The Dividend of Focus

Most hotel bar operations are focused on hitting beverage cost budget.  Budget is considered the “expected performance.”  Leadership teams do not want to miss that target and they watch it carefully.  Budget is by no means a “cakewalk.”  A lot of effort goes into monitoring purchasing/inventory, enforcing operating practices, and monitoring margin in order to hit that target. 

Budget planning is typically a rollover of the number from this year to next year.  Only an expected major change in business mix (i.e. a new venue opens) will justify discussions of a different number for next year, then we have for this year.   Budget is “expected” performance based on historical results.

Is there an opportunity to come in way under budget?

Most F&B Directors are skeptical improvement is possible. “We have a good team.”  “We are doing everything we should be doing from a control perspective.”  “Our numbers are the same as other comparable properties.” But in almost all situations there likely is a 20-30% beverage cost improvement opportunity.  We know this because:

• We see bartenders over pouring drinks.
• We know that drinks get poured and not sold – or upcharges not rung.
• We can look at dozens of Case Studies which show dramatic beverage cost improvement after focus.

What is Potential Beverage Cost?

Potential Beverage Cost is not determined by looking at how others do. Every hotel/resort situation is different.  Others will almost certainly have different business mix, category mix, market factors which influence pricing and even purchase cost differences.  More importantly, others may be caught in the same budget number paradigm which throttles their focus on getting better.

Potential Beverage Costs is not the same as Theoretical Beverage Cost.  We don’t expect bartenders to pour perfectly.  We will plan for variance and some pours not to translate into revenue.  Banquet beverage cost numbers are often close to theoretical, because most banquet events are hosted, and you invoice based on liquor consumed.  But this is not a valid comparison to what you can expect in a bar.    

Potential Beverage Cost takes into account the following:

• Variance.  Bar beverage costs in a bar will be 20% over theoretical and of course taking into account modifiers which change the pour amount.  Also, this factors in comps, spills and a certain amount of missed drink sales.
• Venue business mix.  Banquets will have a far lower target beverage cost then a fine dining restaurant.  Bars will usually also be lower than a fine dining restaurant because they don’t typically sell wine by the bottle.
• Category Mix.  Beer, Liquor and Wine have different target beverage cost numbers.  Wine will also be influenced by the mix of Wine by the Glass versus Wine Bottle revenues. 
• Pricing is also a key driver along with the mix of cocktails and premium liquors/wines.

Potential Beverage Cost represents a target beverage cost for the operation, reflective of the specifics of that operation and taking into account acceptable variance.  It can run from 12% to as high as 20% depending upon factors.  Unfortunately, actual beverage cost will often turn out to be far higher than potential beverage cost, and the difference represents a profit improvement opportunity.

Why is Potential Beverage Cost so much lower than Actual Beverage Cost?

What goes on in EVERY BAR, is what would go on in every highway if there were no policemen with radar guns:

• Drivers drive way over the speed limit – (Bartenders pour way over the standard/recipe)
• Bartenders are not selling every drink they pour and forgetting up charges on drinks they do sell
• Guests are experiencing inconsistency, which breeds dissatisfaction

We know this because we do have “radar gun” type tools which when turned on in a bar illuminate the undesirable behaviors. Technology monitors pour amounts.  Software links POS sales data to pours, so we can see the specific moments when bartenders are “speeding.”  In this case to below, one pour is okay and the other is outrageous.  From a guest experience perspective, no way these tasted the same.   2 drinks which should have had a 3oz K1 Orange cost have a 4.61oz K1 cost.  That’s 50% over theoretical (10 beverage cost points).

We can see when bartenders pour drinks that don’t get sold.  Lost Revenue at 100% margin, since the inventory was consumed.  Getting that drink sale back would deliver 100% of its value to increased cash flow and lower beverage costs.

In case study after case study, when we use technology, we can see how bad the overall behavior is.  In the example below these are pours of a brand of liquor going into one cocktail in the short period of time when we are monitoring at the start of a project and then what happens after focus is asked for. 

Whether you have technology or not, the left side of that chart is happening in just about every bar.  The right side of the chart is behavior change which gets you to potential beverage cost results.  The only thing you need to get to the right side is FOCUS!

How do you get to Potential Beverage Cost?

1. Recognize there is opportunity.   Not pouring to standards, inconsistency and unaccounted for pours are happening in your bar.   A straight analysis of numbers suggests the possibility of this being true.  The deployment of technology for even a few weeks proves it’s true
2. Decide to Focus.  Whether you use technology to illustrate moments for coaching purposes OR just use non-technology-based methods to generate coaching material – Deciding you will go for it is THE MOST IMPORTANT STEP
3. Execute the Focus plan and monitor progress

Producing results usually takes 30-60 days of Focus.  Managers who focus on bartender behavior, create bartenders who focus on making drinks consistently and ringing everything they pour.  Behavior change results then tend to hold with a much lower energy monitoring strategy, much like the way all of us monitor our driving speed on the highway even though we might not see a policeman for weeks. 

The “Yellow Brick Road” to Potential Beverage Cost

Hire Strategic Beverage Solutions to do a Potential Beverage Cost Analysis. 

• SBS analyzes the numbers and business situation to calculate Potential Beverage Cost.
• SBS deploys pour monitoring technology for a couple of weeks to produce moment data that illuminates what is going on in the bar from a pouring and missed drink sales perspective
• SBS presents the Potential Beverage Costs analysis results which includes Focus strategy options you can consider.  Note this does not have to include continued use of technology.
• Cost of program $2,750.00

Executive Summary

1. If you do nothing, then beverage costs will be at budget in 2024. 
2. We know in most cases Potential Beverage Cost is significantly less then beverage cost budget for 2024.  And we know Potential Beverage Cost is a realistic goal and is achievable in a short period of time post focus (dozens of case studies). 
3. If you do something effective beverage costs will be 20-30% lower in 2024 and you bank the improvement as profit / cash flow improvement. 

About the Author: Scott Martiny is the CEO of Strategic Beverage Solutions Inc.   SBS focuses on consulting and profit improvement technology solutions for bar operations in the hotel market.  www.strategicbeveragesolutions.com