The 7 Biggest Cost Control Black Holes for Restaurants

 Cost control, cost control, cost control. As a manager that’s all you hear from the owner is to control the costs, and you do your best so that when the numbers come in at the end of the month you don’t get an ALL CAPS email with lost of exclamation marks!!!!!!!!! screaming at you because the pour cost is at 26% and food is at 39%.

But Christ, you have a lot to do! And if your employees weren’t so frickin’ lazy and they’d just do what you told them to do 8 months ago, everything would be fine and your hair wouldn’t be falling out from the stress of the owner’s sorely misplaced tantrum.

Ok, let’s close our eyes, take a deep therapeutic breath—maybe a little downward dog if you want—and let’s see what we can do to make your life a little easier when it comes to lowering your costs.

First off, as with anything that involves any level of success, no matter the industry or field of work or play, the person running the show (you) needs to change his/her core beliefs involving any system that will be put into place, or all the best intentions or well-laid plans in the universe are useless.

YOU must set the standards and then enforce those standards with a system that works for everyone. Anyone who knows me knows that I believe deeply in systemizing any type of business. What does that mean? It’s not as complicated or daunting as you might think.

Systemizing your bar/restaurant simply means writing down how things will be done, and then making sure there is follow-up by you and other managers or team leaders to ensure the things you wrote down (the standards) are being enforced.

With that said, here are the Cost Control Black Holes that are killing your bar/restaurant. Use this knowledge to form your own set of standards. Write them down, memorize them, tattoo them on your ass for all I care. Just make sure you provide follow-up in your plan, or everything listed here is nothing more than a few paragraphs that will be as effective as implementing a few paragraphs of Harry Potter: Pure Fantasy.

BLACK HOLE #1: OVER-ORDERING

For the love of Mary and Joseph, you don’t need 14 bottles of peach schnapps on your shelves. This seems like common sense, but you can’t even believe how common this is with bars I work with. I would guess 19 out of 20 bars have too much inventory in stock, and yet each week, they order more.

I understand getting a good deal from the vendors, but if you only sell 1 bottle of Barenjager every 6 months, there’s no need to buy 2 cases of it so you can save $1.29 per bottle.

So how do you systemize your ordering?

As a general rule, you should carry about 1.5 – 2 times your usage per week. So if you go through 4 bottles of Jack Daniels per week, you should keep 6 – 8 bottles on hand at delivery time, depending on how panicked you are about running out. A good compromise here is probably 7. How do you figure your usage per week?

DO THIS: First, if you have a liquor inventory system that tells you bottle usage over a designated time period, this will be easy. If not, you’ll have to run a sales report to determine your pars.

To figure usage with the sales data takes a bit of math so hopefully your head doesn’t rupture, but you can estimate, as it doesn’t need to be perfect. So here’s the math:  As a general rule, a 1L bottle pours 22 shots and a 750 ml bottle pours 17. So if you sold 314 Jack Daniels in the past 12 weeks (from a 1L bottle), that means you went through about 23 bottles (514 ÷ 22 = 23.36). Then divide that by 12 weeks and you can see you’re going through nearly 2 bottles per week, so the par should be 4, or 3 if you’re a gambling man/woman.

Pars will systemize your ordering and automatically plug a hole that is leaking profits. Food is even more important because it spoils. Your chef needs to determine how much is being sold, and order accordingly to avoid waste. This simple step alone can save your bar a lot of money at the end of each month and lower your percentages.

BLACK HOLE #2: NO SET PORTION AMOUNTS

You’d be surprised how man restaurants I’ve worked with that either have no written recipes or they have them written out but when I ask them to pull them out, the paper is so dingy it appears as if they’ve been sitting in an attic since 1957.

Here’s a 4-Step plan to systemize your portion control for both bar and kitchen:

1. Write our your recipes. Hopefully you know what they are. If not, your first step is actually to figure them out, which would make this a 5-step process.

2. Measure ingredients. For the kitchen, this involves using measuring devices and scales to weigh meat and vegetables. For the bar, it’s using jiggers or training the bartenders on how to properly free-pour.

3. Monitor that the measuring is being practiced. That means inventory management, which we will get into later.

4. Enforce the results. If you do not follow-up with this last step, the first three are worthless.

Set the portions so that they are fair to your guests, yet make the business a profit. If you need to have a sit-down with all the managers and chefs, do it. Figure it out or a lot will be lost each month.

If you aren’t going to have some courage and be a leader in your bar/restaurant you should probably hand it over to someone else and go bag groceries or ring-up tampons at Target or something.

Just sayin’.

BLACK HOLE #3: WASTE

This black hole is sort of a sub-category of BLACK HOLE #1. If you order too much, waste will happen and you might as well be throwing money in the garbage. Waste can also occur if not stored or rotated properly. 

