Controlling Liquor Cost

Restaurant Accounting Services

By Robert P. Kiley

Chief Executive Officer, Restaurant Accounting Services

Most restaurateurs know how to control their liquor cost. However, due to the fact that some of the “controls” can be cumbersome and time-consuming, the key controls are often skipped, and costs skyrocket. Industry studies consistently show that 25 to 30 percent of a bar’s liquor inventory never translates into registered sales! This loss, due to unauthorized comps/discounts, over-pouring, spillage and theft, should be of great concern to any restaurant or bar owner.

One of the basics is requiring your service bartenders to use jiggers since the customers can’t see them anyway. If all of your bartenders are visible to the public, simply test the pours of the bartenders, and ensure, through random inspection, that they are not pouring “heavy.” During work shifts, use the element of surprise. Test your bartenders’ pouring ability frequently. Additionally, all bartenders should be required to ring all transactions for sales immediately and drink recipes should be consistent and readily available.

When it comes to inventory, establish proper par levels, keeping as little on hand as possible. The fewer inventories your employees see, the less waste and heavy pouring occur. This doesn’t seem like it works to reduce cost, but it really does in both beverage and food cost. It’s remarkable how employees self-restrict their usage when inventory levels are kept at a minimum. Along those same lines, keep all liquor locked and institute a requisitioning system using bottle-for-bottle exchange.

Finally, have a weekly inventory along with a properly programmed point-of-sale system and a segregated tally of beverage cost. After an exhausting week, the last thing most of us want to do is take inventory. Unfortunately, the more often inventory is taken (weekly vs. monthly), the more we can police the liquor cost.

In conjunction with taking total inventory by category (i.e. liquor, beer [even bottled beer and draft beer], wine and non-alcoholic [n/a] beverages), your point-of-sale (POS) system needs to tally sales by these same categories as well. Depending on your experience in the restaurant business, this may seem elementary. But in my experience, a majority of independent operators, particularly handling their own accounting, fail to tally one or all of the areas (sales, purchases, inventory) needed to compile an accurate cost of goods sold properly.

Let’s review with some general guidelines:

Beverage Cost = (Beverage Purchases +/- Inventory Change) / Total Beverage Sales

Time Frame – Determine the time frame for which you will compile your liquor cost. Whether you choose a week or a month, you must start with an accurate beginning inventory. Remember to sub-total liquor, beer, wine and n/a beverages.

Sales – This is the easy part, particularly with today’s POS systems. Run a summary report from the POS for the period for which you want to determine the cost of goods.

Purchases – Simply tally your vendor invoices for the period, remembering to total by liquor, beer, wine and n/a beverage purchases.

Inventory Adjustment – To properly determine beverage cost, a physical inventory of the main bar and storage areas must be conducted at the end of each period. With an accurate beginning and ending inventory, you can determine the change.

Let’s do a sample calculation:

Liquor sales for the month               $40,000        100.00%

Liquor purchases for the month        $ 7,560         18.90% ($7,560 ÷ $40,000)

Inventory Change                            + $ 280 +.07%

Total Cost                                       $ 7,840         19.60% ($7,840 ÷ $40,000)

Beverage cost percentage = 19.6%

This calculation needs to be done for beer, wine and n/a beverage as well.

What should your beverage cost percentage be? Successful restaurants generate total beverage costs in the mid-20% range. However, different types of operations run higher and lower percentages. Generally, a liquor cost of 20%, beer cost of 25%, wine cost of 30% and n/a beverage cost of 25% are acceptable.

These methods of control plus properly calculating your beverage cost will go a long way in assisting you, the restaurateur, to manage beverage cost and increase your profitability.

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