Copyright BarProfits 2010 Successful Beverage Management — Proven Strategies for the On-Premise Operator Part Three: Safeguarding Every Ounce of Profit LAS VEGAS NIGHTCLUB & BAR SHOW MARCH 2010 Presented By: JACK ROBERTIELLO Beverage Writer/Former Editor of Cheers Magazine, Drinks Ink ROBERT PLOTKIN Author/Beverage Management Consultant, BarMedia

Copyright BarProfits 2010 How Much Profit is There in Cutting Beverage Costs? Gross Beverage Sales $ 750,000 Beverage 29%- $ 217,500 Gross Profit = $ 532,500

Copyright BarProfits 2010 Gross Beverage Sales $ 750,000 Beverage 24%- $ 180,000 Gross Profit = $ 570,000 How Much Profit is There in Cutting Beverage Costs?

Copyright BarProfits 2010 How Much Profit is There in Cutting Beverage Costs? Gross Beverage Sales $ 750,000 Beverage 29% - $ 217,500 Gross Profit =$ 532,500 Gross Beverage Sales $ 750,000 Beverage 24%- $ 180,000 Gross Profit =$ 570,000 Difference in Gross Profit + $ 37,500

Copyright BarProfits 2010 Analyzing cost percentages is crucial to sustaining beverage profitability Pour cost is a fundamental managerial control and form of analysis It reveals the relationship between cost of goods sold and gross sales Pour Cost Analysis — If You Can’t Measure It, You Can’t Manage It

Copyright BarProfits 2010 Liquor Pour Cost Analysis Example 1 Beginning Liquor Inventory $ 9,714 Liquor Purchases+ $ 4,580 Adj. Beginning Liquor Inventory= $ 14,294 Ending Liquor Inventory $ 8,946 Complimentary Drinks+ $ 58 Spillage & Waste+ $ 26 Transfers+ $ 16 Adj. Ending Liquor Inventory= - $ 9,046 Liquor Cost= $ 5,248 Gross Liquor Sales÷ $ 31,720 Cost Percentage= 16.5% Pour Cost Analysis — If You Can’t Measure It, You Can’t Manage It

Copyright BarProfits 2010 Beginning Liquor Inventory $ 20,594 Liquor Purchases+ $ 5,897 Adj. Beginning Liquor Inventory = $ 26,491 Ending Liquor Inventory $ 20,519 Complimentary Drinks+ $ 168 Spillage & Waste+ $ 29 Transfers+ $ 50 Adj. Ending Liquor Inventory= - $ 20,768 Liquor Cost= $ 5,723 Gross Liquor Sales÷ $ 25,211 Cost Percentage= 22.7% Pour Cost Analysis — If You Can’t Measure It, You Can’t Manage It Liquor Pour Cost Analysis Example 2

Copyright BarProfits 2010 Pour Cost Analysis — If You Can’t Measure It, You Can’t Manage It Liquor Pour Cost Analysis Example 2 [-$250] Beginning Liquor Inventory $ 20,594 Liquor Purchases+ $ 5,897 Adj. Beginning Liquor Inventory = $ 26,491 Ending Liquor Inventory $ 20,519 Complimentary Drinks+ $ 168 Spillage & Waste+ $ 29 Transfers+ $ 50 Adj. Ending Liquor Inventory= - $ 21,018 Liquor Cost= $ 5,573 Gross Liquor Sales÷ $ 25,211 Cost Percentage= 21.7%

Copyright BarProfits 2010 Pour Cost Analysis — If You Can’t Measure It, You Can’t Manage It Liquor Pour Cost Analysis Example 2 [+$1,143] Beginning Liquor Inventory $ 20,594 Liquor Purchases+ $ 5,897 Adj. Beginning Liquor Inventory = $ 26,491 Ending Liquor Inventory $ 20,519 Complimentary Drinks+ $ 168 Spillage & Waste+ $ 29 Transfers+ $ 50 Adj. Ending Liquor Inventory= - $ 21,018 Liquor Cost= $ 5,573 Gross Liquor Sales÷ $ 26,355 Cost Percentage= 21.7%

Copyright BarProfits 2010 To lower this pour cost from 22.7% to 21.7%, liquor cost would need to drop $250 Liquor Cost Gross Liquor Sales ÷ $ 25,211 Cost Percentage … or liquor sales will need to increase by $1, Liquor Cost$ 5,723 Gross Liquor Sales Cost Percentage Liquor Pour Cost Analysis $ 5,473 = 21.7% ÷ $ 26,355 = 21.7% Pour Cost Analysis — If You Can’t Measure It, You Can’t Manage It

