Management Relief

Avoiding the 10 Critical Errors Beverage Operators Make

As the adage goes, “When a man with money meets a man with experience, the man with the experience ends up with the money and the man with the money ends up with the experience.”
Fact is making mistakes is an inevitable consequence of gaining experience. Some things can only be learned at the school of hard knocks. For us fallible types, success can be defined as keeping mistakes to a minimum and the learning curve short and shallow.
   That having been said, in every business there is a special class of mistakes that should be avoided like the plague. Leaving the place unlocked at night is an example. Bouncing payroll checks and stiffing vendors are critical errors in any line of work.
   The list of capital crimes in the on-premise business encompasses every aspect of the operation—from serving boring drinks and mangling your relationship with the staff to being an inhospitable host and running an inexcusably loose ship. In an effort to shorten and shallow out the learning curve, here are the 10 critical errors beverage operators make.

1. LOSS OF CONTROL — Running a bar requires making a significant investment in liquid assets, working capital that can disappear at an alarming rate. Failing to implement an effective inventory control system places at risk the capital you’ve invested in that inventory. To be profitable, you need to know exactly what inventory you have, what you paid for it, at what rate you use it and exactly where it is at any point in time. Tracking inventory throughout your operation doesn’t require purchasing specialized software either. What is required is a system of over-lapping controls referred to as “cradle to grave” accounting. It’s an inventory system that tracks products from point of purchase to the moment they’re delivered and received, through the requisition process—which also involves recording comps, spills and transfers—until the end of the accounting period in which they’re depleted.

2. MONITORING PC — One of the many truisms in this business is, “If you can’t measure it, you can’t manage it.” Nowhere is that truer than behind the bar. Determining your bar’s ongoing cost percentages—pour costs—reveals your level of profitability. As your cost of goods sold increases, gross profits diminish.
  While tracking your pour costs is a fundamental control, managing through the use of pour cost alone is problematic. The inherent weakness with pour cost analysis is that it doesn’t take into consideration that products sell at different mark-ups. Premium and super-premium products sell at a higher cost percentage than do well brands, yet generate significantly more revenue and gross profit.  For example, were your staff to begin selling more drinks made with premium brands than well, the bar’s pour cost would increase.
  While bartender-related issues like over-pouring and theft are often at the root of the problem, a rising pour cost may also indicate that management is doing a better job of promoting higher profit premium spirits and drinks.

3. SHODDY PRODUCT — A restaurant that doesn’t routinely change its menu always has plenty of open tables. The same is true about bars. Add some pizzazz to your beverage line-up. Shake up your specialty drinks. Change spices things up and helps keep your clientele interested. The sales axiom “Don’t sell the steak, sell the sizzle!” is directly applicable. If it doesn’t sizzle, who needs it?
  People in this country are more frequently opting for the good stuff. Surging premium spirits sales is the most significant mega-trend in the beverage business. Consumer expectations have changed. People today are looking for more from the drinking experience. To coin a phrase, “Americans are looking for better built drinks.”
  Can every drink you serve be built better? Believe it or not, the answer is probably yes. For instance, consider one of the most common of mixed drinks, the gin and tonic. Although not an involved recipe, some bars make much better gin and tonics than others. How’s that possible?
  The possibilities include preparing the drink with a premium dry gin instead of a value brand from the well and a high quality bottled tonic water. Pour the ingredients over ice cubes made from filtered water and garnish with an ample, freshly cut wedge of lime. Serve the drink in a good looking, heat-tempered highball glass with a classy swizzle stick and you’ve got yourself a well-built gin and tonic.
  If you can build a better gin and tonic, imagine the boundless potential of such classics as the Margarita, Daiquiri, Martini, Piña Colada and Bloody Mary, to mention but a few.

4. FISCAL RESPONSIBILITY — Left unchecked, employee theft can reduce cash flow to a trickle. How extensive is the problem? Bevinco, an international beverage auditing service, estimates that losses attributable to internal theft cost its clients on average 24-26% of gross sales. The very thought is enough to make seasoned managers wince and bar owners shudder.
  Preventing it from happening is far from easy however. Bartenders typically work for long stretches without direct supervision and are afforded autonomy in handling guest transactions at the bar. Their position requires them to portion inventory, prepare drinks and collect sales proceeds and they do it all before recording a single detail into the operation’s point-of-sale. The result is a job laced with endless opportunities to rip off the house and its clientele.
  Familiarity with how bartenders steal and knowing what to look for constitute management’s first line of defense. Sometimes theft is overt and undisguised, like pouring heavy shots to receive bigger tips, or stuffing cash sales directly into a tip jar. However, ploys like these are so easily detected they’re actually risky, so bartenders usually rely on less obvious schemes.
  One reason why behind the bar schemes are so effective is that most bartenders conduct themselves professionally. Faced with the same opportunities to pad their income, they choose instead to look out for the best interests of the house and perform their jobs sans a hidden agenda. Paradoxically, it’s the ethical behavior of the majority that thoroughly obscures the actions of the few, making it harder to diagnose the problem and root out its cause.
  Implementing cost control procedures at the bar serves two purposes. Although primarily intended to eliminate operational areas of weakness, anti-theft measures also make it easier for honest bartenders to remain honest and harder for the others to operate undetected by establishing standards of conduct and clearly defining expectations.

