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Every time you open your wallet to buy something, somebody is making a profit - which is a good thing because otherwise they'd go out of business. There’s no problem with somebody making an honest buck or two, but sometimes markups amount to gouging. This is especially true when it comes to dining out.

Let’s start with coffee. What goes into an Espresso Double Shot costs no than a dime but consumers consider it a bargain when they can buy it for under $1.50. A 12 oz Latte which costs the vendor about twenty cents sells for an average of $2.75. The gross margins are over 1,000%. Now that doesn’t cover the café’s overhead or labor costs, but it still seems outrageous. Hamburger vendors also have to pay wages and rent and if they added on those kinds of margins, the average burger would probably cost around twenty dollars. Of course, for some inexplicable reason we seem to have a thing for a cafe's ambience and we tend to be less discrimnating when it comes to the decor at fast food joints. So tell me again why McDonald's get to charge $2.50 for the McCafe? It's all so confusing.

That friendly bartender pouring you a three dollar pint just earned his boss a 300 to 400 percent markup. Even when they offer you dollar draft beer at Happy Hour, bars still eek out a decent profit. And if you’re buying suds at a special event like a county fair, the profit margins can soar upwards of 500%. Ten dollar beers at a Major League baseball game are enough to drive a man to abstinence and sobriety. 

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Elgog Partynipple  - One thing you didn't consider... |2010-07-23 19:41:06 I was a chef for many years. While restaurants do indeed make a profit, it's not anywhere near as much as this article suggests. For instance, the bottle of whine/drinks you get in a bar or eatery have more overhead than just cost of the wine/drink ingredients and hourly worker ($2-$3 per waitress/server per hour). For instance, the establishment must have a liquor license in every state I have been in. And in my state a license can cost over $300,000.00. This has to be amortized over the life of the license which requires preriodic renewal (read that as another payment to the state to serve booze). I find this article more about hype than an honest review of eating out. Anyone can throw figures out off the top of his head, but this is not journalism unless Fox News is involved. Reply 2 0

haverwench  - Coffee costs |2010-07-21 12:54:59 I agree with you about the coffee thing, except in one case: the frozen coffee treat. Try as I may, I can never whip up anything in the blender at home that is comparable to a Starbucks Frappuccino. So once in a while, I allow myself to splurge and spend $4 on my favorite treat. If I could make it myself for less, I would, but if the only alternative is not having it at all, well, 4 bucks once a month won't break the bank. Reply 0 0

Tim  - Fast Food |2010-07-20 23:14:49 I used to work at a Subway (in Australia), and did the books for a while. Sure the food costs were about 30% of the what we charged customers... but on a good week the total profit was about 3-5%. The main costs: Food Salaries Rent Utilities Advertising Franchise Fee Equipment and Maintenance It all adds up very quickly. Reply 2 0

frugal nomad  - That's why it's such a great value |2010-07-21 02:17:46 Subway is actually one of my favorite eat out places. It's healthy and it's meals are fairly priced. no argument there. I'd say that, on balance, many fast food places offer a decent value. But I think most of us have a second sense on when we're being gouged. Having an idea of the price markups of certain menu items is a way to build up resistance to having a "what the hell" attitude and letting of ten dollars for a beer at an NBA game or $5 for a latte or three bucks for a soda at an upscale restaurant. The gouging will go on because it's perfectly legal. Your job is to dodge it as much as you can and simply refuse to pay for items that have excessive markups. Reply 0 0

xyppur  - I like the sentiment, but... |2010-07-20 17:18:18 Where did you get your information? I like this site because it's informative, but your numbers seem... Off. Can you link to your resources, esp on the coffee cost numbers? Then on the the defensive: Restaurants have huge (though I've never seen 1000%) markups on wine in part because of the time price. Meals enjoyed over wine are typically much longer than those eaten with an iced tea. This, more than any other reason, is the reason for corkage fees. The higher their rent, the higher the markups and corkage fees. I agree that some things are gouging, but eating and drinking out is expensive everywhere for a reason. Oh, and ladies have more sensitive feet and have a slight tendency to care more about their appearances. We'll often welcome some discomfort for better looks, but not discomfort _and_ worse looks. I feel blessed I don't care what my shoes look like if I'm not in a skirt. Reply 1 0

frugal nomad  - my sister in law |2010-07-21 02:36:30 I had a sister in law who owned a coffee cart and I did a little googling. That's how I got the markups. I'm not including the cups and lid - because when you make it at home - that's not an expense. Reply 0 0

