When shrinkage is substantial, it can significantly decrease your restaurant or bar’s profitability. You will find restaurant and bar inventory shrinkage when you reconcile your inventory with your accounting records and find that you have less inventory on the shelves than your books say you should.
When you are able to better manage inventory shrinkage, you can reduce losses and improve your bottom line.
To calculate your shrinkage rate, you can use the following calculation:
Shrinkage Rate = (Recorded Inventory – Actual Inventory)/Recorded Inventory
While the ultimate goal would be to have zero inventory shrinkage, there are some reasons - such as spills, using the wrong ingredients or incorrect drink mixing - that will cause all bars and restaurants to have some degree of shrinkage. An acceptable amount of shrinkage would be under 2 percent for most bars and restaurants.
But before you start to worry about how to get your shrinkage to an acceptable level, which we will cover in our next blog How To Reduce Inventory Shrinkage At Your Bar or Restaurant, you need to know what causes it. Here are five of the most common reasons:
Theft is one of the most common causes of shrinkage in many industries. While this can be done by someone externally, internal theft (employee theft) is also a major problem.
Some of the ways staff can steal inventory from you is by overserving friends and family or giving away free dishes, over pouring drinks for higher tips, taking food and alcohol home with them and recording false spills only to sell the drink later for cash and pocketing the tender.
All of this will result in your business having less inventory on hand than is recorded in your system.
Alcohol, mixers, garnishes and food can all go bad over time, some much faster than others. If they aren’t used by their best before dates, they will have to be disposed of, which can increase inventory shrinkage.
- Damage and spills
Accidents happen, which is why inventory shrinkage will never truly disappear. Dropping bottles, toppling trays, or replacing a customer’s spilled drink all increase your level of shrinkage.
- Over pouring
When it comes to serving alcohol, many drinks are poured by eyeing the pour. This leaves room for staff to accidentally pour more into a glass than standard.
- Administrative errors
There is a lot of alcohol and food moving in and out of your bar or restaurant, which means there are lots of opportunities for administrative errors. This may include inputting incorrect quantities per case counts or receiving inventory based on the packing slip without verifying the right amount was actually shipped.
In addition, your staff may accidentally input the incorrect item which can result in the wrong amount or type being removed from the inventory system, leading to potential shrinkage.
All of these causes of shrinkage can result in lowered income as well as further inventory management issues.
Are you interested in finding out what your restaurant or bar’s shrinkage level is, and how inventory management can help you reduce it? Get in touch with Sculpture Hospitality today. Our team of inventory specialists would love to help.