One of the major concerns for the bar and restaurant industry this past year was a dramatic increase in food and beverage costs. A five percent (or more) hike with some areas hindered what some feel was a year of recovery.

An article this month from Nation’s Restaurant News paints a not-so-rosy picture of what to expect in terms of cost in 2012. NRN cites one study that expects a “year-over-year cost” increase of between three and five percent, while another predicted a jump in U.S. food and beverage costs to jump five percent or more.

This will obviously create a problem in an environment where customers remain concerned with menu prices. Drew Madsen, who is CEO of Darden Restaurants, Inc. (Olive Garden, Red Lobster, LongHorn Steakhouse) put it this way:

“The fundamental strategic challenge we face this year is how to address the growing need for affordability that’s demanded by our guests, while also protecting our margins, given significant commodity cost inflation.”

Darden said his company’s plan is to look at ways it can trim costs in order to limit the need for price increases on the menu.

(NRN)

Guest Post by Chuck Deibel, Senior Partner at BEVINCO

Often Bar operators will calculate what their costs should be by dividing their purchases by their sales.  This is a flawed method.  This paper provides the actual numbers for purchases, sales and costs used for 3 weeks to show how this doesn’t provide accurate information.

As you might recall the calculation for each is as follows”

Actual Pour Cost percentage (APC) is arrived at by dividing the cost of the inventory used by the sales.  The cost of the inventory used is arrived at by adding the purchases to the previous inventory and then subtracting the ending inventory from that sum.  So it’s Beginning Inventory, plus purchases subtract ending inventory.

Ideal Pour Cost percentage (IPC) is arrived at by dividing the cost of the inventory sold by the sales.  The cost of the inventory sold is arrived at by adding the cost of the inventory sold, plus the cost of any comps or spills.

Purchased Pour Cost percentage (PPC) is arrived at by dividing the cost of the purchases by the sales.  The cost of the purchases used can be either for the week of the sales or for the week after the week of the sales; since some people would believe this week’s purchases are being done to replace the inventory used from the prior week as they “order to par”. (NWPPC)

Here are the actual results for two different bars for three weeks in a row.

Week 1                  Bar A                                    Bar B

IPC                   3504/15001 = 23.4%         6672/24699 = 27.0%
APC                  3518/15001 = 23.5%         7133/24699 = 28.9%
PPC                  3481/15001 = 23.2%         8832/24699 = 35.7%
NWPPC           1954/15001 = 13.0%         12954/24699 = 52.4%

Week 2

IPC                   2587/11014 = 23.5%         12095/45162 = 26.8%
APC                  2703/11014 = 24.5%         12782/45162 = 28.3%
PPC                  1954/11014 = 17.7%         12953/45162 = 28.7%
NWPPC           3276/11014 = 29.7%         5965/45162 = 13.2%

Week 3

IPC                   3442/14737 = 23.4%         7231/25601 = 28.2%
APC                  3450/14737 = 23.4%         7569/25601 = 29.6%
PPC                  3276/14737 = 22.2%         5965/25601 = 23.3%

As you can see, none of the numbers are really the same, so using or replacing the use of the actual or ideal cost percentage with the Purchased cost percentage or the Next Weeks Purchased Cost percentage is and will be misleading, if you are trying to gauge how profitable your operations are being managed.

There is simply no reasonable replacement for calculating both your actual percentage as accurately as possible and comparing that to the calculation of the ideal percentage for the same time period, in your effort to determine your efficiency in profitability.  The ratio of that calculation is the Bevinco Rating.

Bar A Is achieving at or above a 99% Bevinco rating as the ideal and actual percentages are about the same.

By making a judgment based solely on the Purchased Pour Cost Percentage, you will likely not be reacting when you should be or reacting when you shouldn’t be reacting with the staff and management team.

Chuck Deibel is a Senior Partner for BEVINCO based in Columbus, OH. He helps Bars, Restaurants & Clubs achieve higher profitability through strategic inventory analysis and reporting. He can be contacted at deibel@bevinco.com or at 614-488-8218

Guest Post by Chuck Deibel, Senior Partner at BEVINCO

Is looking at just the change in your Pour Cost percentage enough to determine how much more profitable it is to reduce your lost sales and missing inventory?

Look at the following simple example.  Whether it’s bottles of beer, shots of liquor, glasses of wine or pints of draft beer, the use of the analysis method and interpretation on profit is the same.

Bottles of domestic beer are used at a cost of 65 cents each.  They are to be sold for $3.00 each.  The ideal cost percentage is .65/3.00 = 21.67%

WEEK ONE

10 bottles of beer are used, which results in costs of $6.50.
8 bottles of beer are sold, which results in sales of $24.00.
The actual cost percentage is 27.1%
The ideal cost percentage is 21.67%
The efficiency rating is 80%
The loss at cost is $1.30
The loss of revenue is $6.00.  Profit is $17.50

WEEK TWO

One of 3 different scenarios could occur when the losses are reduced to nothing and the efficiency rating is 100%.