PaulaJo  - Oh, and another thing about the wine |2010-07-20 15:31:13 I live near two Trader Joe's stores and have discovered their private label of wines that they sell called Charles Shaw. We call it "Two Buck Chuck". It sells for, and I kid you not, $1.99!!! It comes in Merlot, Cabernet Sauvignon, Chardonnay, Sauvignon Blanc, Shiraz, and Beaujolais nouveau. It's in a glass bottle and it has a real cork in it. So to me the prices at a restaurant are simply obscene. Not when I can sip at Trader Joe's prices. Reply 0 0

frugal nomad  - Trader Joe wine prices are unbeatable |2010-07-20 15:42:25 I agree with you. It's also a good place to pick up some decent priced high quality cheese and good Italian bread. That's good value. Trader Joe's wine prices give you an idea of what wines sell for wholesale. If you're buying by the box, you can get some real bargains for under $5 a bottle. There was a comment that we were exaggerating the markup on wines at fancy restaurants. I think the poster was comparing retail price versus the price on the menu. Reply 0 0

Tyler |2010-07-20 16:14:28 Actually, the poster was comparing the on- versus off-premises prices for wines, and using his knowledge of wholesale pricing for wines to estimate the markup. I can say for certain that there are obscene markups on wine out there -- I saw Beringer white zin for $30 a bottle the other day (it retails for $5 a bottle here in a wine store, and wholesales for about $4.50. Yes, margins are thin in retail wine, why do you ask?). 500% margin is pretty crazy. However, at the same time, people pay the same kind of margin for a steak -- I just ate $2 worth of sirloin, a potato that probably cost me $0.25, and another $0.25 worth of frozen peas. With the cost to cook it sitting roughly at $1 (conservatively), the whole meal cost me $3.50. At a steakhouse, it'd be $35 -- a 900% markup. In other words, eating out a restaurant is expensive, no matter whether you drink or not. Reply 0 0

PaulaJo  - I found this to be a very good article |2010-07-20 15:25:56 It definitely got me thinking. I've cut back drastically on eating out and this article was definitely something to mull over. Two reasons why I don't eat out much any more. I live in Northern California and I don't like who I see cooking in the kitchens around here. I'm really frightened about getting sick. And number two are THE COSTS. It's astronomical around here. If and when I do eat out now, I make sure to see the menu before I go in and eat. If I see something on it that is extremely difficult for me to make at home, and I like it, I will eat there. Another words, I won't pay a kings ransom for a steak because it is so simple to make at home. (I hadn't thought about what the high markup of French fries was until this article, but they are so very difficult to make at home I will continue to order them). Reply 0 0

Tyler  - One point... |2010-07-20 12:51:28 ... a bottle of wine at a restaurant isn't a 90% markup item. To take the worst-case scenerio that I -- in the wine trade -- have seen recently (a $8.50 frontline cost bottle sold on a wine list for $48), it's at most a 500% markup item, and often less than that. Yeah, wine in a restaurant is expensive, but only to the same scale as french-fries at a fast-food joint. And, you missed a good money-saving tip regarding wine... Many restaurants (where legal) will allow you to bring your own wine provided it's not on their wine list if you pay a corkage fee -- between $10 and $30, usually. Yeah, it's still spending money, but once the wine costs more than a certain point (usually the value of the corkage fee), you wind up saving money off of what the list price would be (generally 2 to 2.5x retail), AND you get to have total control over what wine you have with your meal rather than being limited by the restaurant's list. Reply 0 0

frugal nomad  - compare it to wholesale prices |2010-07-20 15:45:41 The average restaurant doesn't buy wine at retail prices. I doubt if they end up paying more than $5 a bottle. At upscale restaurantsm, the markup is closer to 900% than to 500%. Reply 0 0

