Managing purchasing for your bar is a lot of responsibility. It's easy to waste money by ordering unnecessary products or to run out of a menu item because you order 4 bottles instead of 6. Purchasing food or alcohol for a restaurant means you have to strike a balance between the financial bottom line and keeping customers happy. Here's how to perfect the purchasing cycle for your bar or restaurant.
First, what is a purchasing cycle?
It's a term used to define the process of finding products or services for a business, then assessing the value of those products against competitors, and then analyzing the performance of those products within the business to decide if it's smart to continue purchasing the products or service.
It's a fancy corporate term that you are more likely to find on whiteboard in a downtown office space than you are to find it in a restaurant kitchen or the back office of a bar. But the value of understanding and executing each phase of the purchasing cycle can help bar managers simplify placing weekly alcohol orders with vendors.
It's helpful to breakdown the cycle into phases. So let's go ahead and look at each phase and what actions are taken to execute each phase properly.
- Phase 1: Product Research
- Phase 2: Buying Assessment
- Phase 3: Costing Products
- Phase 4: Inventory Analysis
1. The product research phase
The research face is initially defined as the point in which you identify your business needs. For a bar a restaurant, that can mean a few different things.
For example, one need that bar operator must figure out is the types of products they need to carry to meet their customer demands. A wine bar needs interesting, unique, and small producer wines. A sports bar needs beers by the bucket. A cocktail bar better have a hard-to-pronounce selection of aperitifs.
Define the types of products you need (and understand your customers!)
Understanding what customers your bar will cater to will help define the types of products you stock the bar with. The first step in the research phase is determine what products to carry.
Find product offerings
One of the perks of managing a bar and ordering products is getting to taste products with distributor salespeople. Need to find a new IPA for your draft list? Want a premium tequila to display behind the bar? Reach out your distributors and let them know what you're looking for.
This will help you find products, build a relationship with sales reps, and determine the best product offering to buy.
Using product discovery
You can also research products independently of vendor reps by going online or using software to find new products.
One really useful tool that's newly available for is the Product Discovery tool from Backbar. This new feature allows Backbar users to explore a product marketplace that shows them different categories of trending products. From craft beer and whiskey releases or cost-based categories like premium and value purchasing, bar operators can user Backbar to discover new products and order them directly with their vendors.
An important piece of the purchasing cycle is to research vendors and companies that your purchasing from. This step works a little bit differently when ordering alcohol in the United States. Because of the three-tier system in the U.S., you restaurants and bars must purchase alcohol from distributors who manage portfolios of products made by other producers.
2. Assessment stage
An important piece of the purchasing cycle is to research vendors and companies that your purchasing from. This step works a little bit differently when ordering alcohol in the United States.
Because of the three-tier system in the U.S., restaurants and bars must purchase alcohol from distributors who manage portfolios of products made by other producers.
Sourcing Exciting Products with Boutique Vendors
For wines, spirits, and beverages like amaros, there are often small(er) distributors that specialize in craft products. If you're running a beverage program that's built on craft and small producers then getting familiar with product categories of boutique vendors and importers will be important.
These products will likely come with a higher cost but they can benefit your bar program by offering a point-of-difference from other restaurants and bars. Understanding the portfolios that these vendors keep will come in handy when revamping by-the-glass wine lists or building out your cocktail program.
Building Relationships with Local Producers
Aside from small vendors, building relationships with local producers is important, too. Whether they are craft brewers that only sell their beer in 1/6 kegs or distillers who are bottling vodka and gin, you can create a community imprint by connecting with local producers. This will also give you access to new and limited releases that other business won't be able to get.
Preferred Pricing from Major Distributors
The biggest brands and spirits will be carried by large distributors. It's important to get to know your sales reps and to consistently check-in on special deals and promotions.
Find out which products over discounts for bulk purchases. Find out if you can get lower pricing buy putting a wine on your by-the-glass list or selecting a specific bourbon as your house whiskey. By building relationship with your sellers, you'll be able to take advantage of better pricing, which will help keep your liquor costs lower.
3. Pricing Liquor and Beverages in Restaurants
Liquor Cost is one of the Prime Costs for restaurants and bars. Because alcohol sales can generate the biggest profits for hospitality businesses, it's important to properly price drinks so you're not losing money on sales.
Knowing the average liquor costs is for restaurant industry is a good place to start. Here's a general outline:
To figure out pour cost percentage you'll need to know some liquor cost formulas . There are a handful of formulas you can use to track different cost-related metrics, but the most basic liquor cost formula is this:
Product Cost / Ounces per Container = Cost Per Ounce
Once you know the cost you pay per ounce, you can find your liquor cost percentage by multiplying the number of ounces of a beverage, eg., 5 oz. of wine in a glass or 2 oz. of whiskey in an Old Fashioned and multiple the volume by the per ounce costs.
A lager on draft that you sell by the pint and costs 8-cents per oz. would cost the bar $1.28. If that beer sells for $7.00 you would have an 18% pour cost on that beer. Pretty good profits that's is lower-than-average draft beer cost!
4. Analyzing Inventory Performance
As you bring new products in your beverage program its important to track their performance so you can see which products are helping build products and which items you should stop carrying.
Here are the best ways to track bar inventory performance.
1. Take Inventory on a consistent schedule
It's not glamorous, but taking physical inventory of your bar products is essential for restaurants to maintain oversight of product. It's something that too many businesses skip because of the labor involved, but you can make it easier by using bar inventory software to speed up the process of counting and better track performance.
Taking inventory weekly or monthly will help you track how products are performing and will prevent you for losses through over-ordering and excess inventory. You can also catch things like theft with physical inventory counts aren't matching up with sales totals.
2. Track Product Usage Rates
Knowing the rate at which you sell through products is one of the most valuable pieces of information you can have to ensure your bar is profitable. The only way to do this is through taking consistent inventory. By knowing how slow or fast you sell a product you'll be able to set par levels and establish an ordering schedule that will keep products in stock without overspending.
To track usage rate you can use a simple formula that accounts for inventory totals and purchases.
Usage Rate Formula
Opening Inventory Total + Purchases - Ending Inventory
You'll need two inventories to calculate usage rate. If you take inventory monthly, then start with last months inventory totals for a product, then add any purchase quantities if you order that product and then subtract the your next inventory total to find how much product you used during that month period.
3. Set Par Levels
If you're taking consistent inventory and tracking usage rates for products then you can easily set par levels for a product. A par is the quantity of a product you should have on hand at any given point to satisfy demand.
For example, if on average you pour through 5 bottles of Maker's Mark per month or 1.25 bottles a week, then you could set your par level to 2. When you have less than 2 bottles in inventory, you'll want to order more for the following week.
Setting par levels will indicate when you should order items and when you can hold off.
Using Par Levels and Distributor Relationships
This is a situation where knowing the discounts and deals you get from distributors can be really helpful. To continue the Maker's Mark example from above, if you pour through 5 bottles of Maker's per month and you know know that your distributor offers a discount when you purchases a case (12 bottles) of Maker's Mark then it would be smart to order Maker's by the case to secure a 2 month supply instead of ordering 5 bottles a month or 2 bottles a week.
Understanding product turnover and knowing vendor pricing can help you strategically place orders to maximize profits.
4. Get Rid of Underperforming Products
Not only does tracking product performance help you purchase, it will also help you 86 beverages that aren't selling or turning profits.
It's important to track sales in your POS system as well as usage rate to understand which products to cut from your menu and inventory.