Liquor Inventory Systems: from free to full service

This blog post is about the variety of liquor inventory systems available today for bars. It's loosely a follow-up to a previous post, The Problem With Liquor Cost. Having identified some limitations with the predominate performance metric used in the bar business (liquor cost), my aim here is to highlight the options available to bar owners and managers who understand that simply using liquor inventory to calculate liquor cost is often a costly mistake to make (20% liquor inventory shrinkage is the industry standard).

The industry standard: Monthly Liquor inventory

Cost: 4 to 6 hours of management time each month

From my experience as owner of a liquor inventory service for bars and restaurants, I’d say that perhaps as many as 50% of bars are still using this method of bar inventory management. On the first of the month, the "counter" systematically moves around the bar with their clipboard and manually records inventory levels. Once this step is completed, another hour or three is spent collating the information recorded on the clipboard and entering it into excel.

The end result of this liquor inventory system is to summarize the last month’s performance as a liquor cost percentage, usually broken out into draft, bottled beer, liquor and wine.

In-house weekly liquor inventory

Cost: 2 to 5 hours of management time each week

Realizing that performing monthly bar inventory doesn’t provide managers with frequent enough information to manage with, a good number of bars now perform detailed liquor inventory on a weekly basis. The obvious advantage to this bar inventory management system is that it provides more frequent data so that Liquor Cost is managed more actively and problems can potentially be identified and resolved before they diminish your bar profits for an entire month.

The downside is that the entire process typically occupies around two to five hours of valuable manager time every single week and doesn’t provide actionable information on how to reduce liquor cost.

In-house spreadsheet solutions

Cost: Highly variable but significant time invested in spreadsheet development and manual data collection.

Realizing the limitations of liquor cost, some owners or managers invest time in creating more elaborate analytical tools, often in excel: Once the inventory has been counted (again usually with the long suffering clipboard), that raw data is entered into the excel spreadsheet where some analysis is performed.

I do not recommend this bar inventory management method; however, if you have the right skills at your bar, this can be an improvement on liquor cost as a liquor inventory system.

If you do go this route, here is a brief checklist of what your spreadsheet should include:

• Previous counts: The counts from the previous week’s liquor inventory must be included in calculations.
• Deliveries: Enter the weekly deliveries of each product so you can calculate what quantity was poured of every product you stock.
• Weigh your kegs: Invest a little money so you can move past "shaking" the kegs to ascertain how much is in them. The best tool we’ve discovered for this task costs about $200, but it has the right balance of accuracy and speed: http://www.kegcheckusa.com/
• Account for what was sold: This is absolutely key, though not a trivial task. If you can figure out how to accurately account for what was sold by extracting information from your POS system, you’re half way to turning your liquor inventory into a useful management tool rather than an exercise in box checking. If your excel skills aren’t sufficient to make this happen automatically, don’t worry and read on because there are some great options available where people have done that hard work for you.

Third party hardware and software

Cost: $3000 and upwards depending on the liquor inventory system chosen plus monthly fees and/or software update fees. (Hint: if it costs $200 there’s a reason)

A number of companies sell some combination of hardware and software that allows you to increase the accuracy of your weekly inventory counts and potentially calculate things like achievable liquor cost (to compare to actual) and reveal individual product variances. Some bars have good success with this approach and given enough time and technical expertise at your bar, this type of liquor inventory system can be a good low cost solution.

The advantages are that open bottles are more accurately measured than "pointing" them and the systems provide a method to account for what was sold. Before you decide to use one of these liquor inventory systems for liquor inventory at your bar, consider a few things:

• Does the system allow me to weigh open bottles? There are other ways to calculate how many ounces are in each open bottle; however, none of them match up to the accuracy and speed of using a scale.
• How user friendly is the software? Take a look at the company’s website. If their website is old school, chances are so is their product.
• Given your bar’s operations, is it realistic that the liquor inventory software will be used every week to produce accurate and timely results?
• What will happen when you have a change of personnel? Will your new manager find time to learn the ins and outs of your liquor inventory software when they’re trying to find their feet in the first month on the job?

Fully outsourced liquor inventory systems

Cost: $300 to $1500 per month depending on size of bar and frequency of audits

This is the most expensive bar inventory management option, but often the best value since it will produce guaranteed results (saving a few grand a year isn’t much good when you’re leaking tens of thousands in inventory shrinkage). A company representative will come to your bar, count and weigh all your inventory, run the necessary POS reports and accurately account for your deliveries.

All the data entry, analysis and problem solving is handled by a professional. Therefore, when your GM quits, your liquor inventory system will continue seamlessly. Another big plus is that your rep will be able to assist you with optimizing your POS system, provide operational advice and recommend industry best practices based on their unique position as a liquor inventory consultant. Bar-i’s full service inventory solution fits in to this category and on average costs $500 a month.

Hybrid Do It Yourself/ Supported Liquor Inventory Systems

Cost: $200 to $400 per month

The hybrid options for liquor inventory systems are a more recent development. They offer an excellent balance between cost and effectiveness. A counting tool is provided which allows you to ditch the clipboard and count your inventory more accurately and in half the time. Once counting has been completed, you either email or upload the completed counting tool and the number crunching is completed remotely by professionals while you get on with your day.

In many ways this bar inventory management system is the best of both worlds combining the low cost of doing the counting in-house, with the results, user experience and hassle free elements of full service liquor inventory.

If you'd like to find out more about how Bar-i's hybrid liquor inventory system can provide a faster, more accurate and easier way to do inventory at your bar, take three minutes to watch our product demo video.

Please contact Bar-i to schedule a free consultation and learn how we can help you maximize your profits. We serve bars and restaurants nationwide from our offices in Denver, Colorado.