Food & the Bar Part IV: The Numbers
In the first three parts of this four part series we looked at the benefits of offering small plates at your bar, creating and executing effective and efficient small plates menus and the opportunities that exist to increase sales and profits by pairing small plates and cocktails. In this fourth and final installment we will examine some financial implications that will inform the strategies you employ in your own establishment.
I mentioned in the first two installments of this series that it was mostly about offering food in bars, establishments with a primary focus on beverages. The limited, varied, interesting, reasonably-priced small plates menus I proposed are designed to get patrons to eat more so that they drink more. They are also designed to account for the limited space, capital, and staff expertise common to these operations.
Your operation might instead include a large menu and the space, staff and financial commitments required to execute it. Although the prescription below doesn’t fit your situation exactly, read on. Some of the facts, figures and observations are useful for you to consider when planning for yourself.
A Means to an End
Regardless of the kind of establishment you are running, your goal should be to sell more beverage. You should also be trying to sell more food, but really only if it results in your customers drinking more…kind of like an upsell. The reasons for this should be pretty obvious. Even if you don’t know the numbers exactly, you are certainly aware that the margins on beverages, especially cocktails, are significantly higher than the margins on food. Selling more food is a means to selling more beverage. Selling more beverage is the ends. This is especially true if you operate a bar. The numbers bear this out.
Dollars and Cents
You can apply your exact numbers to this analysis. For this example I’ll use some numbers that are pretty standard for the industry. We’ll therefore use a cost of goods sold for food of 30% and a cost of goods sold for beverage of 20% (a blended number for beer, wine and spirits). Right off the bat, beverage sales result in $10.00 more profit for every $100.00 in sales. Other cost factors associated with each category of have a further significant influence on net profit.
Food requires lots more work than beverage to go from ingredients to meal. The work in the kitchen to accomplish this transformation is applied by multiple expert staff earning relatively high salaries and hourly wages. The food is highly perishable. The space and equipment necessary to prepare and store is large and expensive.
Beverages require less work than food to go from ingredients to drink. The work is performed by a lesser number of expert staff who are paid relatively low wages supplemented by tips. The product is perishable, but certainly not highly perishable. The space and equipment necessary to prepare and store is relatively smaller and includes many fewer pieces of expensive equipment.
The result? Not counting fixed costs, $100.00 in food sales will result in a net profit of about $20.00 while $100 in beverage sales will result in a net profit of about $70.00. Here’s what that looks like.
|Category||Sales||Total Cost||Net Profit|
So that’s what food sales look like compared to beverage sales. Here’s what they look when they result in higher beverage sales…and they do. In an earlier article I referenced Jon Taffer’s observation that patrons who are eating will stay in your bar for about an hour extra and can be expected to consume one or two more drinks during that hour. That turns a two hour stay into a three hour stay and results in a 50% increase in beverage sales volume. Hence, the menu that you offer should be designed to entice your guests to eat and to stay and to drink more. Here’s what that looks like!
|Nature of Sale||Sales Food||Net Profit||Sales Bev.||Net Profit||Total Profit|
|Food and Drinks||$100.00||$20.00||$150.00||$105.00||$125.00|
Not all of your guests will stay longer because you offer food. But your effort should be focused on making that happen. The food you offer should fit your concept, be interesting and provide value – especially provide value. You don’t have to lose money on the food you sell, but you should do everything you can to keep your customers in your establishment and drinking.
Part one of this four part series can be found here - Food and the Bar Part I: Increasing Profits with Small Plates
Part two of this four part series can be found here - Food and the Bar Part II: Increasing Profits with Small Plates – A How-to
Part three of this four part series can be found here – Food and the Bar Part III: Increasing Profits with Food & Cocktails Pairings
Back by popular demand Author & Professor Brian Warrener will once again be presenting at the 2016 Nightclub & Bar Show. Join our mailing list to make sure that you receive all of the show updates here.