Science of finding hidden losses ian foster from sculpture hospitality

The Science (and art) of finding

hidden losses and lost sales

Presented by: Ian Foster

How much of your inventory is lost

every day?

20% To 30% 20%

30%

Sources: “Beverage Institute”; California Restaurant Association; Bevinco

How do these losses occur?

Cause: Loss at cost Loss at retail

Spillage/waste 100%

Missing inventory 100%

Free Drinks 100%

Missing revenue 100%

Over-pouring 50% 50%

• Shrinkage losses under 2%

• Average shrinkage of 20+%

• Spend $billions to control

shrinkage

• Inventory control compares units sold to units used

• Majority of owners don’t think they have a problem

• Inventory control cost of goods sold as % of sales

Retail vs Bars

Why does our industry have such

high losses?

• Bartenders control both liquor AND cash • Bartenders main source of remuneration: tips • Operators use outdated and misleading methods

to analyze bar profitability (pour cost)

The Problem with Pour Cost

…what do you compare it to?

Prior Months?

22% pour cost looks good here:

What do you compare it to?

17%

18%

19%

20%

21%

22%

23%

24%

25%

Jan Feb March April May June July August

22% pour cost =

happy bar owner

17%

18%

19%

20%

21%

22%

23%

24%

25%

Jan Feb March April May June July August

But not when you look at the ideal pour cost!

PC doesn’t measure

bar performance

Knowing you

should be at

17% changes

everything!

You cannot rely on pour cost to tell

you if you have a problem

For two reasons…

Why Pour cost hides losses

1) Every drink has a different pour cost

Product Drink Cost Price Pour Cost

Vodka & Tonic .19¢ $3.50 5.4%

Margarita .35¢ $4.50 7.8%

Grey Goose $1.34 $6.50 20.6%

Glenfiddich $1.50 $7.00 21.4%

Baileys & Coffee $1.00 $4.50 22.2%

Grand Marnier $1.64 $6.50 25.2%

Goose Martini $2.68 $9.00 29.8%

Bud draft .64¢ $3.00 21.3%

Bud bottle .76¢ $3.25 23.4%

Heineken bottle $1.11 $3.75 29.6%

Guinness draft $1.29 $4.00 32.3%

Gls House Cab $1.01 $3.50 28.9%

Btl Stags Leap Cab $22 $58 37.9%

Dom Perignon $110 $195 56.4%

When pour costs range

from 5% to as high as

56%, how do you pick a

target pour cost?

Even bars happy with their

pour costs invariably find

that their p.c. should be

two to four points lower

Summer December

2) Sales Ratios vary all the time

Unit analysis is used in retail: Visibility on every drink, every brand, every ounce

What is the cost of

this missing drink?

Brand Used Sold Missing

Crown Royal 5 oz 3.75 oz -1.25 oz

Reason Cost

Bartender drinks it 75¢

Spilled 75¢

Theft $5

The cost depends on the reason for the loss

Over-poured Sometimes 75¢…

…but usually $5

Eliminating losses:

The four keys to using unit analysis

#1 measure efficiency

20% Ideal Pour Cost

÷ 24% Actual Pour Cost

= 83% Bevinco Efficiency Rating

Measure the right thing

#2 institute controls

that deter shrinkage

Cash controls

• Monitor and track void, spillage and comp reports

• Question no-sale transactions

• Blind cash drops

• Cash drawers should remain closed between transactions

“trust, but verify”

#2 Controls (continued)

Other controls

• Inventory counts and controls should not be performed

by staff

• Check deliveries

• No staff drinks/staff need to drink at table, not bar

Drinks get rung up first

Eliminate “open” liquor keys

Customized drink mix recipe guide:

Oversight and coaching

• 10-minute “stop and stare”

• Testing: recipes/portion-control

• Coaching

#3 Hold Management Accountable

• More efficient than trying to hold every bartender accountable

• More effective

• Managers are paid to do exactly that, manage

• Most can do a great job if they are motivated

Bonus on the right thing

Management Bonus Program

• Bonus is more effective than straight salary

• But a bonus based on efficiency,

not on a pour cost target


• Example: manager making $50,000/year:

• Pay $40k base salary with a weekly bonus every week

based on the Bevinco Efficiency Rating:

