Among the many challenges of running a bar or restaurant is the shrinkage or loss of product, a huge drain on profit. According to beverage auditing companies Beverage Metrics and Stock-Taker, shrinkage rates in the industry are 25%, and the National Restaurant Association reports that 75% of shrinkage is due to theft.
While many restaurants and bars focus on inventory control systems to reduce waste, reconsidering ordering processes can be even more helpful. These simple tips will help you make smarter purchases that reduce shrinkage and ultimately generate greater profits for your business.
Avoid purchases based on quantity discounts
We know it can be hard to resist a good deal. And while it may appear that quantity discounts increase overall profitability due to the potential for reducing your cost per ounce, factoring the estimated reduction into the equation will directly offset those cost reductions.
Suppose a case of regular priced vodka costs $ 200 and the distributor offers more than two cases quantity discount that gives you 10% off each case if you buy two or more.
While you only need one case, that 10% discount is too tempting, so you buy two cases for $ 360 (twice $ 200 per case – two times $ 20 off per case). Instead of spending $ 200, you end up spending $ 160 more and getting twice as much product.
If we assume a 25% shrinkage, $ 40 (25% x $ 160) of that additional product will be lost. Since the loss of $ 40 equals the total discount you received in the first place, the discount ends up erasing all the cost benefits of the order. Top it all off with the extra space and time to count the extra product, and this good deal suddenly looks like a scam.
Purchase to reduce the seating inventory
Since shrinkage removes the volume discount discount, how can you increase profitability with smarter ordering? Focus on one key goal when making purchasing decisions: reducing seat inventory.
If you have $ 40,000 in inventory and sell $ 10,000 of product each week, you have four weeks of ongoing inventory. By reducing your seating inventory to $ 30,000, you will not only earn $ 10,000 in your pocket, but you will also reduce your shrinkage by $ 2,500 (25% times $ 10,000). Remember, if 25% of any product you buy is lost due to shrinkage, the less product you have on hand, the less you lose, and therefore the greater your profit.
By ordering only the products you absolutely need, you quickly reduce your inventory levels, increase your bar efficiency, reduce withdrawal losses and increase your overall bar profitability.