Tyler  - OK, lets. |2010-07-20 16:07:22 Let's do so, then. Just keep in mind that there are often different price lists for on- versus off-premises licensees (where legal by state). For example from our local distributors, Kendall-Jackson chardonnay (not the wine in question, but I happened to encounter this particular distributor's on-premises price list a couple weeks ago when our rep brought the wrong book to a sales meeting) costs about $20 a bottle wholesale to restaurants (a little more, but I'm assuming the restaurant in question might have the foresight to buy 20 cases to qualify for a 1-on-20 quantity discount). It's listed for $30 to $35 on most wine lists hereabouts -- a 50% markup. Good profit, but nothing to write home about. As a note, it's $10 wholesale to off-premises licensees. Oh, the wine in question, in it's on-premises incarnation? $8.25 wholesale, including massive QD's (my company buys the wine in question in lots of 2000 to 5000 cases a pop). When we sell it for $8.50, we make a whopping 25 cents -- and I'd be willing to bet that a restaurant pays roughly retail as a bare minimum, and probably more, for it. Just the joys of the three-tier system at work (yes, distributors are legally required in most cases for alcohol sales). Reply 0 0

frugal nomad  - I yield |2010-07-20 16:17:45 You obviously know a lot more about wine than I do. But take the beer example above. We're not suggesting that don't pay a 1000% markup every time you buy a beer - but when you're buying it at an NBA game and they're charging you ten dollars for a pint. The same goes for wine. I'm sure some restaurants give you decent value but others don't. I've just had a lot of wine under $5 a bottle that compares very favorably with wines restaurants charge $40 or $50 dollars for. In any case, I usually go for the house wine when ordering and that tends to be a bit more reasonable. Reply 0 0

Tyler |2010-07-20 16:29:41 No worries. Wine by the glass is usually a bad deal; the mantra is that "the first glass pays for the bottle, the next pays for the staff." Generally, the markup there is 400-600%, depending on pour size, and more if you have the house wine (magnums of house wine -- around 8 glasses -- generally cost around $5-$6 wholesale). And, yeah, there's remarkably little difference between $20-a-bottle wine and $50-a-bottle wine; for the most part, people who drink expensive alcohol (be it wine, beer, or liquor) are giving money away to pay for branding or perceived image. Reply 0 0

jcard21  - Popcorn Mark-Up |2010-07-20 07:38:16 I used to design computer systems for a movie exhibitor. Their highest mark-up was on a bucket of popcorn ... 2500% This is NOT gouging! Reply 0 0

frugal nomad  - Saturday matinees |2010-07-20 09:24:11 Saturday matinees are a way for movie houses to sell inflated popcorn and pop to the little darlings. Reply 0 0

PaulaJo  - Why is it not gouging? |2010-07-20 15:02:33 I don't understand why a 2,500% markup on a box of popcorn at a movie theatre is NOT considered gouging? Please explain. Reply 0 0

jcard21  - No such thing as gouging! |2010-07-20 07:35:56 FACT: All value is subjective! When someone voluntarily trades his cash for a product or service, that person 'values' the product or service MORE THAN their cash; the seller 'values' the cash MORE THAN the product or service. Both parties in the voluntary transaction are increasing their perceived wealth. Please, let's stop this nonsense about 'gouging'. If you think the price is too high (your assessment of its value), then don't buy it. If someone ELSE buys it, then the price was not too high. If no one else buys it, the the owner probably priced it too high, and will lower the price or take it off the market. Reply 1 1

frugal nomad  - Let them eat cake |2010-07-20 09:29:17 If you have to ask the price - you can't afford it. we can go down the list of cliches, but we'd rather not because we're livecheap.com and we know when we're being gouged. There is nothing about gouging that's nonsense. You might have noticed that this article is posted on livecheap.com and we've got a little thing about being overcharged for anything and everything. Most readers visit us to figure ways to get the best value and save a few dollars and we do our best to provide them that service - for free. Reply 1 1

