Driving Profits in the New Economy: Proven Strategies for Maximizing Profitability

1. Driving Profits in the New Economy:Proven Strategies for Maximizing Profitability Presented by Robert Plotkin BarMedia Sean Ludford BevX.com Nightclub & Bar Show Las Vegas Monday, March 2nd, 2009 3:30 p.m. – 4:30 p.m.

2. Bevinco estimates employee theft at 24% to 26% of gross sales As the recession drags on, it’s safe to presume that theft behind the bar will increase Left unchecked, theft can reduce your cash flow to a trickle Preventing Internal Theft — “No Bar Avoids Internal Theft — No Exceptions”

3. F&B only industry that doesn’t assess employee performance by sales/hour Monitoring bartender productivity crucial to cost control efforts Also management’s most effective countermeasure against theft Tracking productivity detects all types of theft of cash and product behind the bar Productivity Analysis — “Measuring More Than Staff Output”

4. Tracking Bar Productivity

5. Tracking Bar Productivity

6. Tracking Bar Productivity

7. Jim worked 7 shifts and generated an average $123 sales per hour Adam worked 5 shifts and generated an average $152 sales per hour Neil worked 2 shifts and generated an average $153 sales per hour Weekly Staff Average —14 PM shifts generated average $144 sales per hour Tracking Bar Productivity

8. Explanations for a bartender’s continued low productivity: Bartender is too slow to keep up with sales demand Bartender’s poor drink-making abilities lessens demand Bartender’s service abilities and personality off-putting Bartender is giving away unrecorded drinks or stealing proceeds. Tracking Bar Productivity

9. Unrecorded sale proceeds are a significant target of opportunity Cash drawer likely repository for stolen proceeds Mid-shift cash drawer audits heighten risks involved stashing the cash Preventing Internal Theft — Management Countermeasures

10. Run sales report and replace cash drawer with a fresh bank Be unpredictable about what time the cash drawer audit is taken Periodically take mid-shift readings twice in one night How can a bartender explain away being “over” in a drawer? No legitimate explanation for a drawer being “over” by a dollar or two Preventing Internal Theft — Management Countermeasures

11. The other primary repository for stolen cash is the bar’s tip jar Prohibit two-way tip jar transactions — money stays in until cash drawer removed Move the tip jar away from the POS; better exposes the act Preventing Internal Theft — Management Countermeasures

12. Beverage Operation Cost Breakdown Pour Cost Realities $18,877 $73,001 25.8% $54,124 74.2%

13. While analyzing cost percentages is standard business practice, it has shortcomings Pour cost ineffective at catching theft — will only detect about 1 out of 4 scams Pour Cost Realities

14. Substitutions scams victimize guests who order drinks made with premium brands Bartender prepares drinks with lesser products, but charges premium prices Bartender then enters sales at the well price and pockets the difference Pour cost unaffected — bartender poured 2 shots of well liquor and entered 2 well sales However, the bartender’s productivity will be lower by the amount of cash stolen Pour Cost Realities

15. Pour cost is also unaffected by tampering or smuggling schemes For example, bartender sells 16 drinks at $5 each and pockets the $80 cash Later he takes a 16-ounce tumbler of water and adds it to a number of the well bottles By replacing the stolen 16-ounces with 16-ounces of water, pour cost remains unaffected However, bartender’s productivity will be lower by $80 Again, every scam and scheme affects bar productivity Pour Cost Realities

16. Liquor Pour Cost Analysis Pour Cost Realities $ 26,491

17. Liquor Pour Cost Analysis Pour Cost Realities

18. Liquor Pour Cost Analysis Pour Cost Realities

19. Liquor Pour Cost Analysis Pour Cost Realities

20. Liquor Pour Cost Analysis Pour Cost Realities = 22.7%

21. Liquor Pour Cost Analysis = $ 5,473 = 21.7%

22. Liquor Pour Cost Analysis To achieve the same 1% reduction in pour cost, gross liquor sales would need to increase $1,143.03 ÷ $26,355 = 21.7%

