RUNNING A MORE PROFITABLE BAR 3 Actionable Steps to Boost Your Beverage Program TOOLBOOKS No. 2 RUNNING A MORE PROFITABLE BAR 3 Actionable Steps to Boost Your Beverage Program TOOLBOOKS CONTENTS Intro 4 1. Building an Optimal Product Portfolio 6 2. Ordering to Reduce Sitting Inventory 12 3. Calculating and Interpreting Pour Costs 16 Wrap Up 20 ABOUT BEVSPOT BevSpot is a passionate tech startup obsessed with helping the beverage industry. Working alongside the best bar managers, beverage directors and sommeliers, we’ve built an online platform that bridges disparate bar systems and allows our users to get back to doing what they love. We know that technology can save you time and increase your revenue. But, software can only go so far. That’s why we strive to provide you with the right tools and team you need to implement a system that works for your bar. INTRO Oh to be in the wonderful restaurant industry: so important to so many people—an industry that truly never dies. A place that provides food, drinks, and an overall foundation in the world of hospitality. It represents blood, sweat, and tears—a great deal of work with the hope of an even greater reward. On the other hand, hard work doesn’t always pay of, and the restaurant industry is an extremely risky place to be considering that 60% of restaurants go under in their first year, and 80% fail by the fifth year.1 Sometimes these failures fall on bad luck, hard times, and poor decisions. Sometimes they seem inexplicable. But even if we try to place blame on extenuating circumstances beyond our control, the facts don’t lie—any failed business comes right down to the numbers. We also know firsthand that the right knowledge and tools can steer those numbers straight toward your goals. So you’ve decided to open a restaurant or bar, or perhaps this isn’t your first rodeo and you’ve been in the business for quite some time. Either way, you’ve come to the right place to learn the key metrics in running a better business behind your bar. 1 http://www.businessinsider.com/why-restaurants-fail-so-often-2014-2 1. BUILDING AN OPTIMAL PRODUCT PORTFOLIO Let’s start with a quick recap. In our first eBook, Tips and Tricks for Managing an Efcient Bar, we discussed usage calculations that help to better understand your most popular, and least popular products, and we learned how to use that information towards setting accurate stocking goals, or pars. We also touched on why too much sitting inventory can have a negative impact on overall performance. Now that we have a better understanding of these key concepts, let’s dig even deeper and discuss how we can apply them to build a better business behind the bar. Think about all the details in your bar that directly relate to customer preferences: music, food, overall appearance, service, comfort. Really, there are an infinite number of factors to consider if you want your bar to be a real crowd-pleaser. We can’t help you with all of these details (we’re not chefs or interior decorators) but what we can do is help with an extremely important aspect—your beverage program. And what drives your beverage program? The products and drinks that you ofer. Since we believe that the right drink can cure almost anything, what you carry behind the bar is pretty important! So how can you come up with an optimal product ofering in the first place? We know firsthand that our own catalog has over 100,000 spirits, wines and beers. So where do you begin? Factor in the sheer number of diferent cocktails you’re likely ofering, and ever-changing consumer preferences, and you’ve got a pretty challenging task on your hands. Luckily, the tips and tricks we’ve already reviewed can help you decide what product to ofer by allowing you to delve into what your customers really want, using usage calculations. Step 1: Calculating Usage at the Product-Type Level To figure out which products are most successful for your bar, you’ll need to calculate usage at a product-type level. We like our whiskey at BevSpot, so we’ll start with our own whiskey selection and calculate usage for a 7-day period. We’ll then compare that to our vodka selection, which is clearly the less popular choice for our patrons (ahem, employees). BEVSPOT BAR 4 x + 3 x + 3 x = $270 Whiskey: Starting Inventory - Monday: 4 bottles of Jack Daniel’s ($30 each = $120), 3 bottles of Jim Beam ($20 each = $60), and 3 bottles of Jameson ($30 each = $90) = 10 bottles of whiskey total, equal to $270 Received Inventory - Tuesday: 1 bottle of Jameson ($30) 7 BUILDING AN OPTIMAL PRODUCT