A few weeks ago, an article in the Pittsburgh Post-Gazette by Elizabeth Downer and Jack Brice, Tastings: Gouging by the glass of wine, highlighted the high prices of wine in Pittsburgh restaurants. The point of the article was many restaurants in the Pittsburgh area charge “far more than industry-accepted models” for a glass or bottle of wine. They also use the term “gouge” multiple times in the article. I have a different perspective. Although some of the reported prices seem a bit high, the restaurants either have a good pricing strategy, or they will not sell much wine and will soon lower their prices. Either way, it is not gouging.
I define price gouging as those instances when a seller takes advantage of captive customers who have no choice but to buy a product, and they charge much higher than their normal price even though there are no supply limits. For example, if someone were injured and needed first aid products and the only store in the area saw the injury and doubled or tripled the price to the injured customer, I would call that price gouging.
In their article, Downer and Brice compared the area wine pricing with an industry standard 3 times cost, which is apparently conventional wisdom. However, since restaurant customers have a choice, and they do not have to buy wine with dinner, how is pricing higher than 3 times cost gouging? Perhaps the authors should have used some other comparisons to broaden their perspectives. One of my favorite examples is the price of a bottle of water in a hotel. The wholesale cost of a bottle of water is certainly less than $0.25, yet hotel guests are often charged $2.50 (10 times cost). The price of a beer at a professional sporting event is around $8. I don’t know the cost of each beer, but I am confident it is not appreciably more than $1.
Continuing with some other examples, a large bucket of popcorn at a local movie theater is no more than $5. I would be surprised if the theater’s cost was $1, and I suspect it is closer to $0.50 per bucket. Yes, those prices are high, but they do not represent gouging. Customers know well before they arrive at the theater that popcorn will be expensive, but they line up to buy it at prices well above 3 times the theater’s cost. If customers don’t buy, the theater will lower prices.
In 2010 I went to the World Series in San Francisco. The fee for a parking spot 5 or 6 blocks from the stadium was $60. My reaction was parking is very expensive, but I paid the fee. I could have driven further away and paid less, but it was worth it to me to park a little closer. Realizing I had options, I took the train to game 2 for about $5. However, I did not think the parking fees were gouging. They simply reflected supply and demand.
My last point is business is difficult, and it is wise to be creative in determining how to make money. The restaurant industry is one of the toughest. There are a variety of factors that determine where diners will go for dinner, and I am certain that the price of wine is not one of the top factors. For most people, the quality of the food, the friendliness and timeliness of service, and the overall atmosphere are much more important. It makes sense to invest in delivering those things to customers and test higher prices on wine. If those higher prices enable the restaurant to make money and continue to invest in the food and overall dining experience, great. On the other hand if they begin to see wine sales or customer counts slipping, they can decrease their wine prices. That is not gouging. That is managing their business.
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