I heard of a local establishment charging $8 for a Tanqueray and tonic. It struck me as outrageous, but I don’t have a long history with hard liquor, so I looked into it a bit.
If I buy the big bottle (1.75 liters), the liquor costs me a shade under 80 cents per ounce. Then there’s probably about twenty cents worth of tonic, so my cost-of-goods-sold price is about $1.00 even, meaning the local establishment is getting a 800% mark-up. Such a mark-up strikes me as practically quasi-Prohibitionist (“Make it so expensive that nobody drinks!”), but I know virtually nothing about running a bar, so I went out and found this nifty article from the Houston Chronicle: How to Price Bar Drinks.
I say the article is “nifty” because it’s authoritative and concise. If you want to establish a reasonable drink price, “[m]ultiply the liquor cost by four or five to establish the price of the drink,” then round up to the nearest quarter. So, for gin and tonic, the price should be $3.25 to $4.00, if the bar is paying retail for its inventory, which, of course it isn’t. In Michigan, bar owners pay approximately 15% less than retail (according to a client of mine in the business), so the cost per ounce is about 68 cents. So the price should be $2.75 to $3.50.
The article also points out that the final mark-up depends heavily on the kind of bar: “For example, a sports bar serving numerous beer and drink specials, or a bar and grill hosting a happy hour, might experience a 30 percent liquor cost, while an upper-class martini bar maintains an 18 percent cost.”
Using those examples, the upper reaches of a Tanqueray and tonic should be $3.75. The article doesn’t appear to have a date of publication, but based on its footnoted resources, it was published in 2010 or later (a year or more after the $7.25 minimum wage law went into effect), so I’m assuming the above calculation takes higher labor costs into effect, but maybe not. I’m especially suspicious of this since I’ve been drinking tonics and gin for about two years now, and I rarely find it for less than $3 a drink. It seems the average (not the upper-end) is about $3.50.
In any event, I’m not sure what to think about $8 for a Tanqueray and tonic, but I guess the bottom line is: If you can find someone to pay that price, then that’s the price you should be charging. I doff my hat to the gentleman who commands such financial respect.