Copyright BarProfits 2010 Although a standard business practice, pour cost does have its shortcomings Pour cost largely ineffective at detecting theft; catches about 1 out of 4 scams Pour cost is only affected by over-pouring and theft of unrecorded sales Pour Cost Analysis — If You Can’t Measure It, You Can’t Manage It Pour Cost Analysis — Shortcomings

Copyright BarProfits 2010 Pour cost is ineffective at detecting short-pouring schemes Bartender under portions 4 drinks by 1/4-ounce to create surplus shot of liquor Bartender is then free to sell the surplus liquor and pocket the cash proceeds Scam often facilitated by top-pouring liquor on top of other drink ingredients Business loses a cash sale, while clientele suffer with improperly prepared drinks Pour Cost Analysis — If You Can’t Measure It, You Can’t Manage It Pour Cost Analysis — Shortcomings

Copyright BarProfits 2010 Pour cost is ineffective at detecting substitution schemes Substitutions victimize guests ordering drinks made with premium brands Bartender makes drink with lesser product, yet charges guest premium price Bartender will enter the sale as a well or call and pockets the difference Pour cost unaffected; shot of well liquor poured & sale entered at well price Pour Cost Analysis — If You Can’t Measure It, You Can’t Manage It Pour Cost Analysis — Shortcomings

Copyright BarProfits 2010 Pour cost is ineffective at detecting product tampering Tampering with the inventory behind the bar creates a bonanza for the staff Example — bartender sells 16 drinks at $5 each and pockets the $80 cash Later he adds 16-ounces of water to a number of the well bottles Replacing the liquor stolen with an equal volume of water, pour cost remains unaffected Same results realized if a pint of inexpensive vodka is smuggled behind the bar Pour Cost Analysis — If You Can’t Measure It, You Can’t Manage It Pour Cost Analysis — Shortcomings

Copyright BarProfits 2010 Successful management requires tracking crucial cost information on on-going basis There are 5 pieces of information fundamental to managing your business 1. Cost of liquor, beer, wine and alcohol-free beverages depleted from inventory 2. Liquor, beer, wine and alcohol-free combined monthly sales 3. Liquor, beer, wine and alcohol-free combined cost percentage 4. Beverage operation’s gross profit 5. Beverage operation’s combined gross margin Beverage Operation Cost Analysis — The Information You Need To Succeed

Copyright BarProfits 2010 Category Month Cost Month Percent Month Sales Month Percent Gross Profit Gross Margin Liquor$ 5, %$ 31,72043%$ 26, % Beer$ 5, %$ 17,76124%$ 12, % Wine$ 4, %$ 12,54017%$ 7, % Alcohol- free $ 2, %$10,98015%$ 8, % Food$ 1, Month Totals ---- Beverage Operation Cost Breakdown $18,877 $73, %$54, % Beverage Operation Cost Analysis — The Information You Need To Succeed

Copyright BarProfits 2010 F&B only industry that doesn’t assess employee performance by sales/hour Monitoring the bar staff’s productivity crucial to cost control efforts It’s also management’s most effective countermeasure against theft Tracking productivity detects all types of theft of cash and product behind the bar Productivity Analysis — Measuring More Than Staff Output

Copyright BarProfits 2010 DateNameDay/ShiftSalesHrsSales/Hr 2/07JimThurs/PM$ $ 134/hr AdamThurs/PM$ $ 161/hr 2/14JimThurs/PM$ $ 123/hr AdamThurs/PM$ $ 145/hr 2/21JimThurs/PM$ $ 120/hr AdamThurs/PM$ $ 151/hr 2/28JimThurs/PM$ $ 106/hr NeilThurs/PM$ $ 146/hr 3/07JimThurs/PM$ $ 115/hr AdamThurs/PM$ $ 151/hr 3/14JimThurs/PM$ $ 125/hr AdamThurs/PM$ $ 150/hr 3/21JimThurs/PM$ $ 137/hr NeilThurs/PM $ $ 159/hr Productivity Analysis — Measuring More Than Staff Output

Copyright BarProfits 2010 DateNameDay/Shift SalesHrsSales/Hr 2/07JimThurs/PM $ $ 134/hr AdamThurs/PM $ $ 161/hr 2/14JimThurs/PM $ $ 123/hr AdamThurs/PM $ $ 145/hr 2/21JimThurs/PM $ $ 120/hr AdamThurs/PM $ $ 151/hr 2/28JimThurs/PM $ $ 106/hr NeilThurs/PM $ $ 146/hr 3/07JimThurs/PM $ $ 115/hr AdamThurs/PM $ $ 151/hr 3/14JimThurs/PM $ $ 125/hr AdamThurs/PM $ $ 150/hr 3/21JimThurs/PM $ $ 137/hr NeilThurs/PM $ $ 159/hr Productivity Analysis — Measuring More Than Staff Output

