While retail industries typically run at a five per cent loss, the hospitality industry has come to accept losing 20 to 25 per cent of its product as the norm.

“Liquor needs to be recognized as an owner’s liquid cash,” says Krista Recoskie, marketing manager at Bevinco Corporation. “A bartender wouldn’t give a customer $5 out of the register, so why give them a $5 drink at no charge?”

Loss of product can occur from a number of causes – theft, waste, portion control. Food and liquor costs are a key component in running a restaurant or bar and every restaurant owner must analyze and control his or her inventory year round. It’s clear that inventory control is important.

But which system is right for your establishment?

The answer should not only consider the cost of the system, but also on the cost of operating that system correctly, says Craig Bednarovsky, director of sales and marketing at Action Systems.

There is always increased payroll cost associated with implementing an inventory control system. Staff must be paid for the time it takes to process orders, post invoices, track deliveries and enter data and variances resulting from physical inventory counts.

In the same way that a basic POS System becomes useless if servers only use it sometimes to ring up some sales – or managers only use it sometimes to authorize some voids – an inventory control system is useless if it isn’t used correctly and consistently, says Bednarovsky.

In other words, if you don’t pay staff to correctly operate an inventory control system, there’s no point in investing a penny in that system.

While it’s important to control year-round, it’s especially important to consider your inventory control options over the holidays because as volumes increase, the potential loss is greater.

PERPETUAL INVENTORY: RESTAURANT MANAGER

While all licensed establishments, no matter the size, could likely benefit from some sort of inventory control system, Bednarovsky says the type of system they can best benefit from depends on their gross sales volume.

“If a given inventory control system can help a business cut its food and beverage costs by 10 per cent and if its current food and beverage costs run about $100,000 a year, the business would be wise to incur an additional $5,000 a year in payroll costs to properly implement that inventory control system,” he says. “On the other hand if the projected cost savings are less than the payroll cost to operate the system the benefit is less clear.”

Smaller businesses usually benefit from a simple “stock counter” system while larger businesses can realize significant cost savings from systems that track “perpetual inventory” and require dedicated staff to operate.

Perpetual inventory involves entering each inventory “stock item” (every item bought from the vendors) into the system and linking that stock item to menu items. This is essentially a recipe of ingredients used in the preparation of each menu item. By linking the individual stock items to each menu item sold, the system can then “deplete” each ingredient as it is sold.

Cocktail example:
Menu Item: B-52 Cocktail
Stock Items: Kahlua, Baileys, Grand Marnier
Link to Menu: Each time a B-52 is sold, deplete from stock the following:
25ml Kahlua, 15ml Baileys, 5ml Grand Marnier

Perpetual inventory gives highly detailed reporting and analysis of profitability of each menu item, detailed shrinkage and surplus.

Other reports can indicate so-called “price creep,” the increase in supplier price of products over time, which might not otherwise be noticed in the daily routine, allowing bar owners to re-negotiate pricing with the vendor (in the case of a price increase) and push the sale of menu items prepared with those items whose price has decreased.

One downside to perpetual inventory is that it can be highly labour-intensive. The initial setup of each stock item and the linking of each item for menu explosion can take 40 to 50 hours to complete. Subsequent maintenance during the inventory cycle, including stock-taking and entering invoices as new shipments arrive, will require more manual effort up to several hours per week.

Perpetual inventory is best suited for ‘number’s people.’ They want highly detailed information at a granular level, and do not mind the amount of time and labour it takes to provide this type of data.

In addition, this type of system is ideal for very experienced staff that has a well-established routine for counting, ordering and invoicing. The cost to implement this system is dependent on software and training costs possibly starting at $1,500 and up depending on the region and company. There is an additional labour cost involved in setting up the initial stock items. Most companies have the client do all of the inventory programming after training.

REAL-TIME COUNTERS: RESTAURANT MANAGER

In addition to providing perpetual inventory functionality, Restaurant Manager also has a streamlined method called RM Counters, which focuses on tracking key items (liquor, beer, wine, high cost proteins) on a ‘real-time’ basis. This type of tracking does not involve the entry of invoices or purchases.

Each key item is linked directly to each menu item, and then the system can provide real-time consumption reports to track those stock items closely during each shift to more closely monitor loss or variance and thus have a very high level of accountability.

With the real time RM Counters, reports are generated at the end of each shift. By doing a starting stock count at the beginning of each shift, the consumption can quickly be verified at the end of the shift thus creating immediate accountability. Counters reports can be filtered down to a specific bartender for example, or for a specific ‘revenue centre’ (ie: all food prepared for the dining room), and even for specific time periods, and any combination of those filters.

