Margin mania

The big brewers need to look at the discontent which their virtual monopolies are causing to fester

IN RECENT days, it has become clearer than ever that we have hugely diverse profit centres in the on-trade business in this country.  It all started with a statement from one of the country’s leading restaurateurs, Silvano Giraldin of Le Gavroche, that virtually no profit is made on food in a multi-starred restaurant; it is only made on drinks and wine.

He goes on to qualify his statement in that, whilst percentage mark-ups are very high on wine and drinks in such establishments, they can only be so if that establishment is providing complimentary standards of food and service of absolute perfection.  This really should not come as a surprise.

If, as is rarely done in restaurants, one takes the individual costs of running a really top-class kitchen (staffing, equipment and food being the main components) and you add on the costs involved with the service of food (waiting staff, crockery, etc) and compare it to the income generated by that unit on it’s own: the quest for excellence and the huge costs associated with it are almost certain to rule out much, if any, outright profit.

Add to that the greater likelihood of error and wastage on the food side and one can see that servicing top-class cuisine is never going to be cheap.  The costs involved in serving a bottle of wine are, of course, substantially less.

The work involved in creating the wine has all been done before the bottle arrives at the restaurant and, apart from sommeliers and glassware, the relative costs are comparatively low.

Through convention more than anything else, the restaurant business has normally used ‘blanket’ gross profit percentages to cover both food and booze.

In any one establishment, a requirement for, say, 70% gross profit (ie: 30% cost of sales) will be applied to both departments.  If that percentage were changed to, say, 80% gross profit on food and 60% on drinks (assuming sales are equal in both areas), the overall profit would be the same but the split perhaps fairer.

The question is: would consumers view it that way? Would they be happier to pay £50 for a £10 steak whilst a £10 wine is charged at £25? Well, I would say yes because I’m a lush, but generally, the comment would be "great wine prices but they don’t half rip you off on the food".  Now take the issue which has been raised by the just-published Good Pub Guide 2004.

Editor, Alistair Aird, contends that some pubs have been charging "astronomical prices" for the meals on their menu.  Quite rightly, he warns that diners who pay the highest prices are not necessarily guaranteed the best meal.

That, Mr Aird, is not news to anyone who lives in London but I do see the point. He also, quite rightly, points out that publicans have been jumping on the gastropub bandwagon.

That the quality offerings which have improved the standing of so many pubs in recent years have led to copycat establishments who think that adding a bit of extra garnish to their Ploughman’s enables them to charge considerably higher prices.

The Guide cites the pressure and control exerted by the big brewing companies as being the culprits. 

The fact that brewers have tightened their hold on profit margins where beer is concerned means that pubs have to find other ways of making money and that appears to be where "astronomical prices" on food have materialised.

Apparently the Guide found that the retail price index, excluding housing, rose by 2.67% from May 2001 but that pub food prices had risen by around 13%.  It also says that the price of a pint can "vary greatly" from the cheapest in Nottinghamshire at £1.84 to the most expensive in London at £2.33.  I’d just like to make a point here.

Why is it that people have to twist figures around so ridiculously? Does Mr Aird and his team think that they are politicians? You might notice that he quotes the retail price index "excluding housing".

This, we presume, means that publicans are not hit by the increased costs of property which, over the past two years, have spiralled beyond belief.  The second point about the difference in the price of a pint is also extraordinary.

Are we to assume, based on the above figures, that somehow costs are proportionate between Nottinghamshire and London? That we can sell The Dog and Duck in Mansfield for £184,000 and buy a swanky Central London pub for £233,000? I somehow think not.

The interesting point which has come out of all this is that it seems as though pubs are turning to food to supplement their income and profitability whilst, at the top end, it is the booze which is relied upon to maintain profitability.

This would indicate that in the more mainstream, middle-market restaurants, the two ends of the spectrum come together and that a general, moderate percentage of gross profit is applied to both food and wine in equal measure.

A main course costing £5 is sold at £17.50 and the same goes for the wine.  This is confirmed by Olivier Eynard at Almeida in Islington where a brasserie-style environment can mean faster turnover and throughput of customers who are looking for value and quality in equal measure.  It’s all a case of balance.

And Mr Aird is absolutely right about one of his pronouncements (and probably considerably more, as the Guide is a very worthy book and an essential piece of work when you are travelling to unknown parts (possibly Mansfield).

The big brewers need to look at the discontent which their virtual monopolies are causing to fester.  If they are to continue to press down hard on publicans, they need to offer support, advice – even training – which will assist any pub in the land to make a proper effort to provide the best food quality that they are able to – from a cheese sandwich to a Catalan Casserole.

It can only be good for everyone concerned. Fill the pubs, bring them back – as indeed some gastropubs have done – to being important members of the local community. And help them sell more beer too.

Now excuse me, I’m off for a pint at Le Gavroche…