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Bar-i Liquor Inventory Blog

6 Reasons you can't Spot Check your way to a Lower the Liquor Cost

At Bar-i, our liquor inventory services are intended to provide two primary benefits – save you time and lower your costs.

To accomplish the first goal, we’ve implemented the fastest, most accurate counting system available, giving you the ability to count 500 items an hour. While this time savings is certainly an important benefit, many sophisticated inventory systems will offer a significant time savings as well. What sets us apart from many other solutions available is our ability to achieve the second goal of lowering your costs.

Without a doubt, the most important way we can benefit your bar is by performing Level 3 inventory where we calculate your usage of every product down to the serving. This process is what we specialize in, and it is where you can leverage the greatest value from using our inventory system.

spot checking bar inventory on a shift when a bartender is pouring drinksOn average, our clients reduce their liquor cost by 3-4% and increase their profits by 30%. We accomplish this by setting up Level 3 inventory in order to precisely compare what you’re selling to what you’re pouring. Unfortunately, setting up Level 3 inventory is a tremendous amount of work – it takes at least 15 hours to set up your bar in our system before we perform our first inventory audit.

Due to the results we achieve, this lengthy setup time is well worth the effort. That being said, it’s understandable why many bar owners will ask us why they can’t simply spot check bartenders to see where the source of their shrinkage problem lies. Spot checking involves picking a smaller subset of items (roughly 5-10 products) and doing a count over a short period of time, such as an individual bar shift, to determine specific issues with the performance of these products and identify the individuals who may be responsible for these issues.

The logic behind this approach is sound. You know which of your products are likely to go missing (for many bars, these are high volume liquors typically sold as shots, such as Jägermeister, Fireball, Jameson, etc.). Armed with this knowledge, why can’t you just pick the 5-10 highest risk items to go missing and check the performance of these products on individual shifts to avoid going through the extensive process of performing Level 3 inventory on every product at your bar?

While you don’t get the full picture of your bar’s performance from these spot checks, you can gain insight into what happens during a short period of time, and you have the ability to tie these results to the specific bartenders working during that shift. This can potentially be a powerful tool to reduce shrinkage and improve your profitability. However, there are a variety of problems with relying on this as your primary method for evaluating the performance of the individual products you sell.

Spot Checking Oversimplifies a Complex Problem

spot checking as a bar inventory toolSpot checking would be an extremely effective tool if only one bartender was responsible for the amount of product going missing at your bar. In this situation, it would allow you to identify which bartender was causing the problem, and you would be able to provide additional training to that bartender to prevent those products from going missing in the future. If you notice the problem isn’t resolved after this additional training, you can let the bartender go. This would solve your problem in one of two ways:

  • The training you provide would result in more accurate pours and a heightened understanding of the importance of ringing in all drinks being poured

  • Removing this bartender from your team would eliminate the source of this problem, and these products would no longer go missing

In reality, this is a much more complex problem than simply identifying one bartender who is responsible for your shrinkage. After more than a decade of performing thousands of inventory audits at bars of all sizes, we’ve discovered that due to the complexity of the issue, spot-checking alone isn’t a realistic way to solve the problem. There are several reasons why determining the reason for your missing product is so complex:

  • Usually, more than one bartender contributes to the issue
  • It’s not always a deliberate attempt to steal from the bar
  • It’s not always blatant when the product goes missing
  • It's highly dependent on the recipe assumptions you measure against
  • It typically requires significant updates to your POS setup

Performing Level 3 Inventory Requires a Steep Learning Curve

A spot check is essentially a Level 3 inventory audit on a micro level. You’re trying to compare what was poured vs. sold on a product-to-product basis, but it’s just on a smaller scale and over a shorter time period. There are a lot of moving parts to performing Level 3 inventory which must be executed consistently and accurately to achieve the actionable data necessary to identify how much of each product is missing. As a result, there is a fairly steep learning curve involved in executing this process.

You can’t expect to be able to perform Level 3 inventory with a high degree of confidence without putting in the work of doing it on your full inventory audits a few times. You need to go through this learning curve in order to become familiar with how to accurately compare what was poured vs. sold. It’s much better to complete this learning curve in a low risk environment, such as a full inventory audit, where you’re trying to get this data over a weeklong (or in some cases, two-week) period.

This will allow you to understand the process and become confident in your data before performing Level 3 inventory in a high risk environment, such as spot checking individual shifts, where the data you collect can potentially decide the employment outcome of certain staff members. In addition, performing Level 3 inventory for several full bar audits before spot checking individual shifts is a more efficient way to complete the process because it will let you see where the problems are. This will help you know exactly what to focus on when you spot check.

POS Updates Are Required for Accurate Level 3 Inventory Results

In our experience, most bars don’t have their POS systems set up to achieve accurate Level 3 inventory results. There are several different situations that must be accounted for with your POS setup before you begin doing these types of detailed inventory audits.

Complex Bar Setups Must Be Accounted for in Your POS Setup

multiple bartenders make inventory more challenging and reduce the effectiveness of spot checkingIf you’re going to do spot checks and you have multiple bartenders and/or multiple bars, you need to have your POS set up to run a report for the sales of each bar or bartender individually. If you have a simple setup with only one bartender and one bar at all times, this isn’t an issue. But that is rarely the case. On busy nights, most bars will have more than one bartender.

If you have more than one bartender working at a time and/or you have multiple bars, it becomes challenging to identify the problem down to an individual bartender unless you’re able to set up your POS system to run these individualized reports.

