Kick Start Your Bar Into Greater Profits
by Robert Plotkin
As a phrase, the bottom line has come to mean the final measure of an enterprise's financial success. In the everyday give and take of business, the bottom line is the rendered outcome of our trial by fire.
The final consideration for any business is profitability. Profits do not happen by chance. They must be carefully extracted out of the business. Profits need to be cultivated and are sustained only through diligence and perseverance. Of the various factors affecting profitability, none can be controlled more effectively than cost, and no where is this more evident than behind the bar.
One commonly held misconception is that the most crucial factor in generating beverage profits is gross sales. While revenue is critical, if beverage costs are not held in check, there will be little or no profits to deposit in the bank account.
While challenging, controlling beverage costs can have a significant payoff. For example, if your annual beverage sales are $500,000, shaving just two points off your cost will yield a return of $10,000 in savings, profits that could have gone down the drain, down someone's gullet, or out the back door in someone else's pocket.
Reversing losses and reaping the benefits of profitability are imperative to business survival. What you need is a plan. What you need is control.
Pouring for Profit
In the ongoing struggle to achieve a balance between cost and sales, keeping a finger on your bar's financial pulse is best accomplished through analyzing your cost percentages. Pour cost - jargon for cost percentage - is a reliable indicator of profit/loss performance. Pour cost is obtained by dividing the cost of depleted inventory by the gross sales generated over a given period of time. Because liquor, beer and wine sell at radically different cost percentages, each must be calculated separately for the process to have true significance.
How often you calculate the bar's pour cost is an important decision. There are establishments that take physical inventories and formulate pour cost daily. Others do so on a weekly, biweekly, or monthly basis. The shorter the amount of time between physical audits, the more insight you'll receive into your business. The higher the operation's volume, the more frequently you should take physical audits. If a problem does exist, the sooner it is discovered, the sooner it can be dealt with.
A liquor pour cost of 18.3% means that it cost a little more than 18 cents to generate a dollar of liquor sales. It also means that the gross profit margin is 81.7%, or just under 82 cents per dollar of sales.
Most operators look for a liquor pour cost percentage in the high teens. The higher the percentage, the lower the profit margin. However, determining pour cost is only half the equation. Knowing the bar's pour cost is 19%, for example, isn't nearly as revealing as learning that it's up two points to 19%. The direction it's heading is of equal importance.
Large fluctuations in pour cost percentage signal trouble. A swing of one or two points in either direction should trip an alarm. Costs typically shouldn't deviate more than a point between inventory periods. However, when pour cost increases, an explanation needs to be found.
No two beverage operations are the same. A pour cost of 18.3% could be cause for elation or alarm depending on its relationship to the bar's previous performance. Perhaps the single constant in pour cost is that every operator would like to see it move lower; every percentage point it decreases, gross profit increases by the same amount.
Unless your bar has attained peak performance and efficiency, adopt the attitude that there's always room for improvement. Determine what your optimum pour costs should be. Use those as your target percentages and don't be content until you hit your mark. The result will be a more profitable operation.
Plugging Profit Drains
In the face of rising costs, drink portioning is one of several areas of concern. Consider the margin-robbing practice of over-portioning. A bartender who pours 1 1/4 ounces of liquor into a mixed drink instead of the prescribed one ounce increases the drink's cost by 25%. In addition, the alcohol potency of the drink is increased by the same percentage.
Hold bartenders accountable for the accuracy of their measures. Whether your staff free pours or uses a hand-held jigger, attaining consistency of product and safeguarding your profit margin will be an ongoing challenge. Routinely check your bartenders' abilities. Have them pour several different measures into empty glasses. Then use a graduated jigger to gauge their accuracy.
To further ensure consistency, test your bartenders and cocktail waitresses on drink prices and recipes, then follow-up with quarterly evaluations. Cost percentages go right out the window if your employees overpour or charge the wrong drink prices. Tests and evaluations are an excellent way of letting your staff know you're serious about consistency and controlling costs.
Sometimes prosaic changes can have a positive effect. For example, wine costs may drop significantly when large glasses are replaced with smaller ones. In a larger glass, a six ounce portion of wine looks insufficient. The same explanation is behind why a seven ounce rocks and nine ounce highball are standard bar service glassware. When properly iced, each delivers a sufficient portion for the buck.
