Rule #1 of Liquor Controls – Know thy optimum pour cost (plus 10 more)

26 Feb

A post on LinkedIn.Com asks for advice on controlling liquor costs at a Country Club. There were a lot of good suggestions. The one thing that stands out is knowing what your overall, zero-waste pour cost is based on your purchase prices and sell prices. Call this the “Perfect World” PC (pour cost). Here’s the 1-2-3 on this angle:
1. Menu Costing for liquors. Keep an accurate PC on each item (Absolut, Jose Cuervo, etc.). Absolut costs you  $30 per bottle or $0.89 an ounce. You sell one ounce in an Absolut and Soda for $6 so your PC on Abs/Soda is 14.83%. An Absolut Martini requires 2 ounces of Absolut and is sold for $8 thus $1.78 divided by 8 is 22.2%. Your menu costing spreadsheet will give you a % for each item you sell. Now if you plug those percentages into a P-Mix spreadsheet (a spreadsheet listing item by item sales), you will get a Perfect World PC. This takes a lot of work to set up but is easy after the first few cycles.
Here are a few examples of why this is important. Bar Manager X comes from a local bar where the owners were happy with a 25% PC or lower. When he turns a 23%PC he gets excited. However the Perfect World PC for his bar is 16% and Bartender Y finds that out and shows the GM who promptly demotes Bar Manager X and promotes Bar Manager Y. PC drops from 23% to 20%. The GM is happy for a time, then after a few months starts grumbling about the extra 4% that is being wasted.

2. Proper Discounts and Comps Management. Let’s assume Bar Manager Y’s first problem is that he didn’t account correctly for discounts in his costing. Even A-list locations are doing discounts (Happy Hour) and comps (Groupons, coupons, etc.) in this economy. Often discrepancies are caused by this necessary nuisance. What affects liquor costs most are free drinks and % discounts. First of all, the comped drink, whether it’s for the owner or a good regular customer or ladies’ night, has to be rung up. Wasted drinks are recorded on a waste tab. Employees will often try to blur this line but they must be trained that every measure of bar products is recorded.

Two-for-one Happy Hour. In tracking this is easy (take 2 measures out of inventory instead of 1) but it’s a little trickier in menu costing. In my opinion, the following is the easiest way to convert Happy Hour to a Menu Costing.
Month of July, 2011
Absolut Cocktails (shot and mix). 278 units. 278 times 6 [$1,668.00] times14.83% [$247.36]
HH Absolut Cocktails. 79 units. 158 units times 3 [$474.00] times 29.66% [$140.59]
Set this up on an Excel spreadsheet and see what your real PC is for the month. You might find that some of your specials are untenable. Imagine having a 2-for-1 on Absolut Martinis; 44.4% PC anyone?
3. Portion Tracking. This is what BevInCo and other inventory control companies do; track weekly by units each of your liquors. This doesn’t supplant a dollar amount inventory per se but I do have a spreadsheet that also serves as inventory. Time-challenged bar managers can pick their top sellers and focus just on them or they can go all the way and track their inventories weekly unit by unit. The spreadsheet will tell you how many units you USED versus how many you SOLD. Discrepancies can be for over-pouring, not ringing up wasted or comped drinks, or straight theft. I can’t run an operation without portion tracking. It’s vitally important because it points you right to where your problem is. People don’t steal 2% or 4%, they steal bottles, shots, beers, etc. Back in the 80s everything was by percentage; that is, managers saw percentages as the final frontier of bar metrics at the time. Now with Excel spreadsheets and even more fancy software, we can track each unit of liquor we sell.
To conclude our Bar Manager Y fiction, Y realizes his Perfect World PC was 18% and, due to effective tracking, has cut down the PC to 19%. He devises a whole new round of purchasing techniques (a.k.a. case deals) to get that even lower.

Now that you’re set up to make money, don’t forget that these points are just as important:
4. Limited access to liquor. While a slow bar might fit all the merchandise up front, most bars need a locked liquor closet or room. A requisition sheet should be on a clipboard and must be enforced. Anything coming out of the closet must be noted and logged with the date. This is extremely important that your kitchen managers follow it, too. Bottles of wine, beer for the beer batter, and, if you’re like me and cook with Tequila, that all has to be accounted for on the req sheet.

5. Look at Daily P-Mixes. POS systems can spit out a lot of useful business metrics. The bar manager needs to look at the daily P-mixes on a, well, daily basis. When the bottle of Frida Kahlo Reposado Tequila takes a hit it should jump out at the astute bar manager, who consults his P-Mix for the recent days. Long story short; know what it is that you are selling.
6. Measure each pour. Everything should be measured. There was a little dispute between jiggers and control pourers (that measure 1 ounce). The most important thing is that the bartenders constantly see a frame of reference. When I was pouring 1,000+ drinks a night I used a jigger but did “abbreviate” my measuring when the waves of orders came in. Often I would toss the jigger down while I grabbed another bottle or a glass and finish the second half of the measure with a free pour. But since I used the jigger for each drink I had the frame of reference of seeing the correct pour over and over. On the other hand, I’ve seen bartenders using the control pourer and simply adding more liquor; a floater or drag pour. Optimum portion integrity is almost impossible without some good, old-fashioned supervision. I recommend using a jigger or a control pourer and giving warnings to bartenders who don’t use them or misuse them.

7. Cameras! Nowadays the cost of installing a camera system is less than it used to be. They are a pivotal tool in holding everyone accountable.

8. Recipe Standards. I almost forgot this one. Don’t assume everyone knows how to make a Rum Runner or Martini. The Bar Manager must see that there is a House Recipe for all major cocktails. These should be reviewed during bartender meetings and a notebook copy should be kept at each bar. These days you can compile one quickly by copying and pasting recipes off the Internet and tweaking them based on the products you have and your profit goals.

9. Pars/Inventory Management. A successor of mine has an average $4,000 more in liquor inventory in the store room than I did. While I took advantage of bulk buys to lower bottle prices, I still managed a lower inventory and that is a good thing. Too much in the store room is an added risk. Keep in mind your business’s owner will appreciate a little more money in the bank over stuff sitting on the shelves. Also, avoid buying turkeys like Espresso-Cherry-Peanut Butter Flavored Schnapps. You don’t owe it to anybody to buy their bad ideas.

10. Light Night Promotions, etc. Donna had mentioned this as a goal. I was tempted in my own restaurant to do late night promotions but a study of the area around me showed there really wasn’t a market for it. Live music on Friday and Saturday has kept the crowd a little longer but it’s still over by 11:30 pm. And always do a menu costing of the discounted promo items.
11. Labor. Don’t forget labor costs. Most bar managers have to do the schedule also. For some pointers on that, I have a blog post titled Principles of Scheduling. The idea is measuring how much each bartender can produce, looking at your hourly sales figures, and making a mathematically inspired decision to determine how many people you need on hand per hour.

That’s my bar manager guidebook I guess. Good luck.

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