Bar inventory management is a crucial aspect in understanding exactly how your business is performing compared to your key performance indicators (KPIs). The insights your bar gains from accurate inventory reports can help to drive up the profitability of your business.
One important insight in your bar inventory is liquor shrinkage.
Knowing your liquor shrinkage is an important factor in understanding where your business is losing money, and using those actionable insights to make changes that directly affect the profitability of your bar.
With that in mind, in this blog we discuss exactly what liquor shrinkage is, how you can calculate your shrinkage rate, where shrinkage may be occurring in your bar and what you can do to avoid beverage shrinkage in your bar inventory.
How to determine liquor shrinkage?
Bar shrinkage can be calculated by first conducting a physical count of your inventory. It’s most effective, efficient and accurate to do this through the use of a bar inventory management system.
Once you have accurate inventory information, you can then calculate your usage and total goods sold for that given period.
- Usage - This is the quantity of a product used by your bar in a given period of time.
Inventory usage = opening inventory + purchases received - closing inventory
- Total goods sold - This is a tally of of all recipe ingredients your bar sells during a specific period of time.
Now that you have both your usage and total goods sold calculations, you are ready to determine your liquor shrinkage. You can do this with one very simple calculation.Variance or shrinkage = total goods sold - usage
By calculating liquor shrinkage, your bar can determine exactly which areas of your business are leading to wasted product. This will give you actionable insights that, when acted on, will lead to higher profitability.
How does liquor shrinkage occur?
Ideally, the amount of product sold vs. the amount of product used should be the same over a set period of time, but managing a bar is unpredictable. Calculating shrinkage will tell you exactly where, and what products, you are experiencing variance on, but not why it’s happening.
There are a few common reasons why variance may be occurring in your bar, including:
- Employee theft.
- Liquor spillage.
- Human error, such as incorrectly logging inventory or ringing items into the POS incorrectly.
How to avoid shrinkage in your bar inventory
Reducing liquor shrinkage can significantly benefit your bar’s profit margin. If you have done the above calculations and found variance within your bar, here are a few methods and best practices you can implement to decrease shrinkage.
Use your calculations to train your staff: Once you have used variance calculations to find out exactly where your bar is experiencing shrinkage, you can use this data to educate your employees. For example, if you are experiencing shrinkage in a particular brand of bourbon, simply educate your employees on the specific liquor you are experiencing shrinkage and encourage them to be more careful with their processes.
Make sure your staff aren’t overpouring: A certain level of overpouring or spillage is inevitable in a bar, but it could soon be a huge issue for your bottom line when it becomes excessive. Make sure your employees are using best practices to cut these out, such as using jiggers to accurately measure pours.
Project your company from employee theft: Whether employees are disgruntled or they just don’t understand the impact that taking the occasional product from your inventory has on your company’s profitability, employee theft is one of the leading causes of shrinkage for bars and restaurants. Employee theft can be significantly reduced by some hiring best practices, such as employing the right people, creating an enjoyable work environment and prioritizing the happiness of employees.
Ensure bar inventory is performed correctly: Aside from actual physical product loss, liquor variance can also occur from inaccurate inventory management processes. Make sure your employees are counting inventory consistently and correctly, as well as entering items correctly in your bar’s point-of-sale (POS) system.
Want more advice on reducing liquor shrinkage, and how proper bar inventory management can help that process? Contact Sculpture Hospitality today. Our team of inventory management experts would love to help.