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Operations

10 Cardinal Sins that Cripple Good Operations

February 28, 2012 By: Robert Plotkin


As the adage goes, “When a man with money meets a man with experience, the man with the experience ends up with the money, and the man with the money ends up with the experience.”

Making mistakes is an inevitable consequence of gaining experience. For us fallible types, success can be defined as keeping mistakes to a minimum and the learning curve short and shallow.

That said, in every business exists a special class of mistakes that should be avoided like the plague, such as leaving an establishment unlocked at night. The list of capital crimes in the on-premise business encompasses every aspect of the operation — from serving boring drinks and mangling your relationship with the staff to being an inhospitable host and running an inexcusably loose ship. In an effort to shorten and shallow the learning curve, following are 10 critical errors beverage operators should avoid:

1) Loss of control. Running a bar requires making a significant investment in liquid assets, working capital that can disappear at an alarming rate. Failing to implement an effective inventory control system places at risk the capital you’ve invested in inventory. To be profitable, you need to know exactly what inventory you have, what you paid for it, at what rate you use it and exactly where it is at any point in time. A simple system of overlapping controls, referred to as “cradle-to-grave” accounting, is required. Cradle-to-grave accounting is an inventory system that tracks products from point of purchase to delivery/receipt, through the requisition process — which also involves recording comps, spills and transfers — until the end of the accounting period in which they’re depleted.

2) Not monitoring pour costs. One of the many truisms in this business is, “If you can’t measure it, you can’t manage it.” Nowhere is that truer than behind the bar. Determining your bar’s ongoing cost percentages — pour costs — reveals your profitability. As your cost of goods sold increases, gross profits diminish.

While tracking pour costs is fundamental, managing through pour costs alone is problematic. The inherent weakness with pour-cost analysis is it doesn’t take into consideration that products sell at different markups. Premium and super-premium products sell at a higher cost percentage than well brands, yet generate significantly more revenue and gross profit. For example, if your staff begins selling more drinks made with premium brands than well spirits, the bar’s pour cost will increase.

3) Shoddy products. A restaurant that doesn’t routinely change its menu always has plenty of open tables. The same is true about bars. Add some pizzazz to your beverage lineup. Shake up your specialty drinks. Change spices things up and helps keep your clientele interested.

Americans more frequently are opting for the good stuff. Surging premium spirits sales is the most significant mega-trend in the beverage business. Consumer expectations have changed. People today are looking for more from the drinking experience. To coin a phrase, “Americans are looking for better built drinks.”

4) Fiscal irresponsibility. Left unchecked, employee theft can reduce cash flow to a trickle. Bevinco, an international beverage auditing service, estimates that losses attributable to internal theft cost its clients on average 24% to 26% of gross sales. The very thought is enough to make seasoned managers wince.

Preventing it from happening is far from easy. Bartenders typically work for long stretches without direct supervision and are afforded autonomy in handling guest transactions. Their position requires them to portion inventory, prepare drinks and collect sales proceeds, all before recording a single detail into the operation’s point-of-sale.

Familiarity with how bartenders steal and knowing what to look for is management’s first line of defense. Sometimes theft is overt and undisguised, such as pouring heavy shots to receive bigger tips or stuffing cash sales directly into a tip jar. However, ploys like these are so easily detected they’re actually risky, so bartenders usually rely on less obvious schemes.

5) Not tracking productivity. Every other industry tracks employee productivity. Calculating sales per hour is easily done and is an enormously effective means of assessing employee effectiveness. Bar productivity is calculated by dividing the bartender’s gross sales by the number of hours he or she worked. After several weeks, it’ll become evident who on your staff are the sales leaders and who consistently fall short of the mark.

If a bartender’s sales per hour consistently fall below the staff average, five things are possible. He may work too slowly and literally can’t keep up with demand. He could make lousy drinks, so people don’t stick around for a second or third. His personality and attitude could be so off-putting that customers leave early, or his sales ability could be so unrefined that he consistently undersells. The last explanation is that he is stealing.

How do you know which it is? Take some time and observe. If the first four explanations don’t fit, the remaining explanation is the person is stealing from you. Regardless of the scam, theft takes a toll on productivity.

6) Alcohol disorientation. Increasingly, more people are socializing without alcohol. More than a passing fad, it is now part of the dynamics of our industry. There are numerous explanations, including stricter DWI laws, health concerns, caloric content and personal preference.

In addition to increased consumer demand, another reason to market alcohol-free products is that they command profit margins equal to or greater than their alcohol counterparts. Their sale incurs no third-party liability and precipitates no service-related problems. From a management standpoint, alcohol-free marketing makes great sense.

7) Weak links. Your business is only as strong and vital as your weakest employees, and what they don’t know can hurt you. Simply put, training is a dollars-and-cents issue. If bartenders and servers are insufficiently trained, every aspect of the operation suffers. Consider the ramifications of servers who aren’t familiar with the menu or bartenders who don’t know the products on the backbar or aren’t comfortable cutting someone off. This just begins to scratch the surface of the things your staff needs to know.

The most advantageous course is to institute a continuous training program. With turnover and the natural effects of time, the benefits of initial training decrease dramatically. Bartenders often get complacent and begin taking liberties with portioning or deviate from stated procedures. Inevitably these breeches exact a toll.

8) No suds control. According to recent figures compiled by the Beverage Information Group, beer accounted for nearly half of all beverage alcohol sold on-premise in 2008 with 35% of those sales coming straight from the spigot. Growing consumer demand for draft beer has boosted its sales 17.6% over the last 5 years.

In a perfect world, every ounce of draft beer you purchased would be dispensed and sold. However, industry figures reveal that operators lose roughly 23% of the draft beer they purchase because of over-pouring, giveaways and theft, which equates to nearly one out of every four kegs. Factor in the lost potential revenue that draft beer would have generated, and you’re looking at a significant hit. It’s difficult to remain successful under those circumstances.

9) Not monitoring labor costs. Payroll is the largest reoccurring expense after cost of goods sold. Consider how effectively you use your bar staff. One chronic problem is not scheduling enough people to handle expectedly busy shifts. Running with a skeleton crew when the establishment is busy undoubtedly will cost you sales, cost the bartenders gratuities and cost the clientele the level of hospitable service they have come to expect. Understaffing is expensive, far exceeding any savings in payroll. Another concern is “riding the clock,” which refers to employees purposely taking longer to break down the bar and perform their closing duties.

Labor-cost percentage measures the relationship between payroll expense and gross sales. To determine a shift’s labor-cost percentage, total the payroll for the employees working the shift in question. Compare the number of hours your employees actually clocked-in with the number of hours they were scheduled. The process will improve your ability to forecast scheduling requirements and afford you an opportunity to investigate any discrepancies.

10) Ill-devised playbook. Get drafted into the NBA, and you’re handed a playbook. Get hired as a bartender or food server, and all you’ll likely get are a few training shifts and a printout of house policies. In today’s litigious society, that’s far from adequate.

Being an employer is fraught with legal liability. Make a mistake and you could find yourself on the wrong end of a civil lawsuit. Suits for wrongful discharge, sexual harassment and racial discrimination are among the most prevalent employment-related litigation with judgments averaging in the six-figure range.

The first line of legal defense is a comprehensive, well-structured employee handbook that clearly defines the employees’ job descriptions and areas of responsibilities as well as all of the operation’s policies and procedures. Without it, legally holding employees accountable for their actions is practically impossible. 


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