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Cost Controls

10 Common Errors That Drain Beverage Profits

April 23, 2013 By: Aaron A. DeFeo


Often times, it’s the little things that end up causing bars and restaurants to fail.  Here’s a list of ten common mistakes, errors, and overlooked areas that can quickly turn a bar’s finances into a nightmare.

1. Choosing the wrong (or mismatched) Pour Spouts – Brand, shape, speed, size, quality. Many spirit brands—even ones commonly found in speed racks—have oddly-sized mouths on their bottles, and even though the pour spout may appear to fit snugly, you can lose up to a quarter of an ounce each pour if you aren’t careful about leakage. But first, make sure you’re using a quality pour spout. I recommend the Spill-Stop 285-50 black and chrome model.

How to fix it:

  • You may need to ditch the pour spout on certain liquor brands, and jigger pour only.
  • Make sure to soak all of your pour spouts in hot water before use, and then every week after that.  This will keep the rubber expanded, pliable, and formed—thus creating a better seal in the neck of the bottle.  It may be necessary to buy a separate, larger model of the 285-60 for big-mouth bottles such as Don Julio.
  • Time and test your spouts for consistency, accuracy, and defect.  A perfect 1.5 oz pour can be achieved with the 285-50 using a six-beat count, with each beat being a quarter ounce.
  • Use ONE standard type of pour spout. You don’t want your bartenders to have to change their count systems every time they pick up a bottle.

2.  Stocking mammoth glasses behind the bar (huge martini/cocktail glasses) – Gone, for the most part, are the days of the gargantuan 32 oz margarita glasses—but some bars still employ large, attractive cocktail glasses that encourage bartenders to over-pour in order to compensate.   If bartenders are consistently coming up short with their recipes, they will do what they have to in order to keep the customer happy. 

How to fix it:

  • Keep your glassware within reasonable size… no one needs to stock a martini or cocktail glass over 8 oz. 
  • Likewise, why have a Collins glass that is 15 oz?  A standard Collins recipe has about 5 oz of liquid in it; that should be fine for a 12 oz glass with ice.  No one needs 8 oz of booze in a drink. 
  • Train your bartenders on standardized, balanced cocktail recipes and insist that they use the correct glassware to make those drinks (i.e. don’t let them put every drink they make into a pint glass).

3.  Failure to review invoice changes – The liquor business—pricing, in particular—is extremely fluid and subject to mind-blowing changes overnight.  Many distributors favor the technique of offering a product at a much higher frontline price, and then adding commensurate value through free goods.  This doesn’t always work in your favor, especially if you run a smaller establishment.  Similarly, you could be selling Product A for months at a price way lower than it should be, because you assumed that you were receiving it at $20.00, when in fact it was $26.00.  After about a week, many distributors are prohibited by policy or law to make any returns, exchanges, or further adjustments.

How to fix it:

  • Invoices should be reviewed at the time of reception, and also the day afterwards to insure that all deals, best pricing is achieved.

4.  Arbitrarily pricing—and undervaluing—inventory – Know your market and your establishment.  The liquor business is not just an art or a craft… it’s also a business.  Business demands a profit, and one sure-fire way not to make one is to undervalue your inventory.  Countless bars across America serves drinks that are priced without rhyme, reason, or consideration of margin or cost.  Each and every item and its price must be approached with the welfare of the business in mind; however, you must also consider the value that you offer your customers.  Bars in lower-income demographics need to make sure not to price themselves out of the neighborhood, but should look to get every penny of return possible.

How to fix it:

  • Take note of what your competition is pricing their products at, and take note of what your expected COGS percentages are, and make calculated decisions on how to create your pricing structure (and stick to it).  By all means, offer specials and features, but don’t get carried away with pricing new products lower just because you don’t think they’ll sell well.  If you don’t think they're going to sell, and you can’t sell them for what they are worth, then why are you carrying them?  Too often establishments arbitrarily price a product without doing the actual math on the cost percentages, and over time (and with enough products) this can erase profits.
  • If you do not use a POS system, train your staff on the correct, up-to-date pricing of all the drinks.  If need be, keep laminated pricing sheets near the cash register to avoid confusion.  Regularly audit their actions to make sure they aren’t undercharging for your top-shelf products.