RM Counters are easy to set up. Initial setup time for a full-service restaurant with bar is about one to two hours. In addition, there is no cycle maintenance labour time involved.

Restaurant Manager’s Counter functionality is best suited for the bar owner who wants instant accountability, wants to keep effort to a minimum but still has a high level of responsibility for key stock items on a shift-by-shift basis. This type of bar owner wants management working with employees and guests rather than entering invoices and working with software.

Depending on your inventory requirements an owner can figure anywhere from two to 40 man hours a week. The discrepancy in hours rests on sales volume and the depth of inventory being managed. The more a manager micromanages stock, the more time it will require to maintain.

RM Counters’ functionality requires virtually no experience to be highly useful.

This type of system works well with all systems, though a smaller operation would most likely find RM Counters the best way to start. Then perhaps move on to full-blown inventory management at a later time and after more experience.

The cost of RM Counters ranges from $1,200 to $1,600 depending on region and reseller.
Industry averages suggest anywhere between a five to 15 per cent reduction in inventory costs are achievable with a computerized inventory management system. For an establishment that does $1 million a year in sales, such a reduction would result in savings sufficient enough to free-up an average of $30,000 of re-investment capital.

THIRD-PARTY AUDITS: BEVINCO

There are several different systems out there, from dispensing systems to different inventory software, the main issue with these systems is that they are internally managed and tracked, so in most cases you have the same individuals serving the inventory as you’re tracking the inventory the results.

Bevinco operates differently than other types of inventory control because they are a third-party service. Auditors visit an establishment at a time not known to staff and conducts a complete audit on all liquor, wine and beer and compares what was actually used that period to what was sold. They provide variance reports on the results, identifying losses by brand and ounce.

In addition to inventory control, the company emphasizes profit management and revenue enhancement, looking at mark-up items and identifying dead stock.

This type of system requires full support of all managers. In order to effectively run a complete audit, they require bar sales and purchasing information from the owner or manager.

As for staff, the company hosts bartender meetings and discusses topics such as best practices on pouring techniques.

Currently, the company services nightclubs, bars, fine and casual restaurants, pubs, bowling alleys and hotels. The cost depends on the size of the bar but the average cost is $200 per audit.

Typically, Bevinco clients experience four times the return on their investment and reduce losses to within five per cent.

FLUID AND FLOW: BEVCHEK

Inventory control requires the physical measurement of inventory remaining to compare to what has been purchased and sold. There are three ways to measure how much liquor or beer is left in the container: by estimate, which is subjective and periodic; by weight, which is relatively objective and periodic; and by fluid or flow, which is highly accurate and exists in real time, according to Dave Creasy of Bevchek Systems.

The first two methods are periodic, meaning that an inventory count is required to start the process. Once the inventory is complete, the result is the detection of missing inventory, says Creasy. However, from there the ability to identify when (and by whom) any problems occurred is very difficult. The measurement of actual product used is the only method that allows the detection of problems in real time and also the identification of when and by whom a problem occurred if the review is after the fact.

Bevchek relies on the third, and as Creasy says, most accurate measurement of inventory as it measures the exact amount of beer that is poured from a keg and compares it in real time to what has been sold in the point of sale.

Bevchek software reads usage volumes as they are poured. The POS interface reads beverage sales data from all establishment POS machines. The data is then sent to the system’s servers where it is sorted, stored and prepared for viewing. The user can access the data on any web-enabled device worldwide through secure access to the Bevchek website. In addition, multiple user levels allow varying degrees of information access and graphing tools track changes in customer purchasing trends providing you with real-time marketing data.

This type of system is best suited to a bar owner that wants to focus on his or her guests, products, service and employees and not on administrative tasks. Bevchek is fully automated to alert a bar owner the minute exception events occur, rather than waiting until the actual inventory count identifies a shortage.

Alternatively, summary and detailed reports are available through a secure website to be viewed at the owner or manager’s convenience.

Minimal management support is required as Bevchek is fully automated to alert a manager’s phone or PDA. Its web-based reporting solution provides managers real-time information whenever they want or need it.

This type of system is ideal for operations with significant draft beer volumes. The cost depends on the size of the establishment, but the system can be installed for a few thousand dollars and a small monthly fee. In addition, most operators experience a complete recovery of their investment within four to six months.