PORTFOLIO Ending Inventory - Sunday: 2 bottles of Jack Daniel’s ($60), 2 bottles of Jim Beam ($40), and 1 bottle of Jameson ($30). = 5 bottles of whiskey, equal to $130 Whiskey Usage: 10 + 1 - 5 = 6 bottles or $270 + $30 - $130 = $170 2 x + 2 x = $120 Vodka: Starting Inventory - Monday: 2 bottles of Absolut ($25 each = $50) and 2 bottles of Grey Goose ($35 each = $70) = 4 bottles of vodka, equal to $120 Received Inventory - Tuesday: 3 bottles of Smirnof ($15 each = $45) Ending Inventory - Sunday: 1 bottle of Absolut ($25), 1 bottle of Grey Goose ($35), and 2 bottles of Smirnof ($30) = 4 bottles of vodka, equal to $120 Vodka Usage: 4 + 3 - 4 = 3 bottles or $120 + $45 - $120 = $45 8 BUILDING AN OPTIMAL PRODUCT PORTFOLIO These numbers provide direct data on preferences at The BevSpot Bar, and since it’s clear that there’s about twice as much consump- tion of whiskey as vodka, it may make sense that the bar stocks about two times as much whiskey as vodka, and ofers a wider brand selection as well. The BevSpot Bar is likely on a much smaller scale than your business, being that it’s housed in our ofce. Still, calculating usage for all of your spirits and comparing the total usage for each product type follows the same concept. This calculation will show you exactly how much vodka, whiskey, rum, and other spirits your bar is selling at any given period of time (weekly, monthly or otherwise). Step 2: Decide How Much of Each Product To Carry Based on Relative Usage Knowing how much of each type of product you’re selling, you can now divide these usage numbers by the total usage for your bar. This will give you the percentages of product you should consider allocating to each specific product type. Let’s say your bar sells $20,000 in spirits each week, and $5,000 of that is in whiskey. Based on these numbers, it makes sense that you’d allot roughly 25% of your spirit product ofering to whiskey. So if your goal is to stock 100 diferent spirit products, this data suggests that 25 of those products should be whiskey. Apply this same process to all of your product types to see how much of each you should be stocking. Of course some personal judgment is involved, but nothing provides a better view of your bar than lever- aging customer data to directly cater to your customers’ preferences. 9 BUILDING AN OPTIMAL PRODUCT PORTFOLIO Added bonus: You’ll also reduce your sitting inventory by not carrying an abundance of products that your customers aren’t even drinking. Win-win! Step 3: Use Specific Product Infor mation to Add or Remove Products Now that you’ve decided how much of each product type to carry, you can drill that data down even further and look at specific bottles and brands to gain a better under standing of which to keep and which to move of the menu. The easiest way to do this is to simply sort by usage and remove the slowest moving products. For instance, if you decide that you should be carrying 10 diferent rums and you currently ofer 13, remove the three bottles with the lowest usage. This will increase the efciency of your rum portfolio and bar overall. Assuming you are pricing all of these products efectively (stay tuned for our next eBook to help with this!), these usage metrics provide great insight into your customers’ preferences. Take it one step further and ensure that you’re catering to diferent types of customers by ofering brands at various price points. Use the cost per ounce (bottle price / ounces in the bottle) for your products in each group to ensure that you have low, medium and high price point options in your portfolio. This way, every customer with a preference for a certain type of product has the perfect option! Creating an optimal product portfolio for a bar takes a great deal of personal judgment and a deep under standing of your customers. Try taking some of the trial and error out of the process by applying hard customer data that enables you to make better decisions, cater directly to your customers, improve sales at your bar, and save you on upfront costs. 10 BUILDING AN OPTIMAL PRODUCT PORTFOLIO 2. ORDERING TO REDUCE SITTING INVENTORY Knowing what products your bar should be carrying is step one. Now you have to actually order those products, and efcient ordering processes can be quite tricky. Hopefully you remember just how bad sitting inventory can be for business. In our first eBook, Tips and Tricks for Managing an Efcient Bar, we discussed how sitting inventory actually represents dollars that you could put directly back into other aspects of your business.