5.  Providing an inaccurate POS system – What’s the point of spending money on a POS system if it isn’t correct?  You might as well just drag out the old-school cash registers and hand-written checks and save yourself $25,000.  A well-configured, accurate POS system can provide invaluable product mix data and increase register receipts. In other words, do what it's supposed to do.  An inaccurate POS will be the bane of your staff’s existence, and will end up costing you your sanity as well as any profit you might've made. 

How to fix it:

  • Ensure that all of your items are in the system and correctly priced, and eliminate any reason for employees to use “open liquor” items.
  • Train management staff to use the back of the house POS access and have them review Product Mix data on a nightly basis to look for irregularities, but also to get a better snapshot of how the business actually works.  Make updating the POS a daily part of every manager’s job.
  • Select an easy-to-program POS system like the new iPad-based Breadcrumb POS or, for those who have more experience, a tried-and-tested system like Aloha.

6.  Improper recording of spillage – Without tracking waste, bar managers and owners have no way to determine where they are losing money.  This phantom percentage, if it goes unchecked, can cause businesses to continue bad practices and leak money without recourse.

How to fix it:

  • It’s easy to remedy this one if you have a POS; simply ring in the items that get wasted.  If you don’t use a POS, then a detailed waste spreadsheet (with cost per unit) needs to be created and kept at all points of sale.

7.  Bad Specials – In this day and age, it is no longer feasible to run “$2 U-Call-It” specials.  The pour cost on most liquor these days is in excess of $0.60 a shot, and your average beer is well over $1.00 per pint.  These costs render profit margins during those “loss-leader” times are nearly non-existent, and they only bring in ultra-frugal clientele who won’t be good for your business the rest of the time.

How to fix it:

  • Look to offer specials that discount premium products and appeal to the widest variety of your customers.  Also, try and make sure you aren’t losing money on them.  A good return of profit on a special should be at least $2.00

8.  Over-garnishing – In bars that serve a large quantities of “micheladas” and Bloody Mary type cocktails, over-garnishing can be a serious drain on finances.  Unbelievable as it seems, a single maraschino cherry or olive can cost owners $0.14-$0.17, which is more than some bars pay per oz for their well liquor. This can add up quickly.

How to fix it:

  • Don’t let your customers graze on the fruit trays
  • Create an upcharge for extra olives, cherries, cocktail onions etc.  They aren’t free bar snacks, and should not be treated as such.

9.  Failure to factor non-alcoholic product cost into pricing – Energy drinks, ginger beer, fresh juices, purees… the bar world is awash in these great additions to any drink—but at a cost.  An average energy drink costs between $1.25 and $1.50 for an 8-ounce can, meaning that you’ll likely only get two servings out of each can.  That is more expensive than the liquor that is going into the drink.  If you fail to charge appropriately for these additions, you’ll soon find your profit margins disappear… you might even end up losing money on a specials night.

How to fix it:

  • Individually cost out your mixers by the ounce, determine how much of each will be going into drink recipes, and develop an ideal profit margin on each serving.  Then charge for it.

10. Habitually Under-staffing – This is a problem that it seems nearly every bar goes through during some phase of its existence.  Many bars try and cut payroll, seeing it (rightfully) one of the most crucial costs to control.  But understaffing can have an even more negative effect; without the appropriate staff, you simply cannot make the money you should be making.  Customers will walk away unhappy in droves.

How to fix it:

  • Make a calendar of last year’s sales and use it when scheduling to determine what you should expect this year.
  • Staff heavier then cut appropriately.  You never know when you could get popped.

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