Got into a bit of a scrap with someone over restaurant mark ups. First, as a supplier to a small number of restaurants, I have some insight to how and why they price wines as high as they do (much of it comes down to our unwillingness to set foot in an establishment that would charge us £40 for a steak) and, partly because of this, would rarely go for the house wine. I do like the idea of restaurants that impose a maximum mark-up per bottle so that the more you pay, the better value (ie. a £10 bottle for £25 or a £30 bottle for £45).
The debate highlighted the fact that most people calculate gross profit in different ways. For me it is this: assume the restaurant wants 70% (not unknown) and pays £10 for the wine. In that case the bottle will be listed for £40 (£40 less 20% VAT then take off 70% of this brings you back to £10). So, it is taken from the top price and not, as some think, a 70% mark up of the original price which would be a mere £20.40 including VAT - that way, the GP at £40 would be 233%! Ouch indeed!
The debate highlighted the fact that most people calculate gross profit in different ways. For me it is this: assume the restaurant wants 70% (not unknown) and pays £10 for the wine. In that case the bottle will be listed for £40 (£40 less 20% VAT then take off 70% of this brings you back to £10). So, it is taken from the top price and not, as some think, a 70% mark up of the original price which would be a mere £20.40 including VAT - that way, the GP at £40 would be 233%! Ouch indeed!
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