Copyright BarProfits 2010 DateNameDay/ShiftSalesHrsSales/Hr 2/07JimThurs/PM$ $ 134/hr AdamThurs/PM$ $ 161/hr 2/14JimThurs/PM$ $ 123/hr AdamThurs/PM$ $ 145/hr 2/21JimThurs/PM$ $ 120/hr AdamThurs/PM$ $ 151/hr 2/28JimThurs/PM$ $ 106/hr NeilThurs/PM$ $ 146/hr 3/07JimThurs/PM$ $ 115/hr AdamThurs/PM$ $ 151/hr 3/14JimThurs/PM$ $ 125/hr AdamThurs/PM$ $ 150/hr 3/21JimThurs/PM$ $ 137/hr NeilThurs/PM $ $ 159/hr Productivity Analysis — Measuring More Than Staff Output

Copyright BarProfits 2010 Jim worked 7 shifts and generated an average $123 sales per hour Adam worked 5 shifts and generated an average $152 sales per hour Neil worked 2 shifts and generated an average $153 sales per hour Weekly Staff Average —14 PM shifts generated average $144 sales per hour Productivity Analysis — Measuring More Than Staff Output

Copyright BarProfits 2010 Explanations for a Continued Low Productivity: The bartender is too slow to keep up with sales demand The bartender’s poor drink-making abilities lessens demand The bartender’s service abilities and personality are off-putting The bartender is giving away unrecorded drinks or stealing proceeds Productivity Analysis — Measuring More Than Staff Output

Copyright BarProfits 2010 Operators lose an estimated 24%-26% of their inventory due to bar staff theft As the recession drags on, safe to presume theft behind the bar will increase Left unchecked, theft can also reduce cash flow to a trickle Preventing Internal Theft — No Bar/Restaurant Avoids Getting Ripped Off

Copyright BarProfits 2010 Why is bar staff theft such a widespread problem? Bartenders typically work for long stretches of time without direct supervision They’re afforded autonomy in handling guest transactions at the bar Bartenders portion inventory, prepare drinks and collect sales proceeds They do all of this before recording a single detail into the point-of-sale Preventing Internal Theft — No Bar/Restaurant Avoids Getting Ripped Off

Copyright BarProfits 2010 Unrecorded sale proceeds are a significant target of opportunity Bartenders likely to use the cash drawer as the repository for stolen proceeds Removing cash drawer after last call deprives bartenders golden opportunity Forces bartenders to risk withdrawing unrecorded cash while bar still open Reconciling the drawer and preparing deposit by bookkeeper following day Preventing Internal Theft — Management Countermeasures

Copyright BarProfits 2010 Implement mid-shift cash drawer audits: Mid-shift cash drawer audits heighten risks involved stashing the cash Run sales report and replace the bar’s cash drawer with a fresh bank Be unpredictable about when the cash drawer audit is taken Periodically take mid-shift readings twice in one night Preventing Internal Theft — Management Countermeasures

Copyright BarProfits 2010 “Over or under” cash drawer counts: Typically operators are most concerned about tills being “under” Unfortunately that point of view overlooks the much larger issue There are numerous legitimate explanations for cash being “under” There’s no legitimate explanation for a cash drawer being “over” Preventing Internal Theft — Management Countermeasures

Copyright BarProfits 2010 Prohibit two-way tip jar transactions: The bar’s tip jar is the other primary repository for stolen cash Prohibit two-way tip jar transactions — money stays in until cash drawer removed Prohibit bartenders from making change for guests out of their tip jar Prohibit bartenders from exchanging small bills for larger denominations Move the tip jar away from the POS; better exposes what’s happening Preventing Internal Theft — Management Countermeasures

Copyright BarProfits 2010 Consistency of product is a cornerstone of the on-premise business Drinks should taste the same regardless of the night or who’s behind the bar Loss of consistency leads to fluctuating costs and hit-or-miss drinks Ascertain what recipes your bartenders are pouring by giving them a test Ask bartenders to provide recipe and price for most frequently requested cocktails Increase Profits by Standardizing Drink Recipes

Copyright BarProfits ½ oz. 100% Agave Reposado Tequila$1.03 ½ oz. Cointreau+ $.65 ½ oz. Grand Marnier+ $.61 ½ oz. ruby red grapefruit juice+ $.09 1 ½ oz. fresh lime sour mix+ $.26 Drink Cost= $2.64 What Affect Does Chaos Have On Your Bottom Line? Increase Profits by Standardizing Drink Recipes Signature Margarita — The House Version $2.64 drink cost ÷ $10.00 sales price = 26.4% cost percentage $10.00 sales price - $2.64 drink cost = $7.36 gross profit

