How to Control Your Liquor Cost—And Boost Profitability

By Robert P. Kiley, Chief Executive Officer, Restaurant Accounting Services

Most restaurateurs know how to control liquor cost, but thanks to the fact that some of the “controls” can be tricky and time-consuming, they get skipped, causing costs to skyrocket. Studies of the industry show that 25%-30% of a bar’s liquor inventory never translates to registered sales, thanks to comps or discounts, over-pouring, spillage, and theft.

Here’s how to stop these types of incidents from happening.

1. Check in on your bartenders.

Start with the basics: Require service bartenders to use jiggers, since the customers can’t see them, anyway. If bartenders are visible to customers, test the pours of the bartenders. Random inspections will help you make sure they aren’t pouring “heavy,” coupled with testing their pouring ability frequently. Another thing to make sure of is that bartenders are required to ring all transactions for sales immediately, and drink recipes should be consistent and readily available.

2. Manage inventory.

Rule of thumb: Establish proper par levels, and keep as little on hand as possible. The less inventory employees see, the less waste from heavy pouring. Keep liquor locked, and establish a system for using bottle-for-bottle exchange.

Even better, have a weekly inventory with a programmed point-of-sale system and tally of beverage cost. The more often inventory is taken, the more we can police the cost. In addition to taking total inventory by category (i.e. liquor, beer, wine, and non-alcoholic beverages), your point-of-sale system needs to tally sales by these categories as well.

3. Keep several guidelines in mind.

There are a few key guidelines to keep in mind, which can be broken down with simple math.

Beverage Cost = (Beverage Purchases +/- Inventory Change)/ Total Beverage Sales

• • Time frame: Determine the time frame in which you’ll compile your liquor cost, whether it is weekly or monthly.
• • Sales: Run a summary report for the point-of-sales for the period you want to determine the cost of goods.
• • Purchases: Tally your vendor invoices for the period, remembering to total by liquor, beer, wine, and non-alcoholic beverage purchases.
• • Adjust inventory: Take physical inventory of the main bar and storage area at the end of each period.

Some math to break it down…

Liquor sales for the month: $40,000            100.00%

Liquor purchases for the month: $7,560            18.90% ($7,560 divided by $40,000)

Inventory Change: + $280 + 07.%

Total Cost: $7,840 19.60% ($7,840 divided by $40,000)

Beverage cost percentage: 19.6%
This calculation should be done for beer, wine and non-alcoholic beverages as well.

Successful restaurants generate total beverage costs in the mid-20% range. Generally, a liquor cost of 20%, a beer cost of 25%, wine cost of 30%, and non-alcoholic beverage cost of 25% are acceptable.

Control and calculating your beverage cost are essential tools in increasing profitability.