price. That said you don't have a problem with this. This is taking the differential and dividing by a selling price. This a relational to the selling price.
The Markup does not, I repeat does not get redivided. Therefore if you have an item that is $50 and want a 10% markup the selling price is $55.00. The profit margin on this same situation is 10%.
Does this make any sense to you.
Markup is simply a way a retailer makes a reference. Funny thing is a keystone markup which is what my father and most small retailers use everyday in clothing would be as follows: If an article cost $50 you sell it for $100. That is a keystone markup. However the Profit margin in this case is 50%. Mens suits were keystone plus $15.00. We paid for all alterations. Therefore my father averaged the cost per suit and charge keystone plus $15 as his formula. When the shipment arrived in those days you dug out the invoice to price each garment manually.
Markup can be expressed in specific penny profit or % terms. If you need more examples let me know. Send me the examples I can show you penny profits or the markup.
If I understand you correctly you were saying that Profit margin and Markup were the same. They are not the same. I think I have demonstrated that point.
A restaurant's markup on wine should not be calculate from the retail price of the wine in a store. This is not their markup by any definition. It should be based on their cost.
A wine that wholesales for $50, sells for $75 at retail (50% markup) and sells for $150 at the restaurant does not have a 100% markup, it has a 200% markup, or 3X cost.
(cost * %markup) + cost = price.
I think 200% markup is more than enough for any merchandise. Many other types of merchants would kill for profit margins that high.
Restaurants do differ from retail that justifies a higher markup or PM on wine. They have to include the variable costs of someone to open bottles, occasional breakage for wine glasses used to serve and clean, and the cost of cleaning the glasses. Many areas of country now require a sterilizer in kitchens not just a dishwasher.
in article cvIoc.4304$ snipped-for-privacy@newsread2.news.atl.earthlink.net, dick at snipped-for-privacy@earthlink.net wrote on 5/13/04 3:56 AM:
I'm hoping this can be my last statement on the subject. Wine is much more enjoyable.
Dick,
If I ever said that markup and margin are the same thing, I didn't intend to. All I've been trying to say here is that the terms were (in my experience) USED the same. It is just what you said: "Markup is (simply) a way a retailer makes a reference"(... to margin, I presume you mean). I even suggested that I have always thought that was technically wrong. I thought the reference should have been 'markon', instead of markup, but nobody ever would use that term in my experience. I have no difficulty understanding the proper definitions.
I got into this discussion because a number of posters were quoting markup percentages in excess of 100% (ie-200%, 300% etc.). I have never used a definition of either markup % or gross margin % that would produce such a percentage. I may have said that the $10cost/$20 retail item was "marked up"
100%, but I would have said the same item carried a 50% markup (or gross margin).
I thought the entire thread dealt with what premium / markup over retail is normal for a restaurant vs. retail shop for wine. They were not directly discussing cost but the difference in retail to restaurant.
Therefore I totally understood the thread---I think.
There is a huge difference with Markup no matter how expressed as dollars or % vs. a Unit or Case Profit Margin.
You indicate that you feel that both of these terms are used the same way. They really are totally different in a retail and accounting perspective. However to compare it is like saying ALL RED WINES ARE THE SAME. You are correct they are all red..But is a Bordeaux the same as a Burgundy? Cabernet the same as Pinot Noir...well, they are all read.
Both Mark up and Profit margin have something to do with financials....but are they the same.
The waiter is already there to serve the food. Unless there is a Wine Steward, there really isn't much additional cost. Same with the glasses, unless we are talking about a very high end place with good glasses, there really isn't much additional cost. Breakage of glassware isn't that high.
Still, I'm ok with adding a little to cover these costs, but that doesn't translate into 2X - 3X retail, especially on higher end bottles.
Rarely do I find restaurant wine for less than 1.5x retail cost. The norm seems to be double around here in North Carolina. If its on the reserve / captains list could be far more if wine has any age on it.
A 1.5x markup? That's not much. My wife and I are in the process of buying a small cafe. Right now they only serve Peter Vella boxed wines. They get $2.50 for a 150 ml (5 oz) glass or $7.50 for a 500 ml carafe. What's this stuff cost? About $8-9 a box? That's more like a 9x markup. One of the first things we plan to do once we take over is tweak the wine list, however. I have posted a question below.
A 1.5x markup? That's not much. My wife and I are in the process of buying a small cafe. Right now they only serve Peter Vella boxed wines. They get $2.50 for a 150 ml (5 oz) glass or $7.50 for a 500 ml carafe. What's this stuff cost? About $8-9 a box? That's more like a 9x markup. One of the first things we plan to do once we take over is tweak the wine list, however. I have posted a question below.
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