When was the last time you and your staff reviewed the bar's price list? Most price lists contain a fair amount of omissions, oversights , contradictions, and brain teasers, all of which, in the long run, cost you money. Is the price list compiled in an easy-to-use format? Is the list accessible?
Managing Through Beverage Technology
The computer age has arrived behind the bar, and for many, it comes just in time. Microprocessors and computer chips are now primed and ready to wrench order out of chaos, changing forever the way the bars do business.
If it's true that knowledge is power, then the Berg CompanyLiquor Control Systems are the ultimate weapons. These revolutionary systems make total accountability behind the bar a reality. They are designed to tell you more about the profitability of your beverage operation than was ever before feasible, using software technology that didn't even exist a few years ago.
The Berg Company, the leader in control technology, offers two advanced control systems, each of which make dispensing alcohol more precise and less vulnerable to theft. The All-bottle System is an ingenious liquor control system that can dispense an unlimited number of products using a unique ring attachment; a collar-like device that couples with specially designed pour spouts that deliver multiple portions of liquor with computer accuracy. Unless the activator ring is attached, the spouts won't pour, making overpouring liquor and selling unrecorded drinks a thing of the past.
The system is completely unobtrusive to the operation. It's fast, and extremely easy to use. The bartenders use a conventional pouring motion, and your customers seated at the bar see the brand they ordered is actually what is being poured. It requires no complicated installations or pressurized lines. The compact control monitor and activator ring are easily mounted under-bar by each bartender's work station.
Another benefit of the system is the immediate access you'll have to point-of-sale information. The system is also capable of interfacing with your electronic cash register or point-of-sale system so every drink poured is accounted for and the correct price is charged. At the end of a shift, all the operational data from each system downloads into your computer, providing you with a detailed sales report of exactly what was poured and at what price.
Operators looking for a comprehensive liquor management program should take the Berg Laser Liquor System for a spin. Its sleek dispenser gun pours extremely fast and accurate measurements, operates simultaneously with various price lists and portion sizes, and can accommodate up to 16 brands of liquor stored in a secure, remote location as much as 500 feet away. The system allows for the use of 1.75 liter bottles, thereby increasing the potential savings. The dispenser can also pour up to 48 pre-programmed cocktails, each prepared precisely according to your specified recipes.
The Laser System provides the height of efficiency and accountability. Each product is accurately portioned and immediately registered into a point-of-sale system. The Laser System increases bartender productivity while reducing spillage, overpouring and essentially eliminating all windows of vulnerability. The system is entirely programmable and fully compatible with Windows. It does not required a dedicated computer, thereby freeing your PC for other activities while the Berg software is crunching numbers in the background. The software accommodates numerous pricing structures for special events, such as happy hour, or promotional events, and will even shut off the Laser dispenser at a pre-programmed time.
The system typically lowers costs and increases profits to such a degree that the initial investment can be recouped within the first year.
Soaking More Profits From Your Suds
In a perfect world, every ounce of draft beer you purchased would be dispensed and sold. As it is, one national survey found that on average one out of every five kegs of draft beer is lost due to over-pouring, giveaways, pilferage, or ends up poured down the drain. Losses average roughly 400 ounces per keg at a retail value of between $40 to $50 per barrel.
Here again technology has provided the solution. The Berg Company markets a cost-effective draft beer control system capable of eliminating those losses by accounting for every ounce of draft beer dispensed. The Berg Tap 2 System relies on state-of-the-art flow meters that monitor and record the volume of draft beer flowing though each feed line. It can be programmed to dispense up to eight portion sizes, each with the prescribed amount of foamy head. The system effectively compensates for fluctuations in line pressure and flow rates.
The Tap 2 System not only monitors the dispensing of the beer, its microprocessor issues a report for each featured brand, detailing the number of servings at each price level. It also extends the ounce cost of the beer by the amount of beer dispensed to arrive at the shift's cost of goods sold. The cost figure is then used to arrive at the exact cost percentage, providing an invaluable and previously unavailable means of verifying the profitability of your draft beer sales.
Be forewarned though: in the pursuit of cost control, don't succumb to the temptation to be preoccupied with percentages. You can't run a successful business without controls and profits, but this is a people- oriented business. Hospitality and customer satisfaction will always be key.
Reprinted with permission from Robert Plotkin
Robert Plotkin is the chief contributing editor of the American Mixologist Newsletter and author of numerous books on bartending and beverage management including Reducing Bar Costs: A Survival Plan for the '90s.
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