January 5, 2018

|Dave Allred

When I started out with Bar Patrol locally here in the San Francisco Bay Area implementing bar inventory and alcohol control systems, I had the privilege of working with quite a few corporate restaurant chains, helping them pinpoint their losses in order to lower their pour cost and variance percentages.

Like all restaurants, each of them has things they do very well and things that need improvement, and I certainly do not claim to know how to run a chain of hundreds of restaurants. I only know numbers, and numbers never lie.

This particular local chain restaurant had all the usual shrinkage problems of other bars: they were losing about 30% of their products due to bartender theft and negligence, which we cleaned up within a couple of weeks, which resulted in lowering their pour cost percentage by 5 points.

But as I dove deeper into the numbers, I noticed something else that I had no control over, and that was the portion policies for their cocktails. They were outrageously irresponsible, and when I pointed it out to the GM he told me that they had no say in these policies, that the beverage director on a national level implemented and oversaw the creation and portions of all cocktail and drink policies.

On the surface, this looked like the worst item costing execution ever.

Like a mad scientist, I put everything on hold and shut myself in my office to run some numbers. I had about 12 weeks worth of inventory data which would tell me the average number of drinks sold on a weekly basis and the pricing as well. I grabbed my calculator and went to work. What I found confirmed my suspicions.

After I list their drink policies here, I'm going to show you the math on how much this beverage director is costing this corporate chain in retail liquor. I'm exposing this travesty so you don't make the same mistake in your bar/restaurant.

Here are the drink policies of this national restaurant chain:

1. Martini portions are 3 oz. with only a $2 up-charge 

Ok, this one isn't that bad and is actually rather common in our industry, but it's still wrong. The average shot size is 1.5 oz. so if you order a Grey Goose and soda it's $9, but if you order a Grey Goose martini it's only $2 more for another shot, so you're essentially losing $7 retail. Martini portions should only be 2.5 oz.

2. Doubles are 3 oz. with only a $2 up-charge

Same issue here as the martini. $2 for another shot, except they ordered a double so they should be charged another $7 in the case of the Grey Goose example.

3. "Rocks" pours are 3 oz. with only a $2 up-charge

This one is a killer because it IS NOT common practice to pour a double just because someone orders something on the rocks. If you order Grey Goose on the rocks at this chain, the bartenders automatically pour you 3 oz. and up-charge $2, losing another $7 retail. But the reason this one is so harmful is because of perceived value. The guest has no idea that he/she is getting a double pour. They think it's just a shot because that's how most places pour on the rocks, and not only that, but now they believe that this place charges $11 for Grey Goose. They actually believe they are getting less value while the restaurant loses money.

4. Most of the cocktails on the cocktail menu contain close to 3 oz. of liquor and yet they only sell for $8 - $9 retail.

This one is extremely costly, completely unnecessary and definitely the most irresponsible of the all the policies practiced. This again comes down to perceived value. Sure, they want a good value, but what the guests are really interested in is a good tasting cocktail that can enhance their experience. Most of them aren't there to get hammered on a Tuesday night. As you'll see below, I priced these cocktails out and most of them should be selling for $12 - $13 based on the amount of liquor that is being poured into them.

THE DISCLAIMERS

Understand first that this math is based off of one location and 12 weeks of sales data, so as an experiment, the data I'm providing is with the assumption that all of these stores nationally are selling the same number of cocktails. We know that's not true, but it's more of a "what if" argument. "What if" all of the stores reflect the exact same sales as this one locations, just for arguments sake so we can get a theoretical idea of what's going on beneath the surface.

LOSS AT WHOLESALE VS. LOSS AT RETAIL

In addition, there is an argument for how much actual money is lost based on whether the liquor inside the bottle is being measured by wholesale dollar amount or retail dollar amount. In other words, around here, a bottle of Grey Goose costs a bar owner around $36 wholesale, which breaks down to $1.06 per oz. of Grey Goose. But if you sell it at $9 per shot at 1.5 oz. per shot, you can make $202.50 retail, or $6.00 per oz. So if a bottle of Grey Goose breaks, did you lose $36 or $202.50? Here's the difference:

The answer here is $36. Anything accidental is loss at wholesale. However, anything that is purposeful, or something could have been done to prevent the loss (i.e. theft or an irresponsible beverage director) is a loss at retail because it could have been sold at retail to someone else. Thus, in this experiment, all numbers will be expressed in retail amounts because it could have been (and still can be) prevented.

THE MATH

                                                  MARTINI POLICY

Current Pour Policy = 3 oz.

Average Price = $11

Average Sold per Week = 100

Suggested Pour = 2.5 oz.

Retail Losses per Martini = $1.87

Losses per Month (1 Location) = $750

Losses per Month (All Locations) = $206,000

                                                   Losses per Year (1 Location) = $9,724

                                                   Total Losses per Year = $2.67 Million                                                       

                                                  ROCKS POLICY

Current Pour Policy = 3 oz.

Average Price =  $10

Average Sold per Week = 50

Suggested Pour = 1.5 oz.

Retail Losses per Drink = $6.00

Losses per Month (1 Location) = $1,200

Losses per Month (All Locations) = $330,000

Losses per Year (1 Location) = $156,000

                                                  Total Losse per Year = $4.29 Million

                                                 COCKTAIL MENU POLICY

              Current Pour Policy Avg. = 2.88 oz.

              Average Price = $8.50

              Average Cost (Retail) = $12.95

              Average Sold per Week = 361

              Suggested Pour = 2 oz.

              Average Retail Losses per Drink = $3.28

              Losses per Month (1 Location) = $4,736

              Losses per Month (All Locations) = $1.30                                                     Million

                                                 Losses per Year (1 Location) = $61,572

                                                 Total Losses per Year = $16.93 Million                                      

TOTAL RETAIL LOSSES PER YEAR  = $23.89 Million

I was (and still am) baffled. This is Item Costing 101. Pricing out your menu items and placing correct policies in place. When the regional manager of this chain originally spoke with me the first time and told me their cost % was in the 30's, I thought it was simple theft. Turns out that was only the tip of the iceberg.

The practices implemented by this irresponsible beverage director have cost this company millions. Sorry if that seems a bit harsh to call this person out, but really? Your job as a beverage director goes beyond making yummy concoctions. Your job is to make them money.

As of the writing of this article, that beverage director is still directing the chain's beverage program. I'm not saying this person isn't brilliant in other areas, but when it comes to item costing and running a profitable beverage program for this chain, they have dropped the ball in the form of a giant boulder on this one.

Please make sure you aren't making the same mistakes in your bar/restaurant. Set responsible policies and item cost everything. Lesson learned!

Cheers, until next time.

Dave

Tags:bar inventory appliquor inventory appalcohol control systemliquor inventory control systemalcohol inventory controlbeverage inventorymenu item costing

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