What’s everyone’s favorite type of drink? A free one! Most bars and restaurants conduct beverage inventory to some degree, but few do so in a way that is truly effective for their bottom line. An effective beverage inventory system will cover the basics of ordering weekly and periodic financial reporting, and it will provide insights that help you increase the profitability of your beverage program.
Most operators understand they pour more alcohol than they actually sell, but few can consistently measure the true cost of this shrinkage. Over the past 15 years, we’ve discovered that the average bar pours around 15% more product than they actually sell. The good news is that an effective beverage inventory system will turn that loss into a gain, covering the cost of the system. In addition, it’ll deliver consistent time savings and a better experience for your employees.
The Basics of an Effective Liquor Inventory System
Keep It Consistent
Beverage inventory should be performed on a regular weekly schedule, on the same day of the week, by the same person, who starts early in the day. Smaller-volume venues can often get away with biweekly counts, but that decision should be based on the data, not staff preferences.
Ensure Inventory Accuracy
If your bar still uses the old tenthing method to estimate bottle contents, you’re almost certainly missing an opportunity. Using a barcode scanner, Bluetooth scales, and sheet-to-sheet mapping allows counting to be performed more quickly with higher accuracy and auditability.
Follow Through
Inventory shouldn’t be a one-way process in which data is collected, calculations performed, and the results flow to bookkeepers and managers. High-performing bars consistently discuss the finalized results with staff, and the level of performance determines what happens next: high results lead to motivating rewards like comp tabs and shift meals or drinks. Middle-of-the-road results trigger additional conversations and corrective actions, such as jigger usage or pouring practice. Daily spot checks on problematic products and removal of earned privileges may follow poor results.
Integrations That Power an Effective Beverage Inventory System
Previous Counts and Purchases
Weighing and counting your inventory simply tells you what you have on hand. To make the leap to true “down to the serving” serving insights, you have to compare to previous counts and integrate the week’s purchases in ounces rather than dollar amounts by category.
Point of Sale (POS) System
The POS brand you use is less important than how effectively you program it, keep it up to date, and convert the sales record into a precise record of what you sold. This requires writing accurate recipes for every button in the system and keeping up to date with changes in both the POS and recipe modules.
Exceptions
Handling pour size variations, generic modifiers, and seasonal rotations can be a source of friction and undermine your efforts if not handled intelligently.
Assistance, Independence, and Errors in Beverage Inventory
Executional Excellence
Most users never utilize the full capabilities of their inventory software, which is a costly omission (see the 15% rule above). Consider hiring a local expert to help, or select a system that includes live setup support so tasks such as POS system integration, reprogramming, and reconciling weekly purchases at the product level are handled effectively.
Incentives
On the one hand, you want your staff to please your guests, but often this goes too far with regulars and generous tippers receiving freebies that erode your already thin margins. That’s why comparing what you sell versus what you pour for every product is crucial. A wise person once said, “Show me the incentives and I’ll show you the outcome”.
Oversight
Given the above reality, best practice for effective beverage inventory involves a two-tier system (segregation of duties) in which the counter collects the data, and a different person (a dedicated professional or someone from your financial department) provides oversight. You can’t have the fox guarding the hen house and expect a full coop every morning!
Errors
When you combine multiple distributors, a team of bartenders, human error, and incentives, presuming results will be error-free without checking is problematic, to say the least. Despite this, most bars don’t compare each product count with the expected value (what you had previously, plus what you purchased, minus what you sold). Doing a detailed audit of 5-10 items each week that show a variance between actual and expected is a game-changer in fixing your liquor cost bouncing around from period to period.
Feedback Loop
Not only does investigating product-level variances uncover errors so they can be corrected, it also shows your staff where mistakes are happening, so over time, we get fewer and fewer of them. Remember that 15% overpouring is the STANDARD in our industry, so leaning into the variances by investigating them makes a lot of sense.
Conclusion: Building an Effective Beverage Inventory System for Long-Term Profit
Thin profit margins are a given in the hyper-competitive bar and restaurant space, but adequate beverage inventory offers a proven panacea. Your bar will not magically use the exact amount of alcohol you sell. However, if you measure variances consistently, you will equip your staff with the information needed to diagnose and address where profit is leaking. Even if your bar has modest beverage sales of $50k per month, a 20% beverage cost implies you pour $10k in product per month. The typical 15% shrinkage rate suggests that the bar overpours $1500 a month in wholesale product. Bars that “get it” use an effective beverage inventory as a tool to dial in pouring and execution. They typically run COGS 3-5 full percentage points lower. The key is to pick a solution that addresses the incentives and challenges that created the issue in the first place. While nobody enjoys counting bottles every week, the benefits of doing it effectively should be sufficient to get you excited about the effect on your business.
This Guest Article was written by Jamie Edwards. Jamie is the CEO and founder of Bar-i, an outsourced provider of beverage inventory software and live support services. They specialize in helping bars, restaurants, and other on-premise operators improve the efficiency and effectiveness of their beverage inventory systems. Jamie got his start in hospitality as a wedding server at age 13 when his parents were too “mean” to sufficiently provide for his teenage ambitions. After starting the business in 2009, he’s personally completed thousands of in-person counts before the business shifted to a remote version.