To systemize your waste problem:

1. Pre-cool hot items before refrigeration to avoid bacteria growth.

2. Store food in the proper location. Don’t put your broccoli in the freezer and your meat on the shelves. Ok, I’m exaggerating, but for cooks, it isn’t their business so carelessness is a common disease.

3. Make sure cold foods are stored at the proper temperature.

4. Label your containers with day-of-the-week stickers so you know how old it is. I can’t believe how many places throw containers of food in the fridge or freezer that is unmarked and then dig it out 3 months later and wonder why it has freezer burn on it.

5. If you have too much of something, anticipate this and run a special. Food offered at a discount makes more money than if it’s thrown in the trash.

BLACK HOLE #4:  OVER OR UNDER-PRICING

This one seems so simple, but it seems to me that many owners and managers simply slap a price on their drinks and food that they think is fair.

I say pricing is simple because it’s nothing more than a math formula. Though I usually work with the bar side more than the food side, pricing is the same for both.

As with most things in our industry, we want to find that sweet spot that benefits both the business and the guest so everyone is happy.

Bar Patrol Inventory online now has an item costing feature in the recipe section that allows you to simply enter the ingredients and it will tell you the total cost of the item, the cost % and the profit margin so you can price quickly and effectively.

If you do not have such a system in place, you can still do it. It’s just slower. To systemize your pricing:

First, you need to determine you target cost percentage for each category. Much of this is dependent upon the demographics of where you’re located (are you in a wealthy area or lower income?) and what type of food and menu items you are serving. However, here is a general rule for cost %:

Food: 32%

Beer: 20 – 25%

Liquor: 15 – 18%

Wine: 30 – 35%

So, in order to determine pricing, you need to hit your target percentage in each category by taking the wholesale price of the product and divide by theoretical retail prices until you hit your desired percentage. Here are three examples:

Sierra Nevada Draft Beer

Wholesale Price per Keg = $150

Keg = 1,984 oz. ÷ 16 oz. (pint) = 124 pints per keg

Retail Price $5 (per Pint)  x 124 = $620 per keg

Wholesale Price ($150) ÷ Retail Price ($620) = 24.19%

Absolut Vodka

Wholesale Price per Bottle = $25

Bottle = 33.81 oz. ÷ 1.5 oz. per shot = 22.5 shots per bottle

Retail Price = $7 (per Shot) x 22.5 = $157.50 per bottle

Wholesale Price ($25) ÷ Retail Price ($157.50) = 15.87%

BV Cabernet

Wholesale Price per Bottle = $9

Bottle = 25.36 oz. ÷ 6 oz. pours = 4 glasses per bottle

Retail Price = $7 (per Glass) x 4 = $28 per bottle

Whole Price ($9) ÷ Retail Price ($28) = 32.14%

If at first you don’t hit the percentage you want, move the retail price up or down until you get it where you want

BLACK HOLE #5: OVER-STAFFING OR NOT PHASING FAST ENOUGH

Time is money, baby! If you have employees on the clock, they’d better be producing some sort of money-making result or it’s time to boot them to the curb for the day/night.

The truth is, for an owner, paying employees is one of the biggest expenses there is, especially with minimum wage going up all the time, and when you look at payroll every two weeks, you have to prepare yourself, lest you have a stroke right there in your office.

As you are most likely aware, staffing is a balancing act and an exercise in testing your sanity. You need the least amount of staff to provide great service and produce good labor costs.

As a general rule, labor paid should be less than 30% of the total revenue coming into the business, give or take, depending on the type of establishment you’re running and the expectations of the guests. Places expected to have high levels of service will need to staff more people, but of course they should be able to implement higher prices because of this as well.

I’m going to assume the scheduling in your place has been in place for quite awhile. You schedule the same amount of hosts, bussers, servers, bartenders and kitchen staff that you need for the appropriate day of week. Now it’s time to step back and see if it’s working.

You need to look at your nightly labor and revenues throughout the week and see if you are hitting that 30% or less mark. If you have some slower nights where you’re hitting 40 – 45%, it might be time to cut a server or a bartender for that night.

The main thing to remember on a daily basis is, if you’re managing, don’t sit there like a turd on a rock. Do your job, pay attention, and the second it slows down, start cutting servers and bartenders. This small daily action adds up to big percentages at the end of the month.

The last thing you can do to improve your labor to revenue numbers is to drill the upsell into your servers and bartenders. Do you want to add bacon/avocado/shrimp/chicken to your salad? Vodka/tonic? Sure, Grey Goose or Belvedere? The more revenue they bring in, the better their productivity, and that’s the name of the game with your employees: how much can they produce while on the clock?

BLACK HOLE #6:  POOR MENU CHOICES

I’ve spoken with a lot of owners, and it’s remarkable how similar their stories are when it comes to what they envisioned their bar/restaurant to be before they opened and what it actually looks like now. One of those common pre-visions is what they will serve, both for food and drink.

