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By Ed Avis
Margaritas are giant sellers in Mexican restaurants. The tequila, lime and orange liqueur concoctions are on the menu of nearly every Mexican restaurant with a liquor license. What’s the average menu price for a margarita? And how are prices for margaritas set? We decided to figure that out.
In an exclusive el Restaurante investigation, we examined menus of 76 Mexican restaurants across the country. We found their prices for a regular magarita and for a “Cadillac” margarita, or the closest thing to that. We also interviewed several Mexican restaurant owners about how they decide to set their prices.
The bottom line is this: The average price for a regular margarita across the country, according to our analysis, is $11. The range is broad. For example, a margarita at Mi Patio Mexican Food in Phoenix is only $3.95, and an extra-large version is only $4.99. Not much higher is the 12-ounce regular margarita at Tacko in San Francisco -- which is overall a very expensive city – which costs customers just $5.95. On the other end of the spectrum, seven of the restaurants examined charge $16 for the house margarita.
Cadillac margaritas typically contain better quality ingredients than the regular house margarita. They are usually not made with margarita pre-mix, and the tequila is top shelf. If the Cadillac margarita is made from scratch, it typically contains Grand Marnier, Cointreu or Grandeza instead of triple sec or simple syrup, and the lime juice is freshly squeezed.
No surprise then that Cadillac margaritas command a premium menu price. Our analysis showed that Cadillac margaritas are typically about $5 more than regular margaritas, selling for an average of $16.
How are Margarita Prices Set?
When setting margarita prices, the cost of the liquor usually drives the bus.
“The main factors that we consider are the liquor cost percentages and how the prices from our liquor distributor have changed. We also forecast a lot to stay ahead of rising prices,” says John Mayes, vice president of operations and pastor of El Toro Mexican Restaurant, which has six locations in Texas.
“Pour cost” is the cost of the tequila in the margarita. The pour cost is expressed as a percentage of the menu price of the margarita. For example, if a bottle of tequila costs $20, and you sell $100 worth of margaritas using the tequila in that bottle, your pour cost is $20/$100 = 20 percent. If you sell $150 worth of margaritas with the same amount of tequila, the calculation is $20/$150 = 13 percent. As you can see, higher your margarita price, the lower the pour cost.
A typical good pour cost is between 18 and 24 percent, long-time bar owner Michael Sanders says in his book Trendy Bar & Nightclub Business Startup.
Once you determine a target pour cost, you can set prices by working the math described above in reverse order. For example, let’s say you target a pour cost of 20 percent and the tequila you are using costs $25 for a fifth. There are about 16 shots in a fifth, so each shot in this bottle costs you about $1.56. Since you want the pour cost to be 20 percent, the math is $1.56/.2 = $7.80.
That means you need to charge at least $7.80 for a margarita that contains one shot of that tequila. If you wanted the pour cost to be 18 percent, the math would be $1.56/.18 = $8.67.
The math is easy to adjust for different priced spirits. If you are using an anejo tequila that costs $35 per fifth, at a 20 percent pour cost that works out to $35/16 shots = $2.19 per shot/.2 = $10.94 minimum cost for a cocktail made with that tequila.
The calculations above assume that you’re putting one shot of tequila into your margaritas. If you’re making weak drinks and using less tequila, take that into consideration. For example, let’s say you use only a half shot per margarita, which means you’re probably making 32 margaritas per fifth of tequila. If your bottle of tequila costs $25, your liquor cost per margarita is just 78 cents. If you want a pour cost 20 percent, the math is $.78/.20 = $3.90 per margarita. Now you can see how your competition is charging so little for a margarita during happy hour!
Other Price Factors
Pour cost can be adjusted to accommodate other cost-driving issues. For example, if you are using expensive garnishes or fresh fruit juices, you might want to shoot for a lower pour cost (which translates to a higher menu price). You also should allow room for waste or occasional comp drinks.
Another factor is the amount of labor required to prepare a cocktail – making a margarita with a premix requires less bartender time than making one from scratch. That’s one reason margaritas at better restaurants, which focus on craft cocktails, typically cost more than margaritas at restaurants using pre-mix.
Henry Dominguez Jr., president of FoodPro Restaurant Consulting, adds that your own restaurant’s sales trends and anything that might affect potential customer traffic, such as holidays, might also go into your price calculation.
Finally, you should pay attention to the competition to ensure your prices are not too far from the norm.
Mayes says competitors’ prices is something that affects his margarita sales: “Guest are price sensitive. They are always comparing us to other companies and using that against us even if the other companies are using well liquors and we are using a better brand.”
Travis Bonino, owner of Salsa Leedos Mexican Grill in Riverton, Utah, has observed first-hand the effect of price changes.
“I have had one price decrease in the past year and my customers were so excited to see it,” Bonino says. “But unfortunately we are doing another increase this week due to the rise of costs of our ingredients. Prices [of ingredients] have steadily climbed the last three months.”
Click here to read the el Restaurante digital supplement about Cocktail Profits.
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