Liquor cost: The belief gap

Each month, Bar-i performs inventory audits for over 100 bars and restaurants nationwide. This client list includes a wide range of establishments, from dive bars to fast casual places to high end establishments. Based on this extensive experience, we’ve found that often there is a significant disconnect between the beliefs of many bar owners and the reality of what happens at their bars.

Our co-owner, Jamie Edwards, has created this blog post to explain the nature of this disconnect and how it impacts your bar’s overall performance.

Common Bar Owner Beliefs

I frequently speak with bar owners about how they perform liquor inventory at their bars and how happy they are with their liquor costs. The most common response I hear is that they perform their liquor inventory in-house on a weekly or monthly basis in order to calculate their liquor costs.

Specifically regarding their liquor costs – they typically respond that they are happy with their overall liquor cost (which they usually report is in the low twenties). If the conversation moves on to the topic of how much loss/inventory shrinkage they currently experience, they usually respond that it’s very little. In summary, most bars use inventory each period to calculate their liquor cost and feel this is sufficient to ensure that loss through theft and over-pouring is limited.

The Reality at Most Bars

Before explaining the reality in bars, I’d like to explain the context of how I have come to form this opinion: I’m an owner of a company which provides liquor inventory services to bars and restaurants. Considering I’m in the business of selling liquor inventory software, you can reasonably conclude two things about my perspective:

• I have a vested interest in this subject so readers will understandably view my opinions with a healthy degree of skepticism.
• I have some relevant experience on the subject of liquor inventory which might provide some validity to my opinions.

So what do I believe is the reality? The reality I have seen is that the average bar experiences liquor inventory shrinkage of around 20%, meaning that one fifth of the product they use is spilled, over-poured or stolen. This figure is surprising to many of the bar owners we work with, and the level has certainly been surprising to us.

Another thing that has been surprising is how consistent this 20% figure is: Out of all the bars we work with, we’ve measured one bar with liquor inventory shrinkage of just 10%. But I’d say 90% of bars fall within the range of 15-25% inventory shrinkage. I feel that many bar owners aren’t really aware of this.

Why does this Disconnect between Belief and Reality Exist?

I have a few thoughts as to why so many bar owners experience this disconnect between belief and reality:

• Bar owners are sick of annoying sales people, and this often compels them to tell me whatever they can to make me go away. This probably explains a good deal of this. While I totally understand this sentiment, it’s frustrating since I believe most bars could be significantly more profitable.
  
• Another option is that bar owners don’t allow themselves to realize the extent of the shrinkage they experience since doing so would bring into question the relationships they have with their staff (which tend to be close). In answer to this, I would simply say that a) at least half of shrinkage in bars is genuinely not deliberate but due to lack of knowledge and b) if your staff is not open minded to helping you make your business more successful, you’d be right to question their intentions.

If you own or manage a bar and I’ve managed to convince you that there may be room for improvement in your current liquor inventory controls, I’d suggest doing some research into your options for assessing the extent of the problem at your bar. Here’s a good starting point: Liquor inventory systems: From free to full service.

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