• 95% - $200/week

• 96% - $230/week

• 97% - $260/week

• 98% - $290/week

• 99% - $320/week

• Over 100%, drops $60/week each point over 100


• Manager hitting 95 would make his old salary

$40,000 + (52 x $200) = $50,400

• Hitting 98 every week = $5,080 extra income

• Awareness/Coaching • Bartender meeting

• Recipes

• Coaching/training

• Group consequences • Bar Policy statement

• Pour testing

• Slower pour spouts

• Additional bartenders on shifts

• Individual consequences • X-Reading

• Beer bottle counts

• Daily audits

• Suspensions/Termination

#4 Escalating Consequences

Rung up by Karla at 11:45pm on check #13746

Brand Oz Used Oz Sold Oz Missing % Missing

Glenfiddich 2.45 1.5 -0.95 -38.8%

Rung up by Karla at 11:45pm on check #13746

Daily Audits

Eliminating the losses:

Draft Beer

Train bartenders to pour draft

Track losses in real-time using flow meters

16.98oz pour =

2-½ oz over-pour

Pint not rung up

Get text alerts in real-time:

• If beer isn’t rung up

• If beer is poured after-hours

• If cooler temperature rises

Know where losses are going

Real-time inventory

Month-end inventory valuation

Better ordering

Flow meter ROI is very high

Calculate the Return-on-Investment

20%-30%

losses

100%+ ROI: if

you sell at least

½ keg per week

per tap

FOBS pay for themselves

Why is head good?

Looking After Regulars: Over-Pouring vs. Comping

How are you looking after your regulars?

• Over-pouring • Impossible to manage

• Who gets over-pour?

• How big a portion?

• Taken for granted by your guests

• Very expensive:

• Over-poured drink becomes the new “normal”

• Comping • Easily managed

• Who is being comped?; by whom?; how often?

• Highly valued by your guests

• Much cheaper

Best practice: Manager must sign off on comp

How are you looking after your regulars?

Better Ordering: Constantly adjusting pars are the key

Inefficient Ordering

• Why are you “out-of-stock” so often when you have $8,000 too much inventory?

• How come we have 2 full bottles of Galliano but we haven’t sold a Harvey Wallbanger since 1974?

Inefficient Ordering

• Liquor Salesman

• Empty Bottle > Full Bottle

• Bar Manager’s experience & intuition

• Historical Pars

Just-in-Time Inventory

Japanese Management Practice

Ordering with InteliPar

1) Calculate peak weekly usage

2) Add a safety margin/”buffer”

3) Adjust for changing usage patterns

4) Accounts for lag time until delivery

How much inventory?

33¢ for every $1 of sales

Turnover ratio of 35x

What is Turnover Ratio?

Cost of Goods Sold during the

Past 12 Months

Current Inventory Value

= 35

÷

Eliminate Excess Inventory

•Pour as well liquor

•Drink Specials

•Use it in the kitchen

•Sell it to your staff at cost

•Give it away – sales contest

POS Setup

SPEED KEY

DOUBLE JACK

DANIELS

GREY GOOSE

MARTINI

Dumbing down your P.O.S.

Dumbing down your P.O.S.

• “Speed keys” turn a $20,000 POS

system into a $200 register

Double keys = lost profits

Drink Price Profit Up-sell Profit

Well tequila $3.50 $3.12

Patron Anejo $10.00 $7.12 $4.00



Patron Anejo $10.00 $7.12 $4.00

“Double” key adds $2.50 to price

Dbl Well teq $6.00 $5.20

Dbl Patron $12.50 $6.75 $1.55



Patron Anejo $10.00 $7.12 $4.00

“Double” key adds $2.50 to price

Martini bump keys = lost profits


Well vodka $3.50 $3.20

Grey Goose $6.50 $5.50 $1.80



Grey Goose $6.50 $5.00 $1.80

Martini “bump” key adds $2.50 to price

Well martini $6.00 $5.40

Goose martini $9.00 $6.00 60¢



Grey Goose $6.50 $5.00 $1.80

Martini “bump” key adds $2.50 to price

Every drink at optimal price



Grey Goose $6.50 $5.00 $1.80

Well martini $5.50 $4.90

Goose martini $10.50 $7.00 $2.10

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Science of finding hidden losses ian foster from sculpture hospitality