5. PRODUCTIVITY — Every industry tracks employee productivity except ours. Calculating sales per hour is easily done and is an enormously effective means of assessing employee effectiveness. Bar productivity is calculated by dividing the bartender’s gross sales by the number of hours he or she worked. After several weeks it’ll become evident who on your staff are the sales leaders and who consistently fall short of the mark.
  If a bartender’s sales per hour consistently fall below the staff average, five things are possible. He may work too slowly and literally can’t keep up with demand. He could make lousy drinks, so people don’t stick around for a second or third lousy drink. His personality and attitude could be so off-putting that customers leave early, or his sales ability could be so unrefined that he consistently undersells. The last explanation is that he is likely stealing from you. There isn’t a method of theft that won’t negatively affect productivity.
  How do you know which it is? Take some time and observe the person. Regardless of the scam, theft takes a toll on productivity. Between tracking pour cost and bar productivity, there isn’t an employee scam or fraud that you can’t catch.

6. ALCOHOL DISORIENTATION — Increasingly more people are socializing without alcohol. More than a passing fad, it is now part of the dynamics of our industry. There are numerous explanations why—including stricter DWI laws, health concerns, caloric content and personal preference.
Fortunately for those of us in the on-premise industry, we’re in the entertainment business not the alcohol business. In addition to increased consumer demand, another reason to market alcohol-free products is that they command profit margins equal to or greater than their alcohol counterparts. Another incentive is their sale incurs no third-party liability and precipitates no service-related problems.
  Long gone are the old stigmas and stereotypes surrounding alcohol-free beverages and the people who order them. From a management standpoint, alcohol-free marketing makes great sense.

7. WEAK LINKS — Your business is only as strong and vital as your weakest employees and what they don’t know can hurt you. Despite the importance of ensuring frontline employees are well trained, the irony is that few things are easier to put off than staff training. If a mind is a terrible thing to waste, imagine the terrible cost of squandering the intellectual capacity of your entire staff.
  Simply put, training is a dollars and cents issue. If bartenders and servers are insufficiently trained, every aspect of the operation suffers. Consider the ramifications of servers who aren’t familiar with the menu, bartenders who don’t know about the products on the back bar, or who aren’t comfortable cutting someone off. This just begins to scratch the surface of the things your staff needs to know.
  The most advantageous course is to institute a continuous training program. Typically bars and restaurants concentrate on training employees only before they initially open for business. But why leave it at that? With turnover and the natural effects of time, you can anticipate that the benefits of the initial training will decrease dramatically. Bartenders often get complacent and begin taking liberties with portioning or deviate from stated procedures. Inevitably these breeches exact a toll.
Your business is only as strong and vital as your weakest employee.

8. NO SUDS CONTROL — Draft beer is a cornerstone of the on-premise industry. To a large degree, its enduring popularity can be attributed to being pure, fresh and unadulterated, barreled in its natural state exactly as the brew master intended. Draft tap handles act like homing beacons. They immediately command the attention of beer drinkers entering a bar or restaurant and confirm that they’re in an establishment that takes beer seriously.
  According to recent figures compiled by the Beverage Information Group, beer accounted for nearly half of all beverage alcohol sold on-premise in 2008—35 percent of those sales coming straight from the spigot. Growing consumer demand for draft beer has boosted its sales 17.6 percent over the last 5 years.
  In a perfect world, every ounce of draft beer you purchased would be dispensed and sold. However, industry figures reveal that operators lose roughly 23 percent of the draft beer they purchase due to over-pouring, giveaways and theft, which equates to nearly 1 out of every 4 kegs. Factor in the lost potential revenue that draft beer would have generated and you’re looking at a significant hit. It’s difficult to remain successful under those circumstances.

9. NOT MONITORING LABOR COSTS — Payroll is the largest reoccurring expense after cost of goods sold, which makes ensuring those dollars are being invested wisely of paramount importance.
  Start the process by considering how effectively you use the bar staff. One chronic problem is not scheduling enough people to handle expectedly busy shifts. Aside from subjecting employees to undue stress and exacerbating employee turnover, running with a skeleton crew when it’s busy will undoubtedly cost you sales, cost the bartenders gratuities, and cost the clientele the level of hospitable service they have come to expect. Understaffing is expensive, far exceeding any savings in payroll.
  Another concern is “riding the clock,” which refers to employees purposely taking longer to break down the bar and perform their closing duties, thereby increasing their payroll.
  Labor cost percentage measures the relationship between payroll expense and gross sales. It’s a means of determining how effectively your payroll dollars are being invested. To determine a shift’s labor cost percentage, the payroll for the employees working the shift must first be totaled. It is advisable to compare the number of hours your employees actually clocked-in with the number of hours they were scheduled. The process will improve your ability to forecast scheduling requirements and afford you an opportunity to investigate any discrepancies.

10. ILL-DEVISED PLAYBOOK — Buy a new car and they give you an owner’s manual. Get drafted into the NBA and you’re handed a playbook. Get hired as a bartender or food server though and all you’ll likely get are a few training shifts and a printout of house policies. In today’s litigious society that’s far from adequate.
  The fact is that being an employer is fraught with legal liability. Make a mistake and you could find yourself on the wrong end of a civil lawsuit or in front of the National Labor Relations Board, where nine out of ten employees leave victorious. Suits for wrongful discharge, sexual harassment and racial discrimination are among the most prevalent employment-related litigation with judgments averaging in the six-figure range.
  The first line of legal defense is a comprehensive, well-structured employee handbook, one that clearly defines the employees’ job descriptions, areas of responsibilities, and all of the operation’s policies and procedures. Without it, legally holding employees accountable for their actions is practically impossible.
  Drafting an employee handbook is similar to creating an employment contract, which is how the courts typically view these documents. And like a contract, employees are typically asked to sign a statement that they have received the handbook, read it thoroughly and agree to abide by all of its provisions.
  While an employee handbook need not be filled with legalese, it does need to deal with each item in a thorough and comprehensive manner.