10 bottles of beer are used, which results in costs used of $6.50
10 bottles of beer are sold, which results in sales of $30.00.
The actual cost percentage is 21.67%
The ideal cost percentage is 21.67%
The increase in profit is $6.00.  $30-$6.50= $23.50. Because you sold two more beers.

OR

8 bottles of beer are used, which results in a cost used of $5.20.
8 bottles of beer are sold, which results in sales of $24.00
The actual cost percentage is 21.67%
The ideal cost percentage is 21.67%
The increase in profit is $1.30.  $24-$5.20= $18.80. Because you used two less beers.

OR

9 bottles of beer are used, which results in a cost used of $5.85.
9 bottles of beer are sold, which results in sales of $27.00
The actual cost percentage is 21.67%
The ideal cost percentage is 21.67%
The increase in profit is $3.65.  $27-$5.85= $21.15. Because you used one less beer and sold one more beer.

(Note: In the above three examples, the pour cost % goes to the same number.  Yet, the change in profit is different in all three situations.)

Chuck Deibel is a Senior Partner for BEVINCO based in Columbus, OH. He helps Bars, Restaurants & Clubs achieve higher profitability through strategic inventory analysis and reporting. He can be contacted at deibel@bevinco.com or at 614-488-8218

I had a great conversation with the legendary Bevinco Partner in Columbus, Ohio, Charles Deibel last week.

He was telling me a number of myths that he hears every day when working with Bar Owners assisting with their inventory control.

It never ceases to amaze him or me just how many different ways, ideas and myths exist around the calculation of selling prices, calculation of profit margins and the identification of theft. These are expensive myths. As much as 20% of profits is being lost because of an incorrectly held belief in a system!

As our conversation deepened we agreed that we had to share these myths, ideas and strategies on a webinar so that everyone could join in and find out for themselves if they are employing some of these tactics in their business and don’t realise it.

What would it mean to you to increase profits by 20%?

What would it mean knowing that you were getting the maximum profit from each drink served and that you could leave your bar in the hands of your managers knowing that you had a system to check their accuracy later?

We’ll cover all of this and more on our Webinar on Wednesday May 26th.

I think some of the Myths we’ve encountered are going to really surprise you.

In any case, we’ll have a solution to each myth on the webinar and you will leave the webinar armed with informaiton to increase your profits!

You will need to register to attend this online presentation which we promise to keep brief and informative!

Reserve your Webinar seat now at:
https://www1.gotomeeting.com/register/718101264

I look forward to welcoming you to our presentation.

Title:           The Top 10 Myths That Cost Bar Owners 20% of Their Profits

Date:          Wednesday, May 26, 2010

Time:         4:00 PM EST

In another in my series of videos from the Nightclub & Bar Show in Las Vegas, I am bringing you my interview with Brian Pohl, a Bevinco partner from Dayton, Ohio who has some unique suggestions for bar owners on how to drive their profits.

For example, what a Top 10 Drinks List can do for your bottom line, how to manage your stock between inventories and what the effect can be on your business if you don’t know the cost of your ingredients.

Speaking to a nightclub owner recently who turns over $100,000+ per week in his busy city centre premises I learned that his weekly variance/stock loss is less than $200 at cost.

I know of other businesses taking in $6000 per week that have the same losses. So how does the nightclub owner do it? Its actually quite simple: He systemises his business and has implemented basic procedures to control stock from receipt to eventual sale:

1. Staff are assigned to a specific bar each shift and cannot work in other bars without management direction. This makes the staff members accountable for any stock losses/cash shortages.
2. Each bar (7 in total) is inventoried separately at the end of each night. This takes ten minutes per bar and identifies losses on the spot.
3. The owner has instructed vendors to separate stock deliveries according to the bar they are destined for within the club. This allows for seven individual inventories and isolation of potential problems swiftly.
4. Bottles transferred between bars are recorded on transfer dockets and used as part of the inventory.
5. Staff identified as working in bars with continuing losses are warned, warned again and then dismissed. (there are never more than three staff per bar)

So, the next time you look at your inventory results and wonder how to get them right or if there is indeed any light of the tunnel, remember that if an operation with that kind of turnover can get it right, so can you.

Its just a matter of systemising ALL aspects of your purchasing/sales function:

• Receiving
• Storage
• Issuing
• Transferring
• Lending/Borrowing
• Selling
• Cashing

It can be the difference between a profit margin of 65% instead of 60%. Wouldn’t that be a nice Christmas present?