High gross margins on beverages and food have covered up a massive amount of operating errors in businesses. Now—what with increasing costs, bargain seeking, and socially connected consumers—those margins are eroding, and operators are being forced to look closer than ever before at inventory control. What they’re finding is that the average bar/restaurant is losing 10% of its beverages and 15% of its food to variance/shrinkage. These are crippling and unsustainable losses.
Doing the job right
Reconciling your inventory has never been tougher. The average bar has over 120 products. Who could have imagined having 10 gins, 15 vodkas, 50 cocktails, etc.? Most managers spend 95% of their time merely counting and producing reports. Only a few follow up by actually using that information to create plans for reducing the losses.
Counting the physical inventory is only half of the process. The other half is to take those results and break them down into simple tasks and expectations for your team to put into effect before the next inventory. By helping various operations in this effort, I’ve learned that bar owners, managers and even staff don’t want inventory control so much as they want the benefit and peace of mind that that control brings to their bottom line. The purpose of this article is to highlight a few key points on how to reduce inventory losses in your business. The steps below will help you take the inventory process and put it into action.
Close is not good enough
A flawed report does more harm than good, which is why you should invest in the Data Collection Process. The first thing you want to do is truly evaluate your current inventory process. Who is performing it? At what frequency are they doing it? And, most importantly, how are they completing the inventory? Start by calculating the amount of time your team invests in the data collection process. What tools are they using, and are the tools accurate? You have a hard cost to your company to complete the inventory, and often that cost is in manager hours, which manifests in you paying more money. Plus it’s actually less accurate than other solutions that are on the market. Investing in a 3rd party inventory company or program might allow you to reinvest the management team’s time—currently invested in counting—into following up on and taking steps toward utilizing the inventory results instead. That could add thousands of dollars to your bottom line. The days of inventorying wine and liquor by eye and guesstimating draught inventory are behind us. Investing in the right tools or companies for the process is an asset that will save your company thousands of dollars in the long run.
Build a Culture of Control
- Explain to everyone on your team the importance of tight control in your business.
- Each inventory period, explain to the staff what results are expected of them.
- Ensure that the team completing the inventory process has the tools they need in order to accurately execute the process.
- Share the results with everyone on the team responsible for creating them—bartenders, servers, bar backs, etc.
- Act on the results. Implement 1-3 procedures based on the results every inventory period. The implementation of the right results is what will increase your profits—not the reconciliation of the inventory itself.
Growing up in the industry, I can remember how few times I had a positive staff meeting (or even conversation) with an owner or manager regarding inventory. The only time most staff members hear about inventory is when there is an issue at hand. This modus operandi creates not only a black cloud around the topic, but also a lack of trust between owners, managers and staff when it comes to the inventory results. Instead, look at this as an opportunity to connect with your staff and build a culture of control around your inventory results and process. Explain in detail to all of your managers and staff the importance of tight inventory control. As already mentioned, being average in our business leads to losses of 10%—that’s thousands of dollars in lost profit that can’t be afforded. Simply coming down on your staff or managers when the results are not meeting your expectations isn’t helpful. As an owner or manager, you yourself are most likely only going to pour a small portion of the drinks served in your business (if any). In order to engage those that are pouring these drinks, clearly explain what is expected of them when it comes to inventory each shift. Share the results with the team so they know what they’ve helped produce. Listen and involve them in conversation around the results (whether good or bad) every audit period. By doing this, you will create a culture of control that is completely missing from most businesses.
One of the most impactful solutions for improving your inventory results is to create a control score board. For example, try putting a white board in a staff area, clearly displaying the inventory results each audit period along with the actions you are planning to implement based on the results. If you’ve done the previously discussed step—explaining clearly to staff members what is expected of them—the score board is your vehicle to communicate results and follow-up plans openly and consistently each inventory period. My suggestion is to post results on product losses or variances in dollar figures and units, if possible (pints, oz, glasses etc.). Posting on a white board, along with a message from the owner or manager, makes everyone in your business present to and aware of the results, good or bad. Including your team in the results will not only improve your staff involvement when it comes to inventory, it’ll also remove any questions they might have of what’s being required of them, and what you’re expecting to have carried out in the coming period.
Most often, discussions about inventory loss have a negative context to them. The idea, then, is to change the conversation. Go out into your market and contract the right company, and/or get the right tools to complete the inventory properly. Be sure to have a consistent conversation around inventory each and every inventory period. Whether positive or negative, be sure to talk about the results. And, last but not least, post the results for everyone in your organization to see. Let everyone know that inventory is important to you—and needs to be for them as well.
I urge you to take less time performing inventory, and more time communicating the results and the actions you are going to take based on the results. Instead of fighting to TAKE control of your inventory, think of how you can GIVE control to your management teams by providing guidance, budgets, support and clear expectations. In many industries, you can make it by being average. In our industry, being average often means eventual bankruptcy. Change the way you’re doing things. Follow these steps, and bring about a massive increase of profits to your business.