Every Drink Needs Its Own Button for Accurate Level 3 Inventory

When you start performing Level 3 inventory, you typically need to make upgrades to your POS system to ensure every drink has its own button. One of the most common issues that prevent bars from achieving inventory data that is down to the serving is the use of generic modifier buttons on their POS system for drinks such as doubles, rocks, and other specialty items.

When you use generic modifiers, it negatively impacts the accuracy of your inventory audit. When we run your aggregated sales report a the end of the week, we’ll see how many times the “double” button was pressed, but we can’t see how many times it was used for each specific product. This prevents us from allocating the extra serving of liquor attributed to the “double” button to the correct product because there’s no sales record of which items were rung in using the generic modifier. As a result, certain items will appear to have a significant amount of product missing because the second serving of each doble pour wasn’t attributed to that specific item.

The only way to fix this problem is to update your POS system so that every drink served at your bar has its own button – in other words, no generic modifiers are used. This is just one example of why you have to make your POS system truly align with your inventory system before you can have a precise record of sales for an individual shift, but there are many others as well.

Spot Checking Leads to Hypersensitive Results

When you’re doing inventory over a one- or two-week period, small counting errors will have a relatively minimal impact on your overall liquor cost, and you may not even notice that additional product appears to be missing. However, these counting errors are magnified when you’re spot checking an individual shift since vastly fewer servings of each product are being poured. This will make it harder to trust your results.

When we started doing spot checks for our clients, we wanted to be able to identify the specific person causing the problem. In reality, there are just too many variables for this to be accomplished with any degree of accuracy and confidence, largely due to this hypersensitivity issue.

Multiple Factors Contribute to Missing Product Issues

bartender overpouring drinks leads to missing productIf there were only one factor causing your missing product, it would be much easier to drill down and identify the source of the issue by spot checking individual shifts. Unfortunately, there are several potential causes:

  • Bartenders giving away drinks
  • Overpouring

Overpouring usually occurs when bartenders struggle to accurately measure the specific serving size you establish for each drink. The solution to this problem is to have your bartenders do pouring practice and to provide your bartenders with regular feedback on how accurately they’re pouring drinks so that they can take the steps to improve. It’s easier to achieve this improvement in pouring accuracy when inventory results are measured on a weekly basis rather than spot checking a specific shift. This way, you can track performance over time and measure the improvement.

In addition, there are other factors which must be addressed before you can drill down to a specific shift and identify which bartender is causing products to go missing. You need feedback from your staff on which buttons need to be added to your POS system. As we discussed earlier, without accurate buttons it’s highly likely that the reason why certain products are being identified as missing may be due to your POS setup and not because a bartender isn’t performing their job properly.

Until you’ve provided the proper training to ensure your bartenders are pouring drinks accurately and you’ve made the necessary adjustments to your POS, spot checking specific shifts is unlikely to help you identify the precise cause of your missing product or provide you with the ability to quickly address the issue.

Spot Checking Can Create a Poor Working Environment for Your Staff

Bars are places where people come to have fun. Your customers are paying roughly five times the price they’d pay to make the same exact drink at home. They do this because they want to be in a fun, social environment rather than drinking alone in their living room. If you turn your staff – who are the ambassadors of the vibe and atmosphere at your bar – into people who are afraid of being caught for doing something wrong, they’re not going to enjoy being at work, and they’re not going to exude a fun, welcoming vibe to your patrons.

If you’re mainly trying to catch bartenders and get them in trouble for giving away drinks, it won’t be an effective approach. If you want to preserve the fun, inviting atmosphere that makes people want to come to your bar, getting your staff in trouble as the first line of defense to solving problems will undermine your ability to foster this fun vibe at your bar. Ultimately, this may cost you more profits from lost business than you’re losing from missing product.

Collaboration with Staff, not Spot Checking, Is the Key to Success

sushi-barWe’d like to highlight an example of one of our top performing clients to demonstrate that you can minimize missing product without spot checking specific shifts. We work with a well known sushi restaurant in Denver. We’ve never done a spot check at this high end, high volume sushi bar, and they consistently have 98% of the product poured rung into the POS system.

The way the owner is able to achieve these results is by:

  • Having regular meetings with his staff to go over the results of each inventory audit
  • Having performance tiers – when results drop, they take specific actions to correct the issue and when results are excellent, the staff gets rewarded (these rewards and corrective actions have been established in advance and all staff members are aware of them)

This holistic approach that involves his entire staff in the process has been extremely effective for maintaining the levels of performance he expects. This has been possible despite the fact that this client has a very complicated inventory audit:

  • They have two restaurants linked together that share inventory
  • Both restaurants have two bars
  • On a busy night, there are often 7-8 bartenders working a shift between these four bars

These factors make it incredibly complicated to track the movement of bottles, see exactly what was poured at each bar, and match up what was poured to the separate sales reports for each bar. As this client has proven, you don’t need to get this granular with your data to ensure almost all of your product that is poured also gets rung in. They consistently achieve the best results of any of our clients, despite this complexity, by working collaboratively with their staff to ensure everyone is invested in maintaining the profitability of the bar.

While spot checking is a tool in your belt that can be used when necessary to elevate the performance of your bar, it’s not a silver bullet that you can implement off the bat and expect to fix your problems.

If you’d like to learn more about how Bar-i can streamline your operations and maximize your profitability, contact us today to schedule a free consultation. We serve bars and restaurants nationwide from our offices in Denver, Colorado.

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