Sunday, 20 July 2008

Economics of Beer and Wine Menu Pricing

Tyler Cowen poses a question to his knowledgeable readers at Marginal Revolution: "why [are] beer prices not listed on menus, while wine prices are?"

Obviously, the situation varies from restaurant to restaurant, and many display tier prices for domestics and imports (American craft beer generally getting tossed in with "imports"), but I have noticed the same general phenomenon. Why might this be the case?

My own first reaction was that the prices for beer in a typical restaurant would display much less variance than the prices of wine, and therefore there's less value in communicating an individual price. My second reaction was that beer drinkers are more price inelastic than wine drinkers, but I'm not sure why that would be the case.

Other reasonable answers from the comments:
  • Restaurants make more of a profit margin on beer than wine, so they want to encourage "impulse buying" of it, by not advertising the price. If you see that the same Sam Adams sitting in your fridge at home selling for $5 at the restaurant, you might think twice.
  • More "brand recognition" for beer, so consumers are more likely to have an expectation for what a given beer will cost
  • Ordering wine at a restaurant serves a signaling function, particularly on dates. Making the prices visible adds value to that signaling (ie "Which wine did he order? The second cheapest? Cheapskate - last date with him!")

What do you think? Any restaurateurs out there want to shed some light?

1 comment:

Will said...

You'd be amazed how many places have a food menu, a wine menu, but no mention of the beer they serve.

If the beer selection is lucky enough to grace the pages of a menu, I think it generally does not include price because the price changes so often.

Also, bars so often price beers arbitrarily grouping them as "domestic" or "imported" and they probably fear a price war that would cause them to have to price beer more carefully.

You can browse beer menu prices on www.beermenus.com to see how places price beers.