The ‘Dynamic Par’: Ordering with a purpose
This case study takes a closer look at the value added by the ‘dynamic par’ portion of the Bar-i liquor inventory software. You as a bar owner or manager are likely aware of the benefits of ‘smart’ ordering and are equally familiar with the pitfalls of poor ordering. When bars order with a purpose they become privy to discounts and a well-stocked liquor inventory, but the affects of poor ordering practices can result in overpaying for product and not having the appropriate liquor inventory available.
In the graphic below you will see a portion of the report generated by the Bar-i liquor inventory software that aids in the ordering process. Based on a bar’s usage in the past three liquor inventory cycles the Bar-i report provides a 14 day ‘dynamic par’ (highlighted). The column to the left of the dynamic par labeled ‘stock’ shows the current stock on hand and is shaded gray if the individual item is below the 14 day par. You will note that this report reflects the need to order Avery White Rascal, Coors Light Can, Crispin Cider etc. Using the dynamic par as a guidance tool ensures that the bar will never unexpectedly run out of product. It also provides actionable data that will aid in making smart decisions regarding liquor inventory. For instance, items that maintain a low par due to low demand will be more visible and decisions can be made about whether or not to replenish. Also products that are in higher demand will be noted and can be ordered at higher volume. This ability to order larger quantities of what is actually consumed puts bar manager in the unique position to negotiate prices more confidently.
The bar in the graphic below – not surprisingly – negotiates some of the best prices for their liquor purchases of any client we work with. This, of course, is a product of the massive volume they do but it is also a byproduct of their use of the dynamic par. Managers are very clear on what and how much they need to order giving them leverage in pricing. While this is just one example of the success of the ‘dynamic par’ there are many benefits including the ability to minimize inventory which releases otherwise tied up money. Are you ordering with the confidence that comes with knowing exactly what you need? Do you have unnecessary money tied up in inventory sitting on your shelves? Find out more about our inventory system and how it works to save you money.
Liquor Inventory Variance Report: Know What You’re losing
This case study is a good example of how the ‘Variance Report’ portion of the Bar-i liquor inventory software report can help bar owners and managers recognize problem products that are affecting their liquor cost. Owners and managers can then manage their liquor cost more effectively based on that information. The bar in the graphic below is from one of our larger bars that prefer that they be inventoried weekly. The fact that they are inventoried weekly is an important decision because of the short period of time in which shrinkage can mount up and negatively affect liquor cost. Due to the large volume which this bar does (around $50,000 per week in liquor sales), taking inventory on a weekly basis allows them to address problems quickly. At $50,000 in sales per week, a 1% change in their liquor cost means $500 in lost profits. By actively managing their liquor cost, this bar is able run an overall liquor cost in the mid teens!
The variance report lists products which have missing inventory. The products are organized by category with the products with the most missing dollars listed first. In this bar there have been two products that have been a consistent detriment to liquor cost. Both Red Bull and Jameson continually struggle with performance while most other spirits perform consistently well. The two problem items are highlighted in yellow in the figure below and the missing amounts are reported in the column labeled “Missing units”. The report shows 2.1 bottles of Jameson and 27 cans of Red Bull missing (remember this is in one week). For 2 bottles of Jameson and 27 cans of Red Bull to go missing in one week (even though this is a busy bar) is alarming. Provided with this information, the bar owner took corrective action by meeting with his bartenders and taking corrective action. One step which was taken was to add a ‘Staff Red Bull’ button. By offering the staff discounted Red Bull, the staff is able to consume their favorite hangover cure without affecting the bar’s bottom line. The result has been multiple weeks of improved performance of Red Bull and Jameson. Prior to having the Bar-i variance report, this bar was aware that they were losing the shrinkage battle but were not certain which specific products were missing and therefore could not effectively address the situation. Are you fighting a battle against shrinkage without the weapons to effectively control your liquor cost?
Liquor Cost. Change Your Perception.
The case study below is a clear example of how a bar’s liquor cost can be a good deal lower than what many people in the bar industry believe to be an acceptable liquor cost. Looking towards the bottom of the figure below you will notice the column titled ‘Actual Liquor Cost’. Our reports break down liquor cost into draft beer, bottled beer, liquor wine, and miscellaneous. On the bottom row the total liquor cost is provided and you can see that this client operated with an overall liquor cost of 15.9 percent.
Often times we will hear bar managers and owners say that an acceptable liquor cost is anything less than 23 percent but as you can see more ambitious bar owners and managers are quite capable of performing well below that 23 percent mark. Obviously a 15 percent or lower liquor cost is a mark that any bar would want to reach but there are a couple of prevalent factors that keep this goal from being achieved. The first factor is acknowledging that such a low number is possible. This case study clearly demonstrates that a liquor cost in the teens IS achievable. The second factor is knowing what affects liquor cost and how to manipulate those aspects to lower liquor cost. The client from the figure below clearly has a grasp of how to control liquor cost and they do so by ordering their alcohol intelligently, incorporating smart mixology, and carefully setting pricing. Ordering can be used as a money saving strategy when a bar uses volume discounts effectively to lower the price they pay for product. Our liquor inventory reports also work as an ordering tool by providing the bar a ‘dynamic par’ based on recent historic use and comparing the dynamic par against current inventory. Mixology affects liquor cost when inexpensive spirits are mixed or infused to make drinks that are capable of commanding a higher price.
