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The 5 Ps of a profitable pub (Part 2)

<<<<<Read part 1 of this post

Promotions: I already mentioned promotions based on price discounts but, as discussed, these aren’t simple due to the trade-off between lower prices tending to increase volume but decrease margins at the same time. With these two effects working against each other, predicting the effect of a price change on your profits is not straightforward. Economists refer to this as price elasticity- how much quantity changes if you change your prices by a given amount. A smarter approach is using promotions which aim to increase profits either by bringing new customers into your bar (think Groupon or more traditional print advertising) or enticing customers to spend more (even the trusty beer and a shot promo does this to some extent).

Portioning: While you have limited control of some of the factors which drive your liquor cost, portioning is obviously something which you have complete control over. How you portion your drinks also has a very direct effect on your profits. Serving a 1.25oz liquor drink versus a 1.5oz drink will reduce your liquor cost on a given drink by almost 4% (i.e. a drink which had a 24% liquor cost now has a 20% liquor cost). The extent to which you want to use this dark art is an important decision since there also is value to a stronger drink in terms of satisfied customers. In general though, it’s probably true that most customers will notice your pricing more than your portioning. If you’re in a price sensitive market it may be smart to have a slightly lighter pour meaning you can have more competitive prices while maintaining a low liquor cost. Higher end places often have heavier pours and aim to maximize profits by making sumptuous cocktails which add value to ingredients through inventive combinations. Another way I’ve seen portioning used to good effect is using a 14oz rather than a 16oz glass for your draft beers. After accounting for head on your beer, you’ll pour around 12.5oz per beer rather than 14.5oz which is a 17% difference! Using a 12oz glass will be noticeable to your customers however the difference between 16oz glasses and 14oz glasses is hard to perceive.

The final factor I’m going to mention doesn’t fit my P theme from the title very well. This is somewhat appropriate given that it’s something which isn’t frequently talked about in bars. I’d claim to have some relevant experience on the matter given that I own a company which sells a liquor inventory system which enables bars to address this issue. The issue is the level of liquor inventory shrinkage which a bar experiences. Inventory shrinkage is the product which is wasted, over-poured or given away during the course of service at a bar. I know it’s surprising to owners and managers when I tell them that, having completed around 100 audits for bars across the US, the average level of inventory shrinkage I’ve seen is just below 20%. That means for every 100 servings of product a bar uses, 20 of them are poured without being sold. The best way to address this problem is to adopt one of the many liquor inventory systems which are available on the market today. Whichever one you choose, it’s essential that your system provides an easy way to accurately compare the numbers of drinks poured with the numbers sold on a product by product basis.

I absolutely appreciate that most of the items I’ve mentioned here are already on your radar. That being said I think the majority of bars could apply at least one of these ideas to good effect and while the benefits may be small they accumulate over time.

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