Are Bottomless Drinks Good Business?
A story of loss leaders, irrational consumers, and infinite mimosas
[Video transcript below]
This question might have occurred to you on a Sunday morning at your favorite restaurant: Are bottomless drinks good business? Think about it: Infinite. Free. Alcohol. How can giving away mimosas to thirsty brunch goers be anything but financial suicide? In the short video above, Thompson talks through all the ways that unlimited breakfast booze actually makes good business sense.
Don't miss Thompson's introduction to the project and the previous installment answering the question, "Why is bottled water so expensive?"
The bottomless brunch mimosa is a cherished part of the weekend tradition where one mimosa or ten mimosas, you pay the same price. It's clear that bottomless drinks make sense for us -- booze is delicious -- but why do they make sense for the restaurants? What's the economic rationale behind bottomless drinks?
It turns out there's a psychological reason, and an economic reason, but the most common reason I heard when I talked to restaurateurs was actually peer pressure. Other restaurants were already doing it. Bottomless drinks felt like the price of entry to buy into this market of young, boozy 20-somethings looking for breakfast on Saturdays and Sundays.
The second reason is the power of free. Another way to say bottomless booze is "free booze refills" and we are fundamentally, maybe even unreasonably, attracted to anything we can get for free. In marketing studies, consumers consistently prefer to getting something extra for free than getting something at a discount. It might not make economic sense, but it does make emotional sense. Cutting coupons is ok. But winning the lottery is a lot better.
The third reason, the economic rationale, is that bottomless drinks really aren't about the money at all. They're about marketing. Restaurants don't make that much money off of serving you infinite mimosas. But they do make money off of two other things: first, all the food you eat while you're drinking, and second, and more importantly, all the food and all the drink you order in the coming months when you return to that restaurant because you had such a good time.
In this way, bottomless drinks are sort of like advertising. Or they're what economists call a loss leader. That's something a company sells at a loss expecting to get you in the door and sell you more later on. A classic example would be Gillette, which loses money on its razors and then makes money selling you its blades. In boozy brunch, mimosas are kind of like the hook that make you a profitable customer later on when you eat at the restaurant again and again and recommend it to your friends.
So, are bottomless drinks good business? Only if the drinks are good enough to get you to come back.