Why Do Restaurants Encourage People To BYOB?

This past weekend I went to New Jersey for a reunion with three friends from high school.  We had a great time talking about the past, present and future.  For breakfast we went out to eat at PJ’s Pancake House.  PJ’s is located across the street from Princeton University and is very busy serving food from 7am to midnight on weekends.  I was surprised while sliding into the booth to see a large sign attached to the wall that said patrons were encouraged to BYOB (Bring Your Own Bottle/Booze/Beverage/Beer).  The sign even gave three Italian sayings on why drinking and eating go together.  Why would a restaurant encourage patrons to bring alcohol, especially in a college town?

The economic reasons why restaurants want to sell liquor are very clear.  At most restaurants selling food covers costs and adds only a small amount to the bottom line.  Most of the profit comes from the drinks.  Sodas from a fountain provide between a 50% and 90% profit margin.  That means when you pay $2 or more for a soda in a restaurant, little of the charge is actually for the drink.  Alcohol also has very high markups.  The standard rule of thumb is that a bottle of wine is sold in a restaurant at double the retail price.  Since most restaurants buy wine at wholesale prices, the markup is even more than 100%.   One of the highest markups in a restaurant is coffee with a 300% markup.

While restaurants want to have many high profit items on their menus, most cities and towns restrict liquor licenses to control drunkenness.  This means that not every restaurant that wants to serve liquor is permitted to serve it.  One option for restaurants that don’t have liquor licenses is to allow patrons to bring in their own bottle.  Allowing people to BYOB helps a restaurant’s profits in a number of ways.

First, some people are on a budget or are careful with their spending.  BYOB restaurants attract these patrons because it gives them a chance to imbibe without paying a high markup for liquor.  This boosts the number of meals served.  While meals are not a high profit item, they do add something to the bottom line.

Second, in a college town many people under 21, the legal age, want to drink.  At BYOB restaurants the staff does not ask drinkers for an ID since they don’t have a liquor license to lose.  Buying the bottle when you are underage is still a problem, but drinking it in a civilized manner in a BYOB restaurant is not.  Implementing a BYOB policy boosts demand from underage drinkers.

Third, not everyone drinks alcohol.  Many times people that bring their own bottles are accompanied by friends or relatives that are not drinking.  Non-drinkers and some drinkers often order soda, which boosts profits.

Last, many people who BYOB often drink coffee before leaving the restaurant in an attempt to sober up.  Letting people bring their own bottle boosts coffee sales.  Coffee has a very high markup and this increases profits.  Plus, coffee drinkers sometimes order dessert which has a higher markup than main courses.

I don’t know which, if any, of these reasons are what convinced PJ’s to post BYOB signs.  What I do know is that by the time we left, the line to get inside the restaurant was down the block.  At the same time as many people were huddled in the cold outside of PJ’s, the Panera Bread shop just a few doors down was virtually empty.  Is BYOB the reason for PJ’s long line or is it the pancakes?  I guess the only way to really tell is by going back; over and over again.