Marcis Dzelzainis talks through the cost breakdown and offers some suggestions on how not to price yourself out of the market.

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You might feel like you have little choice but to charge the prices you do. After all, your costs – ingredients, overheads, labour – are fixed. The numbers in your spreadsheet set your cocktail price. That’s all well and good, but the customer doesn’t care about your costs. What they care about is that a cocktail can now cost more than an hour of the Living Wage. In an age where the average consumer is already facing financial pressure, cocktails are becoming an increasingly unrealistic demand on people’s disposable income. And if we continue to price our drinks out of sync with the wallets of our customers, I fear the cocktail industry as we know it could start to decline.

So, let’s work backwards. Why do cocktails cost so much? And are there ways to prevent prices from outgrowing our customers’ means?

Breaking down the supply chain

At its core, a cocktail is just 30-50ml of alcohol, supporting ingredients, ice and some garnish. So why the hefty price tag? The simple answer: cost structures that are deeply affected by the supply chain, especially when it comes to spirits.

So, let’s break it down into its simplest components. A producer manufactures a product and has to ensure all associated costs are covered: ingredients, overheads, utilities, packaging, labour and so on. Once the break-even point is determined, meaning all these costs are covered, the producer needs to apply a margin to the product.

It’s a common misconception that producers are rolling in money. When you dig into their business models, you’ll often find very slim margins. Depending on the product, this can vary dramatically, from as low as 10% (and even less in some cases) to over 40%. Many producers opt for lower margins, justifying this in return for larger volumes. Some even operate at a loss in the early years, aiming to scale the business significantly enough to eventually sell to an investor who can benefit from economies of scale to turn a profit.

On the flip side, higher-margin products typically focus on the quality of ingredients. Producers justify the higher cost of these products through complex and costly production methods or speciality ingredients. These products tend to come from small-scale producers, as the investment required to scale up production is both expensive and takes years to implement.

Distribution

Now, let’s talk about distribution. Producers generally have two options – direct trade and wholesale. For direct trade, the producer handles all logistics and fulfilment, dispatching the product directly to accounts or consumers. While the margins are usually better for the producer when selling directly, it comes with more work, managing accounts, chasing payments and handling sales. Producers need to invest in acquiring new accounts, which often means sending a sales rep out or managing this process themselves.

Meanwhile, most producers choose wholesale distribution because it’s less labour-intensive. Wholesalers handle the logistics, sales and payments, but they also take a cut of the margin. This model is attractive to producers because it allows them to reach a broader audience without having to manage every detail themselves. However, the trade-off is a smaller margin, as wholesalers mark up the product to cover their own costs and make a profit.

Another layer of complexity in the supply chain is distributors who don’t necessarily own the brands they represent but act on behalf of the producer in helping secure listings with larger wholesalers. Again, very useful for producers looking to increase their distribution or even help with the import logistics of bringing a product into the country. So by the time a product ends up in your venue, it can easily have passed from producer to distributor, to wholesaler, both of whom will have added margin to the product. Not necessarily a bad thing as, without enough volume, small producers won’t achieve the requisite sales to be profitable and in some cases wouldn’t even be able to bring their product into the UK. It simply explains the discrepancy in pricing when purchasing direct vs wholesale. It’s also worth noting that some distributors might offer you improved pricing if you purchase through them instead of wholesale, and in significant enough volume. 

Why does this matter?

All of these factors – production costs, distribution models and margins get passed down the supply chain. Whether you’re sourcing from wholesalers or directly from producers, the price of the product you’re buying is shaped by these components. And as these prices climb, it forces the cost of your cocktail to increase as well. Let’s look at an example of how a bottle of spirits breaks down in price.

• Bottle (70cl/40% abv) cost before tax/in bond: £20

• Excise duty: £8.85 • Bottle + excise duty: £28.85

• Bottle + excise duty + vat: £34.62

• Wholesaler/distributor margin at 20% = £41.54 inc vat (£34.62 ex vat )

If you’re using a 5cl pour, each drink is costing you £2.47 in spirit product cost alone, excluding other ingredients or labour. If you want to achieve a 75% gross profit margin on that drink, you’d need to sell it for: £9.89 (ex VAT) or £11.87 (inc VAT). And here we are – at that price point, the customer is paying just under an hour’s worth of the London Living Wage (£13.85) for just a single 5cl pour of spirit.

Another way

There’s a way to mitigate these issues and it starts with sourcing products more strategically. By choosing to purchase certain products directly – saving you anywhere between 10-30% on the cost per bottle – you can offer more affordable alternatives, especially when working with smaller, local producers.

It is important to acknowledge that I’m not advocating ditching listing fees and other big-brand incentives altogether – these can be useful financial tools for your venue. It’s simply about making an educated financial decision. While listing fees might offer an upfront cash injection into your business, what is their long-term financial implication? A £2,000 listing is quickly offset by being tied into purchasing often more expensive products and having to sacrifice margin in order to make pricing attractive to the consumer. I think the future is about a judicious approach which blends listing fees and carefully sourced products that offer novelty and value to the guest.

You don’t have to cut out the middle men. A wholly direct supply would be near impossible – so you’ll still need to work with reputable wholesalers. Indeed, there are quality bigger brands which hit price points that can be viewed as enablers – it’s about finding the right mix. But instead of buying that super/ultra-premium brand, you could try adding value with a direct-supply local spirit. For example, I’ve found a great London Dry, produced in small batches in England, with a classical juniper-led profile and which is robust enough to pour as a Martini, for £20.

With that extra margin, you can offer a better price to consumers while maintaining a reasonable GP, or use it to invest in higher-quality supporting ingredients, things like fresh citrus, bitters or premium mixers.

By building relationships with trusted local producers and local wholesalers who share your commitment to quality, you can find unique products that meet your customers’ needs without relying on high-priced brand names. And that means you don’t have to compromise on your drink quality or your customers’ experience.

Hidden benefits

There are other upsides, beyond the financial. First, when you use small, local producers, you’re likely to end up with products that are unique, which can help your bar stand out from the competition. These are the types of spirits that can really elevate your cocktail menu and create a story for your bar. By working directly with smaller producers or thoughtful wholesalers, you’re able to maintain control over your costs while offering quality cocktails that reflect the financial realities of your customers.

Again, I think it’s important to adopt a blended approach between working with larger brands and smaller producers. Bigger brands are able to facilitate key marketing activations such as guest shifts, and can offer vital support through listing fees, in a way many small producers cannot. But when a significant portion of the back bar is made up of larger brands, the loss of diversity, novelty and, in some cases, value to the guest has a negative impact. And it’s important to remember that the consumer doesn’t care about your listing fees/ marketing incentives. They care about the quality of the product put in front of them.

In the end, it’s about making sure that the consumers get what they paid for – a great drink that justifies the cost. When you do that, they’ll keep coming back for more. And if we all take a little more care in how we source our ingredients and manage our pricing, we might just find a way to keep the cocktail industry thriving without pricing ourselves out of the market.