Many of them made the mistake of trying to please everyone, so they came out with a huge menu. But this simply overwhelms people and it causes spoilage in your kitchen because you have so many different food items that you can’t possibly sell them all.

Others picked certain foods that they feel passionate about, but have horrible cost percentages.

We’ve discussed pricing already, so right off the bat, no matter what you choose, you need to make sure the items on your menu are priced to hit that 30 – 35% mark, but as I just mentioned, certain types of foods make it very difficult to hit that mark. Though it varies from year to year, wings have always been one of the highest wholesale-cost food item for owners, which means sometimes you have to sell 8 wings for $16 just to hit the 30% mark.

My suggestion has always been to limit your menu as much as you can, while still having a good selection to appease a lot of people. Ok, that’s a bit paradoxical, but everything is a balancing act.

The real magic is if you can find multiple menu items that have the same ingredients which provides less chance for waste. That’s called smart planning, people.

So my advice to owners and managers is: you need to put together a food and drink menu that you care about and are passionate about, or there’s no point in owning or running your own place, but put on your smart cap before making any final decisions.

And math. Use math.

BLACK HOLE #7: A CRAPPY LIQUOR INVENTORY MANAGEMENT SYSTEM

You know when you do that thing where you poke a sleeping badger with a cattle prod and he comes snarling out of his hole like he’s ready to tear a hole in whoever woke him? Yeah, that’s me when I see a clipboard now.

Of course I’m a little biased on this subject as this is my area of expertise and the heart of my business, but if you’re still using a clipboard to take bar inventory, and using pour cost percentage to monitor how your bartenders are pouring, and worse yet, if you think your bartenders aren’t giving away the house, I’m not going to sugar coat it. You’re an idiot.

I’ve been in this industry 25 years, and I know a lot about helping bar/restaurant owners and managers, but the reason I narrowed my focus to this area is because more loss comes from bartender theft and negligence than any other area of your business, so I’m on a mission to change the industry. It’s not the 1800’s anymore where the owner walks in with his dusty chaps on and yells, “Drinks and whores on the house,” and then everyone starts cheering and shooting holes in the ceiling with their Colt revolvers because apparently were bullets were free back then and nobody cared that parts of the ceiling were falling on their heads.

We don’t have to worry about giving the latter away for free anymore, but despite it being the 21st century now, this custom of giving away alcohol hasn’t changed for a lot of places, and this is not a century where we can afford to have our employees give away stuff for free, because in this century, 85% of bars/restaurants fail.

I’m sure you’re aware of the stats. 25%. That’s how much bartenders over-pour/give away on average. That means every 4th drink is free. Do you know how much the retail industry loses? 1-2%. Because they have actual systems in place. Can you imagine the sales clerk at Macy’s giving away every 4th shirt?

Why are we such idiots? Why do we wait to change the system? We pay for utilities, labor, cleaning crews, and then the government takes 30%, plus you have payroll taxes. And now you’re going to allow your bartenders to take another 25% of your money?

What is it? Are you afraid to confront your bartenders? Then you shouldn’t be a manager. Are you afraid that people will stop coming in if you don’t allow the bartenders to hook them up? We don’t want those people in the bar anyway. They’re devouring your profits.

Back to clipboard liquor inventory and your pour cost % method. Your pour cost % tells you what your gross profit margin is. It does NOTHING to tell you what’s missing in your bar. And if you can’t show what’s missing, you can’t improve it because your bartenders know that they can’t be monitored properly.

Your liquor inventory system doesn’t need to be expensive. You don’t need real time data. Sure, it’s nice, but if you can just show the bartenders that you know what they’re doing, your numbers will VASTLY improve. You simply need a system that shows exactly what’s being poured vs. what the bartenders are ringing in to the POS system.

For instance, your bar inventory tracking system should tell you during the week, that 25 shots of Jack Daniels were poured, and then measure it against the sales data, which shows that only 15 shots were rang in. Now you know 10 shots are missing, at $7 per shot. You just lost $70, for one liquor. Show the bartenders that you know what’s going on this specifically and they will go rigid with surprise. Those who want to continue stealing will quit and go rape some other bar owner. But not you. Not anymore. Because you’re smart now.

Yes, I will shamelessly plug Bar Patrol App. It’s fast, it’s powerful, it’s cutting-edge, it’s easy to use and it’s affordable. Companies that are too nice to plug themselves don’t actually believe in their product. I believe in mine more than most because I came from this industry and I’ve seen the results and the smiling faces of the owners and managers I help.

However, if you don’t use Bar Patrol App, find something that monitors usage vs. sales data and get your bar on track to big profits. This is the biggest hole in your dam, and if you don’t do something about it, your business will soon be flooded with failure.

This final black hole, is the #1 BLACK HOLE IN ALL OF THE BARS IN ALL THE WORLD. PERIOD. 25% people.

25%

Cheers, until next time.

Dave

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