23. Liquor Pour Cost Analysis $ 5,473 = 21.7% ÷ $ 26,355 = 21.7%

24. How Much Profit Can You Save Cutting Beverage Costs? Gross Beverage Sales $ 600,000 Beverage Cost @ 29%- $ 174,000 Gross Profit = $ 426,000

25. How Much Profit Can You Save Cutting Beverage Costs? Gross Beverage Sales $ 600,000 Beverage Cost @ 24%- $ 144,000 Gross Profit = $ 456,000

26. How Much Profit is There in Cutting Beverage Costs? Gross Beverage Sales $ 600,000 Beverage Cost @ 29%- $ 174,000 Gross Profit = $ 426,000 Gross Beverage Sales $ 600,000 Beverage Cost @ 24%- $ 144,000 Gross Profit = $ 456,000 Difference in Gross Profit = + $ 30,000

27. Working for blowhards is a bummer Their caustic temperaments undercut morale, performance and foster conditions for theft Human nature — it’s easier for bartenders to rip-off a jerk of a boss Shouldn’t there be a set of commandments governing owner conduct? Don’t Be Your Own Worst Enemy

28. Owner Commandment — “Get With the Program” When the doors are open, owner needs to work within the established chain of command Lose the phrase, “As the owner, I think I have the right to....” Statement derails constructive communication, undermines authority of management Especially when doors are open, rank has no privileges. Don’t Be Your Own Worst Enemy

29. Owner Commandment — “Leave the Jag at Home” Most bar owners and restaurateurs don’t live paycheck to paycheck like the rest of us Leave the Jaguar at home and drive family sedan when stopping by the bar or restaurant Likewise, don’t hold the staff holiday party at your estate or summer home by the beach Flaunting good fortune can incite negative repercussions Don’t Be Your Own Worst Enemy

30. Owner Commandment — “Seat, Greet and Leave” Don’t patronize your establishment during peak business hours Owners are bound to attract an undue amount of attention from the staff But shouldn’t that attention be lavished on the guests instead? Most owners can typically perform one invaluable function, namely schmooze the guests Do it well and then leave the heavy lifting to the staff Don’t Be Your Own Worst Enemy

31. Owner Commandment — “There’s No Free Lunch” Walking out with a case of wine or a châteaubriand sends the staff the wrong message Nothing’s on the house, not even for the owner If owner orders a drink at the bar, pull out cash and pay for it. And leave a generous tip Commandment reinforces that this is a business so hands-off the inventor Don’t Be Your Own Worst Enemy

32. Consistency of product is a cornerstone of the on-premise business Your drinks should taste the same regardless of the night or who’s behind the bar Otherwise, the result is a loss of consistency, fluctuating costs and hit-or-miss drinks Increasing Beverage Profitability — “No Profit, No Success”

33. Find out what recipes your bartenders are pouring by giving them a test Ask them the recipe and price for the top 20 most frequently ordered drinks Will likely reveal they’re using different portions, ingredients and charging different prices Inconsistent drink recipes lead to varying costs and fluctuating margins Standardizing Drink Recipes

34. Standardizing Drink Recipes Your Long Island Iced Tea $1.50 drink cost ÷ $8.00 sales price = 18.7% cost percentage

35. Standardizing Drink Recipes Your Long Island Iced Tea $8.00 sales price - $1.50 drink cost = $6.50 gross profit

36. Standardizing Drink Recipes Bartenders’ Long Island Iced Tea $2.20 drink cost ÷ $8.00 sales price = 27.5% cost percentage

37. Standardizing Drink Recipes Bartenders’ Long Island Iced Tea $8.00 sales price - $2.20 drink cost = $5.80 gross profit

38. Standardizing Drink Recipes • Your Long Island Iced Tea • $8.00 sales price - $1.50 drink cost = $6.50 gross profit • Bartenders’ Long Island Iced Tea • $8.00 sales price - $2.20 drink cost = $5.80 gross profit • Their version results in the guest ingesting an additional ounce of liquor • Also, the drink the bartenders are serving costs $ .70 more, an increase of 46%

