The Importance of Implementing Beverage Cost Control Systems

Beverages are a high-revenue opportunity for restaurants, particularly when we’re talking about alcoholic beverages. With lower labor costs, and a longer shelf-life than most foods, drinks can bring in at least 30 percent of a restaurant’s revenue. In fact, during the pandemic, many restaurants survived on beverage delivery sales. Knowing how much your restaurant can make from drink sales alone, it’s important to stay on top of your pour costs and to implement solid beverage cost control systems.

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Calculating Theoretical and Actual Pour Costs

When it comes to spirits, most bars are aiming for a pour cost between 18 and 24 percent. Here’s how to see if your costs measure up.

Theoretical Pour Cost

Your pour cost is the cost of each ingredient in a drink divided by its sale price. By doing that calculation, you’ll end up with your theoretical pour cost. Every beverage should have a theoretical cost broken down by the cost of each ingredient, so you can see where the money is really going.

The theoretical pour cost of a cherry coke, for example, would be the cost of the coke, plus the cost of the grenadine divided by the sale price.

It’s theoretical because it doesn’t take into account spills, breaks, overpours, theft, or free drinks.

Actual Pour Cost and Variance Analysis

You can base your pour costs on that industry average, or you can do a variance analysis, where you compare theoretical pour costs with actual pour costs.

Your actual pour cost takes into account waste due to over-pours, theft, spills, breaks, and comped drinks. That’s where your waste log comes in. When calculating your actual cost, you have to calculate the cost of the ingredients lost to waste.

You can then compare your theoretical to your actual drink cost. If they align, then everything is poured and served perfectly. If there is variance, then it’s time to start digging into the cause.

Note that your theoretical cost isn’t a consistent number. It will fluctuate depending on the price of ingredients. It’s a good idea to calculate your theoretical cost frequently and then compare it to your sales mix. If the theoretical cost of a drink is rising, while the sale mix is falling, it may be time to reassess your drink menu.

Beverage Control Systems

Once you’ve determined your theoretical and actual costs, it’s time to determine where you’re losing money and how to fix that. There are a number of control systems you can put in place to reduce your beverage cost percentage. Let’s take a look at each one.

Ordering Protocols

Typically, your managers will be in charge of ordering beverages when your stock runs low, and that’s as it should be. When inventory is taken, only the managers should reorder, using an approved list of vendors with which you’ve negotiated a good price.

The prices those vendors offer should be monitored on a regular basis to make sure you’re getting the lowest price for your orders. If you’re using an inventory management tool, set up alerts that let you know when the price of orders has changed.

Receiving Protocols

It may be tempting to allow anyone with a free hand to take deliveries, but that can lead to problems with costing and inventory. Managers should receive and log inventory, comparing invoices to purchase orders to ensure the right amount was delivered at the correct price.

Storage Controls

Protocols should be put in place to make sure all beverages are stored correctly. Beers and chilled wines, as well as juices and soft drinks, should be refrigerated at the right temperature. Other liquors should be stored at the right temperature, as well.

Once your beverages are stored, staff should use them according to their own protocols. For beverages that spoil quickly, such as juices, beers, and wines, it’s best to use the FIFO (first-in-first-out) method, where the oldest inventory is used first. For drinks with a longer shelf life, such as liquors, you can set up a LIFO (last-in-first-out), which allows you to use the liquor that, in theory, costs less first.

Inventory Controls

Keeping a tight control on inventory can also help you control the cost of beverages. Since beverages deplete quickly, inventory should be taken frequently to keep an accurate count of stocktake.

It may even be a good idea to implement a lean inventory model, where managers keep their on hand to a minimum amount that meets the restaurant’s needs between orders. With lean inventory management, restaurants can reduce waste caused by spoilage.

Keeping a close eye on inventory discourages theft, as well. If staff members know your managers are counting stocktake on a frequent and regular basis, they’re less likely to try to slip something away, knowing it won’t go unnoticed.

Pour Controls

Finally, the pour of each drink itself should be measured carefully and in accordance with guidelines set up for your bar and waitstaff. Price pours, like precise portioning, will help you cut down over-pours.

To help bar staff stick to the pour guidelines, even during a busy shift, give them access to a master recipe book via mobile. With a restaurant management tool such as MarketMan, managers can create recipe cards for all drinks that staff can then pull up and follow on the fly.

How MarketMan Can Control Your Beverage Costs

Of course, you could crunch all of those numbers and set up each protocol using pen and paper or even an excel spreadsheet. But creating costing sheets, setting up waste logs and keeping track of invoices is time-consuming, costing you labor and introducing the possibility of mistakes.

A restaurant and inventory management tool such as MarketMan, however, allows you to streamline every part of your beverage cost control system. MarketMan allows you to

  • Scan invoices
  • Automate ordering
  • Monitor ingredient and vendor prices
  • Create recipe cards
  • Keep inventory
  • Create a waste log

Beverage cost control doesn’t have to be a laborious process. By using a comprehensive tool, you can save time for yourself and money for your restaurant.