Although the bar in the figure below is very successful, their liquor cost could be lower, as illustrated by the ‘performance gap’ which you can see in the figure. The ‘performance gap’ is a metric we use to illustrate the difference between a bar’s actual liquor cost and its achievable liquor cost. The Achievable liquor cost is what the bar’s liquor cost would be if they experienced zero liquor inventory shrinkage. So, even a bar as successful as this one has room for improvement. How about your bar? Does your liquor inventory software provide actionable data about your liquor cost and show you how low it could be?
A popular method bar owners use to gauge how their business is performing is evaluating their beverage cost. Often historical numbers are compared to current numbers: If beverage Cost percentage is 20% this month and 20% last month and 20% a year ago, the owner is content with the results and moves onto a new project.Two problems with beverage Cost:1. Beverage Cost is a poor measure to use to gauge performance of your bar since many different factors affect your beverage cost. It’s true that bartenders’ performance affects your beverage cost, but so do changes to product mix, the wholesale cost of product and the price you charge customers. With all these factors at influencing your beverage cost each period, it’s impossible to establish two crucial facts: Is each drink which is poured in your bar being rung into your POS and is each drink being portioned correctly? When you think about it, these two factors have a massive influence on your beverage cost, and therefore your business’s profitability. If your answer to those two questions is not a resounding “Yes, and here’s how I know this…….”, your Liquor Cost is too high.
2. Comparing current beverage cost with what you have done in the past never allows you to reach your profit potential since you are building past deficiencies in performance into your expectations. Comparing what you have done in the past only confirms status quo. In an industry where 20% Liquor Inventory Shrinkage is typical, using historical numbers as a gauge builds past inefficiencies into your evaluation.
Bar-i provides bar owners with reports that include current beverage Cost, and what Achievable beverage cost is. Achievable beverage cost is what your beverage cost would be if every drink were poured and charged correctly. Now you can see what all the product that is not being accounted for is costing you. Remember that if your beverage cost is 1% lower, you will retain an extra 1% of your total Liquor Sales as profit! Having a goal and a guideline of “Achievable beverage cost” will produce more profits from each customer that is already in you bar.
Related blog posts:
Liquor Inventory Systems: From free to full service
What’s your business concept?
Refined comfort food. Our slogan says it all: “Swine, wine and a good time”
Why did you decide to have a trial of our liquor inventory system?
I had tried Bevinco at the suggestion of a friend. Initially we saw good success however I didn’t enjoy working with Bevinco. When I found out about Bar-i I was excited to give them a try since I felt the idea was a great thing for restaurants. Really it was a no-brainer to bring Bar-i in.
What do you like about our liquor inventory service?
The ease of the service and being able to put my finger in any bit of loss. Bar-i does all the work then I just take the report and speak to my employees with specific information about what’s missing. Putting a little bit of fear into the employees that we expect them to do an excellent job is immensely valuable.
What challenges have you experienced using our liquor inventory software?
Sometimes the invoices can be a problem which is an annoyance though that is usually due to our systems. Not being consistent with where we keep product also creates a complication but honestly that’s more of a problem for Bar-i.
How do the barstaff react to our liquor inventory reports?
The barstaff don’t always react positively but they do respond to it which I view as a positive thing. We’re probably in a minority of bars since we’ve had the same bartenders for over two years which helps. Another important element has been rewarding managers and bartender based on the results which has been effective.
What would you say to someone who’s thinking of having a trial of our liquor inventory system?
Do the trial immediately and you’ll see what a difference it makes: Every bar out there is losing product. Every bar is loosing money no matter what you think. You’ll be fascinated by how much you’re loosing. Just by talking to your staff, they’ll be shocked about the quantity and they’ll realize what they’re doing accidentally that is making product disappear. Just taking that one step (showing your staff the results) will cut your loss in half. When you continue on the program you can use the information to continue to get better and better and achieve that 98 or 99% Accountability which is awesome. You’ll be surprised of the size of the effect when your bar is kicking ass this much.
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What’s your business concept?
Buffalo Rose is a locals bar. We have a variety of live music in our venue and our patio is the place to be in the summer.
Why did you decide to have a trial?
To check on my liquor accountability.
What do you like about the service?
Everything. I think you guys do a great job.
What challenges have you experienced?
I have no problems with your work, you guys do a great job.
How do the barstaff react?
They’re more responsible. They know we’re watching it. They know that there is some accountability going on. They know they’re gonna get audited so it’s not just wide open. If things go badly, they know we’ll be having a conversation about it.
What would you say to someone who’s thinking of having a trial?
I would recommend you highly. I would recommend you 100%. It’s a service that I don’t think any business should be without. If you own a store, you do inventory. If you own a gas station you inventory your gas. Any business there is, they always do inventory and have accountability but for some reason bar owners don’t feel they gotta do it. It’s crazy. If you ask bar owners what say Crown Royal costs or how much they go through, they often can’t tell you. So how do they know what’s going on and if they’re making money? So how do they know what’s going on and if they’re making money? Without any accountability they hope that things will balance out and they won’t. If your staff doesn’t know you’re watching, they don’t give a shit about your stuff. I would recommend you to every bar owner.
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