$1 out of every $100 of American consumer spending goes to alcohol.
That number has held steady for decades.
What’s changed is where we spend it.
We’re spending less at wine shops and liquor stores but more in bars and restaurants. And it’s not that we’re going out so much more. Adjusted for inflation, the retail price of alcohol in stores has actually been dropping—by 39% since 1982—while bar and restaurant prices for wine and cocktails have risen by 79% during that same period. In 1982, less than one-quarter of our spending on alcohol was in bars and restaurants; today it’s closing in on one-half. (Inflation-adjusted beer prices and spending patterns have remained virtually unchanged since 1982, with spending equally divided between consumption at home and away).
To understand these two trends, we need to look at what happened during those years in the two sectors: bars and restaurants; and wine and liquor retailers.
Upward pricing pressure on bars and restaurants
Liquor prices have dropped but nearly everything else has gone up, like labor costs, real estate and rent, and liquor licensing. Bars and restaurants typically operate on very slim profit margins, and since there’s a limit to the number of tables that can be squeezed into a dining room, and bartenders can’t really mix drinks any faster, bar and restaurant owners have had little choice but to raise prices.
America’s increased interest in wine and high-end spirits helped pave the way for higher prices. In 1982 there were few sommeliers in American restaurants. More recently they’ve been instrumental in building pricier wine lists and selling costly bottles to a more knowledgeable base of customers. And restaurateurs know that there is little price resistance at the upper end of a wine list, where deep-pocketed customers are less likely to blink at the higher mark up added to special bottles. Contemporary cocktail culture mirrors wine with its emphasis on connoisseurship and rare, small-production labels, and has similarly pushed up prices for mixed drinks.
Downward pressure on retail prices
Robert Parker of the Wine Advocate calls this the ‘Age of the Buyer.’ There are favorable fundamentals: the recession and its lower disposable incomes for many has encouraged American producers of wine and spirits to keep a lid on prices. Then the Eurozone mess resulted in more favorable exchange rates, driving down the price of European imports and creating even more pricing competition. And in the 30 years since 1982, the federal excise tax on alcohol has only been increased once, effectively shrinking it by more than 80% in current dollars.
And the biggest squeeze of all has come from the internet.
The proliferation of online retailers has turned us into savvy shoppers, comparing prices across hundreds of sites and hunting down deep discounts through flash sales. Access to high-quality vintages and single barrel single malts used to require a personal relationship and an invitation to the back room; now it’s a wholly democratized affair, and nobody needs to pay the sticker price.
Restaurants and bars continue to treat us like a captive audience. Price markups haven’t wavered from a standard three times wholesale for a bottle of wine (more for a single glass) and five times the wholesale price of ingredients for cocktails. But all that will change as more of us walk in armed with a bargain-hunter’s mentality and mobile apps for cocktail and wine lists.