Copyright BarProfits 2010 What Affect Does Chaos Have On Your Bottom Line? Increase Profits by Standardizing Drink Recipes 1 ¾ oz. 100% Agave Reposado Tequila$1.44 ¾ oz. Cointreau+ $.98 ¾ oz. Grand Marnier+ $.91 ½ oz. ruby red grapefruit juice+ $.09 1 ½ oz. fresh lime sour mix+ $.26 Drink Cost= $3.68 Signature Margarita — The Bar Staffs’ Version $3.68 drink cost ÷ $10.00 sales price = 36.8% cost percentage $10.00 sales price - $3.68 drink cost = $6.32 gross profit

Copyright BarProfits 2010 Signature Margarita — The House Version $2.64 drink cost $7.36 gross profit What Affect Does Chaos Have On Your Bottom Line? Increase Profits by Standardizing Drink Recipes Signature Margarita — The Bar Staffs’ Version $3.68 drink cost (+40%) $6.32 gross profit (–14%)

Copyright BarProfits 2010 Optimizing Draft Profitability Draft beer yields the highest margins of any product Inability to accurately audit kegs makes draft a target of opportunity Industry wide, 20% of the draft beer we purchase is lost due to waste and spillage That equates to losing 1 out of 5 five kegs — negates much of the profit potential Increase Profits by Optimizing Draft Profitability

Copyright BarProfits 2010 Cost-saving Initiative — FOB Detectors FOB detectors prevents empty kegs bleeding out the beer in feed line They prevent kegs from draining the beer in feed line when they blow FOB detectors reduce waste and increase productivity Increase Profits by Optimizing Draft Profitability

Copyright BarProfits 2010 Cost-saving initiative — Flow Meters Flow meters are devices fitted into each draft beer feed line; tied into a CPU System determines the exact volume of beer dispensed during shift Flow meters are inexpensive; they won’t affect quality or impact portioning Derives pour cost for each beer, creates staff accountability Increase Profits by Optimizing Draft Profitability

Copyright BarProfits 2010 Payroll is the largest reoccurring expense after cost of goods sold Combined with the taxes they incur, payroll dollars are exceedingly expensive Tracking how effectively those dollars are being invested is critically important Reducing Labor Costs — Managing the Largest Variable Cost Reducing Labor Cost

Copyright BarProfits 2010 Bartenders: Carol6.0 hrs. x $5.50/hr = $33.00 Ron4.5 hrs. x $4.50/hr = $20.25 Pete5.0 hrs. x $5.50/hr = $27.50 Total Bartending Payroll$ Servers: Hannah4.0 hrs. x $4.00/hr = $16.00 Edie4.5 hrs. x $4.00/hr = $18.00 Sarah5.0 hrs. x $4.00/hr = $20.00 Emily5.0 hrs. x $4.00/hr = $20.00 Total Server Payroll$ Total Shift Payroll$ Gross Sales$2, Labor Cost Percentage 6.7% Reducing Labor Costs — Managing the Largest Variable Cost Daily Labor Cost

Copyright BarProfits 2010 Increasing labor costs means the business is squandering expensive payroll Whether employees are riding the clock or through over-staffing, the MOD is at fault Decreasing labor costs means the business is operating with a minimal crew High risk of inadequate or inhospitable service and losing out on potential sales Reducing Labor Costs — Managing the Largest Variable Cost

Copyright BarProfits 2010 By scheduling a bar back to work the shift—instead of 2 bartenders… …the bartender gets the extra set of hands he needs behind the bar …the bar back gets the experience he needs to learn the job …the house benefits by saving on payroll …and it creates an in-house program for promoting bartenders from within Increasing Beverage Profitability — “No Profit, No Success”

Copyright BarProfits 2010 Lower labor costs by employing bar backs: Utilizing bar backs reduces labor cost and strengthens the beverage program Ideal for shifts too busy for one bartender, but not busy enough to schedule two It essentially creates an in-house apprentice program; allows promoting from within Increasing Beverage Profitability — “No Profit, No Success”

Copyright BarProfits 2010 Successful Beverage Management — Proven Strategies for the On-Premise Operator Part Three: Safeguarding Every Ounce of Profit JACK ROBERTIELLO Beverage writer/former editor of Cheers Magazine Drinks Ink Brooklyn NY drinksink.blogspot.com/ ROBERT PLOTKIN Author/beverage management consultant BarMedia Tucson AZ barmedia.combarmedia.com/barprofits.combarprofits.com