Dead stock, also known as inventory obsolescence, is surplus inventory that your bar is not likely to sell in the foreseeable future. It is something that every bar inventory manager will have to deal with, and can be a drain on storage space and resources.
Not to mention, dead stock can also decrease profits and tie up the capital needed to invest in other areas of your bar or restaurant.
In your bar, this would include wines, beers, liquors and mixers in your bar inventory that aren’t moving as quickly as you had expected. It can even include limes, oranges, olives and other garnishes - small inventory costs can still have a big impact on your profitability when they don’t move.
Typically, dead stock is a result of overbuying, poor forecasting or not aligning sales strategies with stock on hand. In other words, an effective bar inventory management strategy can help solve the issue.
Unlike regular inventory, which will convert to cash (and hopefully profits) when sold, dead stock will sit on your balance sheet until it is written off or sold. If you are unable to sell it, chances are you will have to completely write it off. After all, there’s no use for expired booze.
To write off dead stock, you will have to credit your inventory account and debit your loss on your inventory expense account - or your cost of goods sold (COGS) account, depending on how you have set up your accounts. This will increase expenses and reduce your net income.
The good news is that alcohol, which is the largest and most expensive stock in your bar, takes a while to go off. That gives you more time to creatively unload it to reduce lost profits and wasted product.
To help offload stock that isn’t moving try some of these tactics:
- Find a new drink recipe that uses the products that aren’t moving - customers love trying new beverages, especially if they’re a limited time offer.
- Bundle your hard to move stock with a popular product - consider pairing wines with entrees or doing a pint and wing night with your hard to move beer.
- Offer discounts on your unwanted goods - even if you are just breaking even, it’s better than pouring money down the drain.
- If you have other locations, see if they are having better luck with the product and move it there.
- See if your supplier will take the products back - review your contracts to see if you already have built-in deals to return products that aren’t selling.
- Donate it to a good cause or a local event by hosting at your bar.
The only problem is, before you can unload dead stock, you need to know what needs to be moved. That means you first need to be able to identify dead stock. And for that, you need strong inventory management and processes - which are helped by inventory management software.
When you maintain an accurate bar inventory, you have a better chance of identifying alcohol that just won’t move. This becomes even easier with bar inventory management software that produces dead stock reports, which will quickly identify alcohol inventory that has been sitting on the shelves for too long. If properly maintained, it should also help identify stock that is ready to expire.
Once you have identified dead stock, and taken a stab at offloading it, it’s time to get to the root of the problem and find ways to reduce poor moving inventory.
5 ways to reduce dead stock at your bar
- Inventory tracking
We’ve already addressed this, but it is such an important step it is worth stating again. Proper inventory tracking is the best way to eliminate dead stock. Accurate inventory can help you make improved buying decisions and identify stock that has been sitting still for too long. If you haven’t already, it may be time to toss the manual spreadsheets and start using professional software designed for bar inventory management.
- Create strategic reorder points
Setting accurate reorder points can help ensure you aren’t ordering too much booze too soon. To determine a product's reorder point (minimum quantity before it must be ordered), multiply the product's daily use by order lead time plus necessary safety stock.
- Consider how many products you carry
Variety can be a great way to attract a wide range of customers. But too many products can make selling and marketing difficult. And that could leave you with more alcohol than you can sell, which can be a quick path to losing control of your inventory. Take the time to regularly analyze your SKUs to identify top sellers and eliminate any duds.
- Order less, more frequently
If you can depend on your suppliers to provide fast lead times and a steady flow of stock, consider making smaller orders more frequently. While there’s something to be said about economies of scale and having a strong safety stock, having too much of any one SKU can set you up for failure if there is a sudden change in demand. This is especially important for seasonal lines or beverages that you are trying out for the first time.
- Better forecasting
Taking the time to review historical sales and trends can help you get a better idea of demand. If you are using inventory software this is made even easier with templated reports and real-time data.
If you are looking to reduce dead stock and take control of your inventory, contact Sculpture Hospitality today! Our team of inventory experts would love to answer your questions.