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INVENTORY
- Why is Variance/Shrinkage so high in the hospitality industry?
- I use my GP% (gross profit percentages) to monitor my business – so aren’t I already tracking my variance?
- When should I consider outsourcing my business reporting?
- We are already so busy, how time consuming is it to get started?
- How much does a service like this cost?
- What sort of businesses does Barmetrix work with?
- How would my staff and managers respond to a system like this?
- What does variance really cost?
- Do you stop the service after the variance is reduced?
INVENTORY
Why is Variance/Shrinkage so high in the hospitality industry?
There are 4 key factors that contribute to this problem:
- Selling partial units – Without the use of robotic dispense equipment this is a very difficult job. Opening a bottle and selling 1 ounce/30mls has always posed a challenge to our industry. Over recent years with the massive expansion of a typical product range it has become a much more challenging job to reconcile stock.
- The environment – If you put a bank teller in the same environment as a bartender (working in the dark, loud music, customers shouting and waving money, alcohol consumption, etc.) you would no doubt increase their error rate. A bartender’s environment is one of the most challenging to work within.
- Blurred lines, hundreds of years of tradition – Very few other industries allow employees to consume products on site during or after a shift. You wouldn’t see a grocery store clerk wandering around the store after work eating apples once they’ve signed off. Or a hardware store employee filling his pockets with nuts and bolts before leaving with a “one for the road” mentality. The fact that most bars allow staff to have a drink during or after their shift sends a mixed message and creates a working relationship that is fraught with complications.
- Lack of time, tools and expertise to reconcile stock on a regular basis - Unlike counting your tills at the end of every shift to keep individuals accountable, this is a bigger project that requires a certain expertise and a complex set of tools. Most bar managers do not specialize in database maintenance or report creation and even if they did, they lack the time to do the job properly.
Running a bar or restaurant at optimal levels of performance takes more than just strong reporting – it takes the implementation of a tried and proven system. That is what Barmetrix delivers to your business.
Industry average for variance/shrinkage ranges from 10% - 20% (depending on which country you are in) BUT YOU NO LONGER NEED TO CONCERN YOURSELF WITH AVERAGE! Barmetrix clients typically drive their losses below 3% after just a couple of months of working with us.
I use my GP% (gross profit percentages) to monitor my business – so aren’t I already tracking my variance?
Using your GP% to track your variance could very well be costing you thousands of dollars every month!
Traditionally GP% is factored by dividing monthly wholesale purchases against relevant retail sales (wholesale/retail). While this provides a picture of Gross Profit (GP) and Cost of Goods (COG) these numbers tell you little about losses that you are occurring. Strong GP figures alone do not demonstrate that your business is running free of variance.
To explain, consider the fact that it is possible for GP and VARIANCE to rise simultaneously! For example, an increase in theft of cash coincides with an increase in sales of high margin items (e.g. A bartender begins stealing at a time when you are selling more cocktails or bottled water than usual, etc.). In this case, both GP and VARIANCE would rise simultaneously, but in most bars around the world, only the increase in GP would be noticed.
If you are in business to maximize your profits, you need to get the facts not ballpark estimations.
Other factors that can contribute to a fluctuation in your GP% are:
- Wholesale costs and/or retail price fluctuations (this is a monthly occurrence)
- Purchasing decisions (bulk purchases are made for cost savings, supplier change, etc.)
- Dead stock (stock purchased but never sold)
- Category shift affected by seasons (e.g. more draught beer and cocktails sold in warmer months)
- Discounts, staff drinks and free drinks (few take into account the dramatic effect this has on GP)
- Variance and wastage (GP killers!)
- Non-sale items such as juice, post mix, etc. (cranberry juice has become as expensive as beer!)
- Par levels fluctuating (discontinuing a product line, changing menu, etc.)
Barmetrix reporting is a perfect look into the ACTUAL performance of your business and an opportunity to gear your managers towards running your business to its potential rather than an arbitrary percentage.
When should I consider outsourcing my business reporting?
Any time you can have a professional take over a task for you and provide a strong return on investment you have to take a serious look at the proposition. Outsourcing is much more than a buzz word or a trend. It is a common practise of the top operators in the hospitality industry and is a key factor in business stability and consistent growth.
