Although this might not be true everywhere, from what I have observed living in Portugal a bottle of the same wine can be worth twice or even three times as much if consumed at a restaurant than if bought at a supermarket. I have always wondered why that is. (Disclaimer: I know this from being around my dad, as he is a wine lover. This does not directly relate to my own experiences, (although I am old enough to legally to drink in Portugal.))

It makes sense, and it comes as no surprise, that restaurants sell their meals and drinks at a higher price than they are bought, since they have to make a profit. Still, it seems to make more sense that there is an increase in the retail price of meals than in the retail price of wine. If I wanted to eat lasagna and decided to buy the ingredients at a supermarket to cook at home, I could easily spend only half the money I would have spent had I gone to a restaurant. However, I would have to go out and buy it myself, prepare everything, cook it myself and, most likely, my lasagna wouldn’t be nearly as appetizing as the one I would have been served at the restaurant. It makes sense, then, that a meal that costs me $3 to make could be sold for $6 at a restaurant. Wine, however, is not prepared or cooked at the restaurant. Since there isn’t that much extra work for the restaurant, it seems odd that the retail prices for both meals and wine are doubled or tripled compared to their wholesale prices. Not only that, but a price markup of $3 seems relatively small and easy to ignore (from the point of view of the consumer) when compared to a markup of $30 in wine prices. Still, most restaurants do it and people still drink wine.

There are a few options as to why this exorbitant increase in the price of wine does not scare customers away. First, many customers may be unaware of how much cheaper wine is at a supermarket or liquor store and how much they are paying extra for having it at a restaurant. But even if customers are aware, it doesn’t seem to stop them from either going to the restaurant or drinking wine while there. Another possible scenario, then, is that people simply do not order wine and opt instead for a beer or some other substitute drink. However, there are still people who drink wine even though they are aware of the difference in price. If not, it seems that not many people would drink wine at restaurants, and there would be little purpose for restaurants to charge so much for it. It seems, then, that there is yet another case where people are aware of the price difference but chose to drink nonetheless.

These people, for the most part, are susceptible to taking up the price increase for a few reasons. They can really enjoy wine, and opt to spend less money on other items by, for example, cutting back on the bread or even by ordering a cheaper meal. Another options is that they can be more vulnerable to accept whatever price is presented to them because the occasion that brings them to the restaurant is festive or emotional in a way that will make people tolerate the markup, such as a party, a business meeting or romantic dinners. In these scenarios it seems that, for the time that they are there, the demand curve for these types of consumers is fairly inelastic.

Additionally, even if most people opt not to drink wine because of how expensive it is, having unsold wine at the restaurant isn’t a huge burden to the restaurant owners since it does not go bad quickly and it only takes a few people to make a huge profit. It then seems to make sense that restaurants would keep these prices and that people would keep on accepting them.