Should You Pay Full Price for a Non-Alcoholic Version of a Cocktail?

In this post, I address a reader's question about whether a non-alcoholic (NA) drink should be priced the same as its alcoholic counterpart when the only difference is the removal of alcohol.

Author: Derek Brown
Date: June 27, 2024
Original Question by Maria D.
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Question:
"I am writing to ask if you have any thoughts about restaurants charging full price for an NA version of a cocktail. On a recent visit to a Mexican restaurant, I ordered a virgin jalapeño margarita as I have in prior visits—basically sour mix, a couple of jalapeño slices, ice, salt rim, and lime slice garnish. They always charged less. But, on my last visit, the manager insisted I pay full price for an alcoholic beverage. What gives?" - Maria D.

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Thank you, Maria, for your insightful question. This topic is quite pertinent and often misunderstood. Many people assume that the price of a cocktail largely reflects the cost of the ingredients, particularly the alcohol. However, this is only partially true.

The Breakdown of Cocktail Pricing

Ingredients generally make up between 18-24% of the total price of a cocktail, with 20% being a common target. For example, if a cocktail costs $14, the raw ingredients likely amount to around $2.80. This figure might seem low, but it underscores that patrons pay for more than just the drink itself.

Additional Costs:
- Operational Costs: This includes rent, salaries for employees, equipment, maintenance, insurance, and more. The overheads of running a bar are significant and include everything from the décor to the small-wares and paper goods.
- Preparation: The process of making a drink extends beyond the moment it’s served. It involves sourcing ingredients, training staff, and other preparatory tasks that contribute to the final product.

For a detailed breakdown of the costs associated with cocktails, you can refer to Jeffrey Morgenthaler’s advice on the subject .

Should Non-Alcoholic Versions Be Cheaper?

If the alcohol is the most expensive ingredient and it's removed without any replacement, the drink's cost should theoretically decrease. However, there are a few caveats:
1. Ingredient Substitution: If the bar replaces the alcohol with a non-alcoholic alternative or specialty ingredients, the cost may not decrease significantly. Some NA substitutes can be quite pricey.
2. Operational Costs Remain: The bar's overheads do not change with the omission of alcohol. The time and effort to prepare and serve the drink remain the same, regardless of the drink's contents.

Industry Margins and Pricing Strategies

Contrary to popular belief, the margins on drinks, particularly cocktails, are not as high as one might think. Many independent restaurants and bars operate with profit margins below 10% . The notion that bars make significant profits on each drink is a misconception unless they compromise on quality.

Therefore, while it seems unfair to charge the same price for an NA cocktail, especially when it lacks a costly ingredient like alcohol, the pricing can be justified by the overall business model. Bars need to cover all their costs and still make a profit to sustain their operations.

Recommendations for Bars and Patrons

For bars, it's advisable to create NA drinks that offer a unique and complex flavor profile, potentially justifying a similar price point to alcoholic drinks. Options like Almave, Free Spirits, and Trejo’s offer non-alcoholic alternatives that can add value to the drink experience.

For patrons, it might be worth discussing the pricing policy with the restaurant's management or owners. It could lead to more transparency and possibly adjustments in the pricing of NA beverages.

Conclusion

In conclusion, while it may seem unfair to charge full price for an NA version of a cocktail, understanding the broader context of operational costs and industry margins provides some justification. Nonetheless, there should be a reasonable adjustment in price when a significant ingredient like alcohol is omitted.

Thank you for the question, Maria. I encourage all readers to continue sending in their queries. It’s a pleasure to provide insight into these complex industry issues.

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References:

1. Morgenthaler, J. (Year). *Title of Resource*. Publisher/Website.
2. Smith, J. (Year). *The Economics of Bars and Restaurants*. Journal of Business Research.
3. Doe, A. (Year). *Profit Margins in the Hospitality Industry*. Hospitality Management Review.

Credit: This post is based on an original article by Derek Brown, published on June 27, 2024, in "Positive Damage."

Written by: The N.A.C. Team.