Here are some indicators that should prompt you to consider outsourcing:
- It's less expensive to have someone else do it than to buy the equipment and train an employee to do it in-house (and retrain someone else to do it when that person leaves).
- The activity can be done in-house, but it would drain resources that could be better used elsewhere that are already stretched.
- The skill required is so specialized that it's impractical to have an internal employee do it.
- The activity isn't one that staff enjoy doing or look forward to each week – so many put it off!
- Doing the activity internally could create turbulence between key staff or open the door to thieves being able to cover their tracks by reporting “everything’s fine!”
The general rule of outsourcing is simple: Subcontract any task that a professional can do more effectively and provide a strong return on investment. After all of the hard work that has gone into your business so far, you owe it to yourself to discover the true potential of your business. Getting Barmetrix involved in your business for 2 – 3 weeks is the best way to do this.
We are already so busy, how time consuming is it to get started?
Getting started is simple. Because we use our own equipment which runs independently to your existing business configuration there is no interference to the way you currently run your operation. All you need to supply is your sales file for the time period of the audit, your invoices for stock received, prices and recipes (which should already be on file) and access to the venue. It is that easy! From your first report, our consultants will be able to demonstrate the value of moving forward and provide an indication of the return on investment you can expect.
How much does a service like this cost?
Perhaps the best part of all of this is that Barmetrix will be an asset to your business not a cost.
- We charge a flat fee per audit (a quote is fast, easy and FREE)
- There are no long term contracts
- It is simple, our services provide a return on investment - or you stop using us! Giving you nothing to lose and everything to gain.
What sort of businesses does Barmetrix work with?
We work with hundreds of clients ranging from outlets that turn over 5K/week to venues that turn over 1M/week. We offer solutions to all types of operations ranging from pubs to bars to nightclubs to restaurants to clubs and hotels. We can provide the industry’s best reporting and advice to any business that sells alcohol and/or food.
Typically we see our best results working with elite management teams or struggling businesses.
Why Is This?
Typically, the Top 20% and Bottom 20% of the industry are most willing to make changes and accept advice. The top 20%, because they have made a habit of constantly proactively upgrading their systems and operational procedures (which is why they lead the pack); and the bottom 20%, because they have little option but to make progressive changes.
Barmetrix is a business system that offers transparent reporting, aggressive variance reduction and progressive growth. But it is not for everybody. Those operators that are stuck in their ways that constantly utter the words, “that’s not the way we do things around here” may not be ideal Barmetrix clients. The fact is that we care about each account we have and if we are not able to create a productive relationship with a venue’s management team we generally terminate the relationship. There are so many businesses looking to make massive improvements that we will not bother to waste our time or the money of those that aren’t!
How would my staff and managers respond to a system like this?
This is a common concern and what we find is that most clients are pleasantly surprised.
Let me start by pointing out the obvious, any member of staff (this includes bartenders, kitchen staff, floor staff or managers) that subsidize their rent or car payments by stealing from your business are not going to enjoy the commencement of this service!
On the other hand, for the majority of the people employed they have no issue with it. In fact it becomes an advantage. Let me explain.
Managers enjoy the opportunity to take the business to the next level aided a weekly reporting system to prove it!
Front line staff enjoy the competitive atmosphere and the transparency the reporting offers. Everyone wants to be part of and a contributing factor to a winning team!
What does variance really cost?
The biggest mistake a retailer can make is to think in terms of wholesale. Unless your business is losing stock off the delivery truck, it ALWAYS costs you more than the wholesale amount.
The fact of the matter is that your losses when factored accurately cost you a price much closer to your retail dollar value than your wholesale – and sometimes even more!
Hundreds of bar operators have changed their thinking on this subject which has lead to them changing their actions resulting in a massive change in their results. If you haven’t already – you should start to right now.
Do you stop the service after the variance is reduced?
This is a common misconception which leads to some costly decisions!
You don’t stop eating right and exercising when you reach your ideal weight (unless you want to rapidly pack the weight back on).
You don’t stop counting your tills when your cash balances (unless you want to lose your shirt!)
So why would you stop monitoring your inventory and business performance because you have begun to run it at an optimal level?
It is the repetition and awareness that has created the behaviours which has caused the results.
Furthermore, monitoring to maintain your low variance protects you against blow-outs, which can be caused by new staff, new products being miss-keyed, or sudden hidden financial pressures on your staff that may cause their behaviours to change!