Question: Why do restaurants charge higher prices for drink than food?

Readers Questions – why do restaurant charge different prices, for instance high price for water and reasonable price for food?

‘Serve them a drink before they can blink’ – this is what I remember learning when I worked in a Little Chef. We were taught to waste no opportunity to sell extras – drinks, water, desserts. ‘Would you like onion rings with that’ e.t.c

Even before being an economist, I got the impression that if restaurants just served food, they would soon go out of business. It seemed to be on desserts and drinks that restaurants made the most attractive profit margins.

When you are considering which Restaurant to visit, you will instinctively look at the price of food, the price of meals. For example, you may have a budget of £10 a meal. If the food is good value, you will go. Yet, when you’ve come out of the restaurant, you’ve ended up paying £20 – because you also bought a dessert and two drinks.

The profit margin on food may be say 10%, the profit margin on drinks may be say 50%.

If the restaurant did it the other way round and made meals more expensive and drinks cheaper, would it get more customers? It is most likely it would get less.

Another way of looking at it is that restaurants are fairly competitive (maybe the model of monopolistic competition) would be fairly appropriate. Anyway, if all the other restaurants are charging £3 for drinks, there isn’t much incentive to undercut them.

You can see this pricing strategy in many other types of business.

• Petrol stations – where the profit margin on petrol is very thin, they make more on selling snacks in the shop.
• Printers and Ink. Cheap Printers, then very expensive compatable ink. (Why is printer ink so expensive)

Related

• Price of Beer and Water