The Importance of Implementing Beverage Cost Control Systems

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Beverages are a high-revenue opportunity for restaurants, particularly when we’re talking about alcoholic beverages. With lower labor costs, and a longer shelf-life than most foods, drinks can bring in at least 30 percent of a restaurant’s revenue. In fact, during the pandemic, many restaurants survived on beverage delivery sales. Knowing how much your restaurant can make from drink sales alone, it’s important to stay on top of your pour costs and to implement solid beverage cost control systems.

Five Profit-Impacting Trends Shaping the Restaurant Industry in 2023

🔓 Unlock the secrets to restaurant success with actionable strategies for optimizing operations, maximizing profits, and building a loyal customer base.

Download Resource

Calculating Theoretical and Actual Pour Costs

When it comes to spirits, most bars are aiming for a pour cost between 18 and 24 percent. Here’s how to see if your costs measure up.

Theoretical Pour Cost

Your pour cost is the cost of each ingredient in a drink divided by its sale price. By doing that calculation, you’ll end up with your theoretical pour cost. Every beverage should have a theoretical cost broken down by the cost of each ingredient, so you can see where the money is really going.

The theoretical pour cost of a cherry coke, for example, would be the cost of the coke, plus the cost of the grenadine divided by the sale price.

It’s theoretical because it doesn’t take into account spills, breaks, overpours, theft, or free drinks.

Actual Pour Cost and Variance Analysis

You can base your pour costs on that industry average, or you can do a variance analysis, where you compare theoretical pour costs with actual pour costs.

Your actual pour cost takes into account waste due to over-pours, theft, spills, breaks, and comped drinks. That’s where your waste log comes in. When calculating your actual cost, you have to calculate the cost of the ingredients lost to waste.

You can then compare your theoretical to your actual drink cost. If they align, then everything is poured and served perfectly. If there is variance, then it’s time to start digging into the cause.

Note that your theoretical cost isn’t a consistent number. It will fluctuate depending on the price of ingredients. It’s a good idea to calculate your theoretical cost frequently and then compare it to your sales mix. If the theoretical cost of a drink is rising, while the sale mix is falling, it may be time to reassess your drink menu.

Beverage Control Systems

Once you’ve determined your theoretical and actual costs, it’s time to determine where you’re losing money and how to fix that. There are a number of control systems you can put in place to reduce your beverage cost percentage. Let’s take a look at each one.

Ordering Protocols

Typically, your managers will be in charge of ordering beverages when your stock runs low, and that’s as it should be. When inventory is taken, only the managers should reorder, using an approved list of vendors with which you’ve negotiated a good price.

The prices those vendors offer should be monitored on a regular basis to make sure you’re getting the lowest price for your orders. If you’re using an inventory management tool, set up alerts that let you know when the price of orders has changed.

Receiving Protocols

It may be tempting to allow anyone with a free hand to take deliveries, but that can lead to problems with costing and inventory. Managers should receive and log inventory, comparing invoices to purchase orders to ensure the right amount was delivered at the correct price.

Storage Controls

Protocols should be put in place to make sure all beverages are stored correctly. Beers and chilled wines, as well as juices and soft drinks, should be refrigerated at the right temperature. Other liquors should be stored at the right temperature, as well.

Once your beverages are stored, staff should use them according to their own protocols. For beverages that spoil quickly, such as juices, beers, and wines, it’s best to use the FIFO (first-in-first-out) method, where the oldest inventory is used first. For drinks with a longer shelf life, such as liquors, you can set up a LIFO (last-in-first-out), which allows you to use the liquor that, in theory, costs less first.

Inventory Controls

Keeping a tight control on inventory can also help you control the cost of beverages. Since beverages deplete quickly, inventory should be taken frequently to keep an accurate count of stocktake.

It may even be a good idea to implement a lean inventory model, where managers keep their on hand to a minimum amount that meets the restaurant’s needs between orders. With lean inventory management, restaurants can reduce waste caused by spoilage.

Keeping a close eye on inventory discourages theft, as well. If staff members know your managers are counting stocktake on a frequent and regular basis, they’re less likely to try to slip something away, knowing it won’t go unnoticed.

Pour Controls

Finally, the pour of each drink itself should be measured carefully and in accordance with guidelines set up for your bar and waitstaff. Price pours, like precise portioning, will help you cut down over-pours.

To help bar staff stick to the pour guidelines, even during a busy shift, give them access to a master recipe book via mobile. With a restaurant management tool such as MarketMan, managers can create recipe cards for all drinks that staff can then pull up and follow on the fly.

How MarketMan Can Control Your Beverage Costs

Of course, you could crunch all of those numbers and set up each protocol using pen and paper or even an excel spreadsheet. But creating costing sheets, setting up waste logs and keeping track of invoices is time-consuming, costing you labor and introducing the possibility of mistakes.

A restaurant and inventory management tool such as MarketMan, however, allows you to streamline every part of your beverage cost control system. MarketMan allows you to

  • Scan invoices
  • Automate ordering
  • Monitor ingredient and vendor prices
  • Create recipe cards
  • Keep inventory
  • Create a waste log

Beverage cost control doesn’t have to be a laborious process. By using a comprehensive tool, you can save time for yourself and money for your restaurant.

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