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losses are hidden by traditional pour cost analysis. Therefore, most operators think that their pour cost is just fine, only because they don’t know about these losses and don’t realize that they have been satisfied with a pour cost that should be two, three or four points lower! The losses are hidden because most operators are happy if their pour cost is stable and as good as, or better than, it’s been in recent months. One of our newer clients was sure that they were running very efficiently because their pour cost was 19% in September, which is in the lower range of their recent history (see the charts). The bar owner was convinced that such a “low” pour cost meant that he couldn’t possibly have significant amounts of theft and overpouring. The owner’s position was that as long as their pour cost was in the 19% to 21% range, he was happy. This may seem logical, but it was dangerous because the bar owner’s complacency was preventing him from seeing what was really going on in his bar. WHAT IS A GOOD POUR COST? ELIMINATE OVERPOURING TO INCREASE PROFITS by Ian Foster Audits have found that 99 out of 100 bars are missing about a quarter of their alcohol because of overpouring and lost sales that have previously gone undetected. This is discovered by weighing every open bottle or keg and counting all the full containers to find out exactly how much alcohol has been used from every brand - down to 1/30th of an ounce. That usage is then compared to the number of drinks that were rung up into the cash register or POS system. That way an owner can find out exactly what has been overpoured or stolen. Then you can calculate an ideal pour cost, which shows what the pour cost really should be each month. The differential can result from bartenders overpouring and not ringing up drink sales. How Much Money Are You Missing? What is a good pour cost? The fact is that there is no such thing as an industry standard “good” pour cost for every bar or pub. You often hear or read that if your pour cost is around 20%, you are in good shape. That is simply nonsense - and dangerous at that! Whether or not your pour cost is good or bad depends on your pricing and what drinks your customers order. And both factors vary greatly from one bar to another. The question is: What is the right pour cost target for your particular establishment in this particular month? An upscale restaurant selling lots of expensive wines is always going to have higher pour costs than a bar that sells little wine but lots of shots. That’s because wine carries higher pour costs than most liquor. On the opposite end of the spectrum, I’ve seen a hotel with a 15% pour cost despite enormous (hidden) losses. In fact, 32 The <strong>Publican</strong> that hotel should have been running an 11% pour cost; which might sound impossible. However, the hotel is in Hawaii and almost half their sales are poolside Mai Tais with a 37¢ cost and an $8 selling price (which results in a 5% ideal pour cost on that drink) - so an 11% pour cost makes sense. Here’s the thing: you can’t really compare the pour cost in one establishment to that of another because every bar has different pricing and a different sales mix. Is Your Pour Cost Too High? What about the pour cost in your bar? Is it too high? Yes it is. Almost certainly. That is because virtually every bar has enormous losses from overpouring and theft. But those How much money could you be throwing away? What are those three percentage points worth? In one case, it was $5,000 in profit every month. But that, too, varies from bar to bar depending on the reason for the losses. If a bartender pours a $3.50 pint of beer, collects the money for it, but doesn’t ring it up, you are out the full $3.50. Such retail losses typically make up about a third of the problem. If you throw out a pint of foamy beer, then you are only out about $1. Losses at cost typically make up less than a quarter of the problem. Overpouring is by far the biggest problem for most establishments. Eliminating overpouring usually has a surprisingly large effect on profits. At first glance, one would think that overpouring results in a loss at cost. If your bartender pours an extra ½-ounce of a
premium spirit, you would think that you lost out on the 50¢ cost of that extra ½-ounce. And sometimes that is true. More often, though, overpouring ends up being a loss at retail. I recently ordered a Hendricks gin on the rocks. The bartender charged me $7 and I gave him $10. But instead of pouring me 1½ ounces, he completely filled the rocks glass. It was closer to a triple than a double. As a result, I never ordered another drink. Whereas I likely would have bought three drinks for $21, I only spent $7 on one drink. The bar owner lost out on the other $14. Ironically, the “generous” bartender also lost out because he only received a $3 tip on one drink instead of $9 on three drinks over the course of the evening. Why Your Pour Cost Bounces Around Every Month Sometimes pour costs bounce around because don’t have exactly the same guests ordering of counting errors or data entry errors made exactly the same drinks every day. Your sales on the month-end inventory. Sometimes pour mix will always change: every day, week, cost inconstancies are caused by rising alcohol month and season. And because every drink costs or drink prices. you sell has a different ideal pour cost, the The most common reason that pour costs result is an ever-changing pour cost each bounce around all the time is simply that you month. To illustrate, here are some ideal pour costs for one pub: Drink Ideal PC Vodka/tonic 10% Margarita 14% Domestic beer pint 20% How Can You Reduce Your Pour Cost? Domestic beer bottle 23% You could raise your prices - although that has the obvious downside of driving away guests. You could encourage your guests to order cheaper drinks. That would reduce your pour costs alright, but lower your profit because you actually make more money on Grey Goose than on well vodka despite the higher pour cost on Grey Goose. In fact, you want your guests to order drinks with higher pour costs because you put money in the bank, not percentages. The best way to reduce your pour cost is to focus on eliminating the overpouring and lost sales that plague virtually every bar and pub in the world. Ian Foster is Vice President, National Accounts with Sculpture Hospitality. He can be reached at foster@sculpturehospitality.com. Grey Goose 28% House Cabernet 30% Vodka/Red Bull 30% Grey Goose martini 36% Duckhorn Cab 45% In the summer, this bar sells more vodka/tonics and more margaritas – drinks with low pour costs. In the winter, they sell slightly fewer of those drinks and more martinis and red wine. As a result, their ideal pour cost is a little lower in the summer and a little higher in the winter. Similarly, your pour cost will go up if you sell more happy hour drinks this month. In fact, there are endless factors involved, from weather, to drink trends, to holidays, to sporting events. Since you cannot control what your guests order, you cannot predict what your pour cost should be every month. It is going to bounce around simply based on your sales mix. Visit us on the web! • Marketing Tips • Past Issues • Editorial Schedule • Advertising Rates emcmarketing.com The <strong>Publican</strong> 33
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