What are the industry facts about bartender stealing? Today we’ll discuss how the majority of bar owners are losing 20% of their profits and are totally unaware.
Have you ever wondered how a bar owner can be losing money and not be aware of it? We’ve all frequented the local place where the bartenders are giving drinks away and we wonder, ‘How could the owner possibly be unaware?!’ This edition of the Design Buzz Productive Bar Design series discusses how 85% of bar owners can be losing huge profits and be so unaware. I have it from reliable sources!
HOW CAN BAR OWNERS BE SO UNAWARE OF LOSSES?
Making money in the bar business is tricky. And deceiving. As I see it, the bar business is so profitable that owners are lulled into thinking that they have it all figured-out and under control. Friends, this is the furthest thing from the truth! If you believe this, you are perpetuating your own problems. According to my friend and industry expert, Chuck Deibel, CPA:
“Over 85% of all operators understate their losses on an ongoing basis, thus setting themselves up for a multitude of problems and issues.”
A recent state of Ohio sales tax audit brief by Deibel reveals that 85% of bar owners experience an average of 20% shrinkage, fueled by incorrect accounting and employee waste and theft. Deibel asserts that these numbers have been proven over a 20-year period with over 1,000 bars and 5,000 audits! Listen to my exclusive audio interview with Chuck Deibel:
The rest of this story will focus on the local bar mentioned above. It’s a place we all know of. The bartenders are giving away drinks to receive larger tips. If the owner were selling $10,000 per week, he’d be losing $2,000. The most perplexing thing is that you know the guy – he’s shrewd! You think to yourself, ‘How could a thing like this be going on in his bar?!’ This is almost unimaginable with this owner. Certainly, he MUST know. Guess what? HE DOESN’T! Why? If we take a small glimpse at his operation, perhaps we’ll have greater understanding:
- He purchases well vodka for $6.85 for a 32 oz. bottle.
- He serves 1.25 oz. shots ($.27 net cost) for $3.50, which yields a gross profit of $3.23.
- Like most bars, he also sells multi-portion cocktails, which includes long island ice tea, white and black Russians, etc., and batch cocktails such as margaritas and frozen daiquiris. You get the picture.
Here’s the root of his problem:
- He isn’t performing his inventory accurately (let’s assume he realizes the importance of doing inventory). Because he sells such a variety of mixed alcohol and at numerous price points, how could he? Besides, he also offers Happy Hour specials, which further complicates things.
- The bartenders are aware of it!
So what happens? The bartenders are picking his carcass clean – just like vultures on the Serengetti! It would be one thing if he were only selling well vodka, but this isn’t the case with the average bar. They sell everything.
My point is this: this owner knows he’s making a ton of money, so how could he know 20% is missing? I bet he’d be interested if he knew there were a way figure it out, but this would be like unravelling a giant ball of twine!
As Chuck Deibel says, the basic problem most people have with performing an accurate inventory is they don’t perform it the way an accountant would. According to Deibel, in a 2014 edition of the Ohio Tavern News (a column he authors):
“Comparing current actual costs to past actual costs does not reveal (true) differences.”
Thinking about our friend, his (nor anyone else’s) problem cannot be revealed merely by comparing this month’s pour cost to that of last month’s, especially if his bartenders have devised methods of keeping the shrinkage consistent. In short, he thinks he’s performing accurate inventories when his sales and/or pour costs compare favorably from one period to another. But his premise is false because he’s been performing his inventories incorrectly all the time – it only means he’s been doing them consistently! Besides, he isn’t even selling the same product mix from month-to-month.
So now you wonder what could this owner do differently that will get him to the root of his problem? The answer is, “Actually, quite a lot!”
WHAT SERVICES CAN BAR OWNERS USE TO ASSURE ACCURATE INVENTORY CONTROL?
If I had one recommendation to make, my answer is the BevInco inventory service. With BevInco, bar owners learn how to perform accurate and consistent inventory the very way an accountant would. According to Deibel’s 2014 story, he states that the single-most critical key to performing an accurate inventory is to determine the ideal cost and compare that to the actual cost, which yields how much is missing. All this accounting talk sound confusing? It’s really simple when done the BevInco way. BevInco developed proprietary software that bridges the gap bar owners need to perform accurate inventories. First, BevInco calculates the actual usage with its accounting-based software:
- All full bottles (alcohol, beer and wine) and kegs are entered.
- All open alcohol and wine bottles are scientifically weighed to the gram. The software then converts the volume of each open brand to 1/100 of an ounce.
- All drink recipes are entered.
- All batch recipes are entered and open batches are weighed and entered.
- All open kegs are weighed.
- The POS information is entered.
The result computed by the software is the actual usage. There is no other way to compute this result. If our friend, the local bar owner, were to use BevInco, he would know he has a shrinkage problem, and then he could initiate steps to isolate over-pouring and theft. A sample BevInco audit report is shown above, right. BevInco clients average 2 – 3% shrinkage. A sample of a first and a fourth audit of one case study can be downloaded below. If our friend were selling $10,000 a week, his shrinkage would be decreased from $2,000 to $200 – $300 – per week! Bar owners can hire a local BevInco dealer to perform their audits at an average price of $200 per week, or they can be taught how to perform their own audits and have BevInco make quarterly reviews. BevInco will make your decision easier by performing the first two audits free-of-charge.
WHAT PRODUCTS CAN BAR OWNERS PURCHASE TO MAXIMIZE PROFITS?
As I mentioned in recent editions of Design Buzz, bar owners can purchase equipment that will enable them to control pour cost.
These entail a capital purchase and are geared toward improving profitability in each of their respective areas. However, they are not standalone full inventory control systems.
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