PaulaJo  - I might agree with you IF.... |2010-07-20 15:09:57 their were two places in the theatre to buy popcorn, but there isn't! If you don't pay the overpriced amount for their popcorn, there is no where else to purchase it. Gouged = Swindle = cheated out of your money. Reply 0 0

Omiewon  - Movie Theater Popcorn |2010-07-21 23:07:11 I feel a bit for the movie theaters. They charge such as high markup because they don't make squat for the movie itself. Concessions are where the movie theaters make all of their money. The movie studios will take about 80% of the ticket price on an opening weekend, so most theaters make $2 a ticket. There's no way they can cover the rent, AC, etc for $2 a ticket in a major mall. So they jack up what they can. You don't have to buy it of course although with kids, good luck. Reply 0 0

Alvin B.  - Cost / Value |2010-07-20 06:15:40 Working as a low-level retail manager and hailing from a family of entrepreneurs I know very well of what you speak. Markups are outrageous on some items, and you can save bundles doing it yourself. However, there is more that goes into a markup than just the cost of the item. The bottom line includes MANY costs other than just the cost of the item sold and the labor to produce it. This is why as the volume goes up, the necessary margin goes down. True, many retailers gouge the margin on certain non loss-leader items, but frequently the bottom line isn't as rosy as a 500% margin would lead you to think. More importantly, is the question of value. As in, what is the value of a $5 coffee to the person buying it. The time to purchase beans, own a decent espresso machine, make the coffee, clean up your mess once done (which with espresso it is messy), and then space on your counter to store the grinder, espresso machine and assorted other supplies - versus $5 for a cup. Financially, the $5 is still more expensive over time, but that $5 is paying for more than a Starbucks logo. It is paying for you to have more free time and less work to do, and as they say in this society "Time is Money". Someone who makes $100k a year paying $5 for a cup of coffee makes total sense. What does NOT make sense is someone who makes $20k a year paying $5 daily for that same cup of coffee. Their time, financially, is worth less, and that drives the cost of free time and leisure up. As far as whether retailers *could* charge less markup, in some cases they could. In many cases, however, the bottom line is much narrower than you think. A family member of mine used to price all her store's products at a 50% markup, and felt guilty charging that much. She was selling her stuff cheaper than identical brands at Wal-Mart. In some cases, she had name brands selling cheaper than store brands at Wal-Mart, and she was still "making a profit". However, customers still went to Wal-Mart, EVEN AFTER being in her store and seeing her prices. They assumed her prices were higher without even checking. Despite reasonable sales otherwise, she just couldn't cover the costs of doing business and have enough left over at the end of the day to take home even the equivalent of a minimum wage job. This is what many people discover when they go into business for themselves - it isn't all shoveling cash from the customer to your Porsche. That said, I agree, take every opportunity wher... Reply 2 0

frugal nomad  - I'd go a bit further |2010-07-20 09:37:29 I get your point and I'll go a bit further - there really are some consumers that like to pay more for everything and like to boast about it. That's why they have SAKs and Rolex watches and a whole bunch of other overpriced unnecessary 'prestige' up-market products. The people who buy this stuff want their friends and associates to know they piss away money because they got a hole ton of it. A $5.00 latte is overpriced and there is just no arguing the point. I think you're talking about affordability in the sense of having the income to piss away money. I've been there. I've pissed away a fortune on over-indulging. And then I got swindled and ended up in lower tax bracket, to put it politely. And looking back, I know I didn't mind getting gouged when the money was rolling in. But when the music stops and you have to deal with new economic realities - the first thing you learn is to show a new respect for saving a buck and you can start by absolutely refusing to pay for overpriced products and services. Reply 0 0

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