If you’ve followed my work, you know that I’m no fan of tariffs.
I think it’s important, though, not to exaggerate their effects.
In “Trump’s Tariffs To Tank Tequila,” Reason, January 28, 2025, Eric Boehm writes:
That’s because President Donald Trump’s threatened tariffs on imports from Mexico will increase prices and could reduce the availability of some tequilas and mezcals, says Gabe Sanchez, owner of the Black Swan Saloon, a legendary cocktail bar in Dallas.
“It’s going to be a very difficult conversation for us to have with people when they come in,” Sanchez told Reason in an interview last week. While his customers might be used to $15 cocktails, Sanchez says tariffs could potentially push menu prices “much higher.” (Sanchez’ favorite drink right now is called “True Romance,” and he was gracious enough to share the recipe, which you can find at the end of this article.)
Elsewhere in the article, Boehm writes:
One of Sanchez’s to-go varieties of mezcal is available from a distributor at $35 per liter right now, he says. If the full cost of a 25 percent tariff gets passed down the supply chain, menu prices will have to increase, or certain drinks will have to disappear.
“If that jumps to $42 [per liter], we can’t make it. We can’t put those in cocktails anymore,” Sanchez explains. To stay competitive with other bars in the area, he knows he can’t price cocktails much higher than about $15 apiece. “If it jumps at that high, we just can’t sell it anymore. You know, somebody is not going to buy a $20 or $22 plus tax mezcal cocktail.”
If the whole tariff were passed on, the price would actually jump from $35 to $43.75. So he underestimated a little but not much.
What would that $8.75 increase translate into per cocktail? At the end of the article, Boehm gives Sanchez’s recipe. It uses 1.5 ounces. There are 33 ounces in a liter. So a bartender who doesn’t waste many drops can get 22 cocktails out of 1 liter. That works out to $8.75 divided by 22 per cocktail, which is 40 cents per cocktail. So the bar could pass on the whole increased cost due to the tariff by pricing the drink at $15.40. It’s hard to believe he would raise the price to $20, let alone $22.
Certainly, a 3% increase in the price of a cocktail would cause some drinkers to balk. But very many?
READER COMMENTS
Craig
Jan 28 2025 at 8:09pm
“If the whole tariff were passed on, the price would actually jump from $35 to $43.75. So he underestimated a little but not much.”
I think perhaps the price at the US based distributor will include post-importation taxes imposed by feds/state, liquor of course is subject to peculiar taxation. Perhaps consider that the tariff is imposed as the item crosses the border, odds are its $12, perhaps even less crossing the border. Of course the distributor could just as well take the item and apply whatever standard markup it imposes and then the tariff would get marked up accordingly, but another model would be what UPS might do in the face of high fuel prices where they just charge a fuel surcharge. I can’t know, I don’t know the price the item crosses the border at, but that price is assuredly NOT $35 the price paid at the US based wholesale distributor.
Alan Goldhammer
Jan 29 2025 at 7:53am
I’m pretty sure that most of those that purchase these expensive cocktails would not be able to tell the difference between using a top shelf tequila and a generic brand. It’s the same with vodka, gin and a bunch of other sprits. The bar could just go on a marketing campaign that offers a drink that “tastes the same for a fraction of the price.” A long time ago I worked in a Polynesian restaurant for a summer and the markup for cocktails is huge compared to food service.
For the math inclined, a fifth of liquor is about 25 ounces and a jigger is 1.5 ounce so you get almost 17 drinks from a fifth. A fifth of Tanqueray gin is about $25 so the price of the gin in a standard martini is just a smidge under $1.50. I don’t know the price of a martini is a bar but you can see how much the profit margin is assuming it might be about $5.00 (likely more???).
Dylan
Jan 29 2025 at 5:07pm
My wife ran her own jewelry business for a number of years. There’s a basic rule of thumb in that world for the small independent people like her, you take the price of all of the materials + labor it takes to make a piece and then you double it, and that’s your wholesale price. You double it again, and that’s your retail price. So, if the price of gold goes up and it takes an extra $10 worth in a ring, that translates to a $40 retail markup.
Now of course there’s wiggle room and people move things up and down also based on what the market is doing, but I’ve talked with a lot of independent jewelers and wholesalers who follow that rule.
I suspect there is something similar going on with the cocktail bar, except I think markups are even higher. So my guess is that the owner of the bar is automatically giving something like a 10X markup on the cost of the actual alcohol in the drink to cover things like breakage, buybacks, and all of the other operational and incidental costs.
john hare
Jan 29 2025 at 8:00pm
I’ve been drinking tea with my restaurant meals for decades. I looked at a ticket that I though a bit high sometime last year and realized I was paying over $4.00 for the tea in some restaurants. I now drink water most of the time.
Mike Burnson
Jan 29 2025 at 9:37pm
Another great insight, Dr. Henderson. I appreciate that, as much as you (and I) dislike tariffs, you still provide a fair, real-world evaluation of the impact. In the instant case, an increase to $16.50 from the current $15 would be very close to four-fold of the actual cost to the bar or restaurant. An increase of $5 would be 12.5 times the cost.