39. Portioning Controls Bars are often nickled and dimed into submission — it happens with a flick of the wrist Lax or nonexistent portioning controls impacts costs, as well as, drink consistency Over-pour a shot by a ¼ ounce and the drink’s cost will increase 25% Increasing Beverage Profitability — “No Profit, No Success”

40. Portioning Controls Another issue is the drink now contains 25% more alcohol Prohibit over-pouring alcohol — costly and dangerous Causes inequity — some bartenders pour “good drinks” for some guests Over-pouring exacerbates over-service issues/increases liquor liability Increasing Beverage Profitability — “No Profit, No Success”

41. Portioning Controls Prohibit tailing measures — rips off either the guest or the house Either the bartender bailed on the measure early and is being deceptive… …or he hit the measure and is over-pouring liquor Increasing Beverage Profitability — “No Profit, No Success”

42. Portioning Controls Prohibit under-pouring measures — a classic scam to rip-off the house and defraud guests Bartender short-pours liquor into a series of drinks, thereby creating a surplus of liquor Shortage is likely to go unnoticed by guests as the liquor is poured on top of mixer Surplus is later sold and the cash proceeds pocketed Pour cost unaffected; bartender productivity negatively affected Increasing Beverage Profitability — “No Profit, No Success”

43. Optimizing Draft Profitability Draft beer yields the highest margins of any product in the house Yet industry wide, we lose 20% of the draft beer we purchase due to waste and spillage Shrinkage translates to losing 1 out of 5 five kegs — negates much of the profit potential Inability to accurately audit kegs makes draft a target of opportunity Measure bar’s waste and spillage by letting draft beer drain into 5-gallon bucket Increasing Beverage Profitability — “No Profit, No Success”

44. Optimizing Draft Profitability — FOB Detectors FOB detectors prevents empty kegs bleeding out the beer in feed line They prevent kegs from draining the beer in feed line when they blow FOB detectors reduce waste and increase productivity Increasing Beverage Profitability — “No Profit, No Success”

45. Optimizing Draft Profitability — Flow Meters Flow meters work within the feed lines and are completely non-intrusive systems System determines the exact volume of beer dispensed during shift Derives pour cost for each beer, creates staff accountability Flow meters don’t affect quality or impact portioning; quick return on investment Increasing Beverage Profitability — “No Profit, No Success”

46. Optimizing Draft Profitability — Pouring Practices Proper pouring practices significantly reduces draft beer waste Inadequate training results in increased costs — amount of head/unclean glasses Leads to unprofessional service Review pouring procedures often and regularly Increasing Beverage Profitability — “No Profit, No Success”

47. Bar Savvy — Bar Backs Bar backs afford you flexibility in scheduling and will lower your payroll Aren’t there shifts at your bar too busy to schedule only one bartender… …yet not busy enough to warrant scheduling two? Increasing Beverage Profitability — “No profit, no success”

48. Bar Savvy — Bar Backs By scheduling a bartender and bar back to work the shift… …the bartender gets the extra set of hands he needs behind the bar …the bar back gets the experience he needs to learn the job …the house benefits by saving on payroll …and it creates an in-house program for promoting bartenders from within Increasing Beverage Profitability — “No Profit, No Success”

49. Bar Savvy — Getting More Bang Out of Comps Complimentary drinks are a longstanding aspect of the business Comps are expensive — deprives the bar of sales, depletes product and increases liability What if you could get more mileage out of comp’ing guests their drinks? Increasing Beverage Profitability — “No Profit, No Success”

50. Bar Savvy — Getting More Bang Out of Comps Guests realize GM or owner just wave their hands and the drinks appear…not a big deal But what if the GM or owner pulled out some cash and actually paid for the guests’ drinks? On top of that, what if the bartender were allowed to keep 20% as a tip? There’d be good will breaking out all over the place. Increasing Beverage Profitability — “No Profit, No Success”