The age of information has finally arrived behind the bar and for many on-premise operators it comes just in time. The need for accurate data has never been greater. Until now, compiling detailed information about what transpires behind the bar has been a time-consuming and labor-intensive process. However, computer chip technology is primed and ready to change the way the bar business does business.
For example, Bevinco is an independent auditing service that, in essence, provides its many clients worldwide a detailed snapshot of exactly what is transpiring behind their bars. Armed with a laptop computer, electronic scale and a database developed specifically for each business, their company’s auditors measure inventory levels and then produce a series of management reports that show every product’s cost percentage, profit margin and any variance between usage and sales. The system is so precise that it will detect every type of impropriety.
The point man at Bevinco is Daniel Smith. The chief executive officer of Bevintel—the parent company of Bevinco—has extensive hands-on experience in the food and beverage industry. While completing his undergraduate studies at Denison University and his MBA at Kellogg School at Northwestern University, Smith worked at casual restaurants, bars, night clubs and fine dining. That experience serves him well in his present position.
“I know firsthand that we have great products that genuinely help our clients succeed,” says Smith. “The services we offer save them significant amounts, money that can spell the difference between success and failure. In addition, we provide their staff with professional training and assist their management staffs in raising sales and serving the highest quality products in the industry.”
Having worked closely with the Bevinco system prior to buying the company, Smith is most impressed with the software’s ability to identify variance, which he believes to be the most revealing measure of profitability there is for beverage operators.
“It’s a pity that bars and restaurants don’t come with a set of instructions,” contends Smith. “If they did the manual would come with a bright red sticker directing you to go to the chapter on controlling variance and read it twice. The advice is warranted. Variance is insidious that’s taken down more than its fair share of establishments.”
What is it? Essentially variance is the difference between what was sold and what was depleted from inventory. Another way to define it, variance is the dollar difference between your bar’s current degree of profitability and where it potentially should be. It’s human nature to think that they’re one in the same. Unfortunately they rarely are and the amount of money separating the two often represents the additional revenue that businesses need to keep their doors open.
According to Smith determining your bar’s cost percentages isn’t nearly as important as knowing what those cost percentages actually should have been. “It’s referred to as the optimum pour cost. As far as I know, it’s the only unimpeachable standard by which to measure a bar’s financial performance. Narrow the gap between what’s rung-up as sales and what should have been rung-up in sales and you’re one step closer to long-term profitability.”
Optimum pour cost is derived by comparing the amount of product depleted from inventory to the amount of product reported as sold. Comparing units used to units sold is the only way to determine if product has gone missing and eliminate the variance. The retail industry relies on this method to control losses and their shrinkage averages less than 1.5-percent of sales—whereas the hospitality industry averages around 20-percent.
Because liquor is a low cost/high profit category in most restaurants, Smith thinks it often doesn’t receive the intense scrutiny that the other major cost items —like food and labor—receive.
“Sometimes an operator is comfortable running a 24-percent liquor cost and content with that because it’s close to what the business had budgeted. That leaves him free to then focus on the considerably high food cost figures. However, if their beverage costs should have lower percentage points, it behooves management to scrutinize the operation and uncover where they are losing the potential profits. It’s a substantial sum of money we’re talking about. Fact is, savvy operators know they need to analyze all of their costs equally.”
In the final analysis Smith considers himself a fortunate man. “I think I speak for all of our franchisees when I say it’s truly rewarding to help operators run their businesses more profitably in these current economically challenging times.”
Smith adds that they all sleep well at night (during the day not so much).