Improving Profits in Your Bar

–Six Simple Steps–

Difficult economic times mean restaurateurs must focus on costs.  We have recently received a lot of inquiries from clients who are worried about bar controls and ‘shrinkage.’ So, we thought we would provide some practical insights to help rein in the most unusual area of hotel and restaurant operations, the bar.

Managing your bar costs is mostly philosophical.

The problem with most bar control systems is that they are like pendulums: they swing back and forth between ‘everyone is honest’ to ‘everyone is ripping me off.’

First, ask yourself this question: How honest are people in general?  The answer to this question should frame how you approach managing your bar costs.

I personally reason that 90% of people are honest 90% of the time. The remaining 10% is  comprised of people who are either honest all the time or honest only when they have to be. You probably know people who fit in each of the three categories, and that is why your approach to managing your bar costs is one of philosophy and outlook.

If 90% of people are honest a vast majority of the time, why worry?  Well, during tough economic times, temptation is much higher.  Bills need to be paid, and for many people, one piece of bad luck can rock even a good guy’s conscience.  The trouble is even an astute operator will only learn about a bad situation well after the fact.

The biggest problem, though, is that if one bad apple starts under-ringing drinks, giving away comps to increase tips, or pocketing a cash transaction or two, other staff who try to remain honest become demoralized and are therefore more likely to engage in conduct that they can rationalize away. See how this is all psychological?

The first part of the philosophical war is to show that you are watching.

There are six inexpensive and easy steps every operator should take in order to tighten their bar operation.

1.  Align Your POS System

If your super-premium liquors are still being rung up generically as ‘vodka’ or if you are using general modifiers such as ‘martini,’ then your staff knows that you are not tightly managing your inventory. If you sell Corona Draft, then there should be a ‘Corona Draft’ key.

Bartenders need to know that what they just took out of inventory was recorded properly and accurately.  If bartenders are allowed (or expected) to make cryptic POS entries, they know you aren’t watching, and more importantly, they know you are a long way from being able to discover any wrongdoing.

Review the sales report from your POS for last night’s sales.  If Grey Goose is your top mover, then one quick look at your sales report ought to tell you how many ounces (+/- 5%) was used. Bottled beer ought to be spot on.  If not, look at all the line items that are not attributable to a product and get into the POS and correct them.

2.  Smart Perpetual Inventory

‘Inventory’ usually conjures up images of the arduous task at month’s end of counting every single bottle. If you are reading this article, and you don’t conduct some kind of inventory, then your staff knows that you aren’t serious.  Moreover, the bad apples will see you coming from a mile away if you suspect something, thus allowing them the opportunity to fly low for a while.

Your bartenders are not lining their pockets by giving away Drambuie and Crème de Menthe.  If theft or shrinkage is occurring, it is with your top sellers, and if you are like most operations, 25% of your product accounts for 80% of your sales.

It stands to reason, then, that a quick but complete inventory each day of maybe 10-12 items will give you invaluable guidance about aligning your POS (Item #1).

Back to philosophy for a moment. The two practices described above are great for what they do, but even better for what they don’t do: singling people out wrongly or unfairly.  The people in your organization who are honest will appreciate the democracy.

Okay…now for the 10% of the people who are less than honest most of the time.  The fact of the matter is that you will need to apply consistent supervision toward those people who have larcenous hearts. Read on.

3.  Look at ‘No Sales,’ ‘Open Liquor,’ and Other Weirdness

Bartenders should be explaining each night why they are assigning some of their sales to the nether sphere of ‘Open Liquor.’  ‘Open Liquor’ pretty much means ‘Management Doesn’t Know.’

Your POS can run a quick report to show who, if anyone, is ringing an extraordinary number of these ‘No Sales’ or other unusual entries.  Average check, sales mix, and cover counts offer statistically relevant evidence of behavior.  First, run a quick report on average check and cover counts for all bartenders for a month.  Their check averages (and sales mixes) should populate a pretty narrow range. Then, take the cover counts and divide by the number of hours worked over that period. Anything stick out? Those are your first clues.

A bartender may purposely engage in innocent looking ‘mistakes’ to see how long it takes you to notice.  Stealing is a behavior, and that behavior will manifest itself at the POS over time.  Go to the most statistically relevant source.

4.  Pull Out (Not Down) Your Drawers

Many operations only make the bartender ring a transaction after they have collected cash from the guest.  About half the time, the guest does not require change.  This means that bartenders are free to ring in whatever they want when they approach the cash register.

This is dangerous for several reasons. If the bartender served two Chopin & Tonics and charged the guest the correct amount of $22, what stops him from keying in two vodka tonics (or 2 glasses of wine) at $14? If the guest gave him $24 and told him to keep the change, he puts the whole amount in the drawer and now the drawer ‘owes him’ an even $10. Every other time he does this, he takes $20 from the drawer and deposits it into his tip bucket.

This practice is called ‘Running a Counter‘ and is used by the truly larcenous, who are matching your systems and your creativity of controls with their own strategies for stealing. This practice is almost impossible to detect, even if you have security cameras or are watching the transaction carefully.

However, here is something that you can do. In the middle of a bartender’s shift, bring them a new cash drawer and switch it out with the one they had been using.  Run a POS report which shows what the net cash of their drawer should be at that moment (sometimes called an ‘X Tape’).  Count their cash.  If a bartender is running a counter, you will probably find excess cash in their drawer.  Or, if their drawer is perfect each time, that is a red flag.

The above advice is perhaps the easiest way to catch a bad apple and employ what Mao Tse Tung meant when he said, “Kill one and scare 1,000.”  This practice takes 15 minutes and should be done randomly to everyone on your staff at least once per month.

5.  Make Bartenders Publish their Work

The second method of preventing under-ringing or running counters is to simply make the bartender present the check to the guest before they collect the cash.  This forces bartenders to publish what they charge, and it certainly takes extra nerve to put a check for $14 in front of a guest and ask for $22.  This method costs you nothing to employ AND it is easy to supervise and enforce through a camera or a third-party mystery shopper.

Your ROI will be very solid. Investing no more than 1-2 hours a week, you can expect liquor costs to be reduced by 100 to 400 basis points. In fact, we have had clients report 5-7% upticks in sales simply by employing practice #5.

6.  Find Out How You Are Really Doing

Where do we fit in?  Once the above controls are being practiced, mystery shopping will be a valuable component to your restaurant, filling in the last piece of the psychological puzzle.  Study after study has shown that when people think they are being watched, they perform more admirably. If bartenders are aware that on any given night, they are being watched by a customer paid to do just that, the 90% are kept honest at least 90% of the time.

That said, bar controls is only one piece of what a good mystery shopping program will do for your organization.  Increased awareness about upselling, service, and hospitality will pay their own dividends.  A good mystery shopping company will begin by reviewing your operating standards and suggesting applicable benchmarks.

Clients that use our BarsQore get a very detailed assessment with the added benefit of knowing how their performance compares to other upscale operators.  That way, you know if your ‘good’ is good enough.

But before you commit to any firm to design and implement a mystery shopping program for your business, make sure they can refer professional evaluators who have experience shopping bars and that they understand the local laws about employee surveillance.  Make sure they are also fully insured and will list you on their insurance policy.
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