04/09/2018 Running a profitable bar program is more than having a good wine list or a well-designed bar. Get useful tips to build a profitable bar program.
Running a successful bar program requires more than just coming up with creative twists on classic bar cocktails on a regular basis, or finding new ingredients that will help to refresh a tired classic. Instead, say bar program managers across the nation, what’s needed is a realistic, hands-on approach that takes into account the overall costs and expenditures of the bar. In other words, there needs to be a real focus on financial benchmarks and profitability metrics.
That may sound like common sense, but in large-city markets like New York or San Francisco, the sheer amount of competition in the marketplace can often make it difficult to follow through on this concept. With new bars opening seemingly every week, there is definitely pressure to commit to lavish spending, all in an effort to one-up the competition.
However, there are plenty of ways to cut back on costs without simultaneously cutting back on creativity. For example, new technological solutions can offer a new kind of competitive advantage - especially those solutions that enable a real-time peek at the costs of the bar program. That’s particularly important if you are planning on updating the drinks menu regularly, and are constantly trying out new recipes. In a best of all worlds, your bar would be able to come up with a fresh, creative offering -- all without breaking the bank when it comes to ingredients.
And don’t forget about all the common sense steps that you can take to improve the profitability of your bar program. For example, simply focusing on ingredients that are in season and locally sourced can help to cut down on the costs of expensive cocktails that rely on ingredients being sourced from distant destinations. If certain fruits or vegetables are out of season, and cannot be sourced locally, then it may be time to move on to different offerings.
In terms of new technological solutions that offer more transparency into the cost of a bar program, one software solution that is getting a lot of attention is called Bevager. It’s a software program that is successfully being used by on-premise establishments to track inventory, cost recipes and drinks in real-time, and better allocate employee time on the most profitable bar activities.
As a general rule of thumb, the cost of goods sold represents approximately one-third of the overall cost structure of an establishment. Thus, even with just a few basic cost-cutting moves, it might be possible to reduce the cost of goods sold by as much as 10 percent. Even more importantly, it might be possible to save anywhere from 30 to 50 hours in employee time.
In keeping a closer eye on costs, most experts advise taking a look at industry financial benchmarks. One of these benchmarks involves the pricing of new cocktails for the drinks menu. Typically, 20 percent of the price covers the cost of ingredients, with the other 80 percent being allocated to labour, food, administration, and sales and marketing. Thus, for example, it should be able to create a $20 cocktail with $4 worth of ingredients. If your bar establishment is well off this benchmark, then it might be time to reconsider the types of drinks that you are making. It’s tempting to use new, expensive ingredients, but at the end of the day, it makes better business sense to use ingredients that won’t erode your overall profit margins.
And, finally, it’s important to do more than just cost the liquor being used in your drinks. That’s the easy part. The hard part is taking a closer look at all the other ingredients that are used to make custom cocktails, including juices, sodas, syrups and, of course, garnishes.
Design more functional spaces
The design and layout of your bar can have a huge impact on the overall profitability of the establishment. A bar layout that is easy to use and navigate will improve the productivity of your workers and also boost the customer satisfaction of your guests.
In many ways, it’s possible to take a page out of the playbook of a logistics company to think about bar layout. Just as a logistics provider like FedEx or UPS has completely optimized the route of each vehicle in its transportation network, you should be thinking about optimizing the route of every one of your servers. Are they constantly making end-to-end trips along the bar floor? Are they zig-zagging in and around customers, or moving to and from the bar in an easy rhythm?
And don’t forget - the overall productivity of your staff will have an impact on the way that customers perceive your establishment. Servers who are anxiously making their way around the floor, trying to serve customers as quickly as possible are going to create a certain type of vibe and energy. Bartenders who are anxiously trying to keep up with an ever-growing list of orders are going to impact the way customers feel. Are they really going to wait more than 10 minutes for a drink to arrive, or be in an understanding mood if drink orders are improperly filled?
In terms of design, one factor that some bars are taking into account now is ergonomics. Just as an ergonomically designed desk chair can help to reduce some of the stress and anxiety of working a desk job, an ergonomically designed bar can help to reduce some of the stress and anxiety of working at an inefficiently designed bar. As a result, keep an eye on how the bar is laid out, where the stations are located, and what kind of equipment you are using.
Optimize the cost model
There are plenty of ways to squeeze out new efficiencies in your cost structure. For example, don’t forget that you have the power to negotiate with distributors, especially if you operate a high-volume establishment. Ordering on a monthly or quarterly basis, instead of a weekly basis, might be one way to boost the size of each order and make distributors take you more seriously.
Taking advantage of bigger case deals is, of course, one of the primary ways to optimize your cost structure. But there are other ways, too, such as being wary of the extra costs imposed by big brand names. You can’t skimp on some of the top-shelf names, of course, but you need to make sure that these big brand names are actually paying off. If you notice that some bottles are languishing on the shelf for extended periods of time, it could be time to reconsider how it fits into your overall drinks program. At the very least, you might think of an innovative cocktail promotion that you can run that will draw down on your inventory.
And, finally, a word needs to be said about R&D. Yes, it takes some research and development to find the perfect new drink. But not all R&D dollars are created the same. For example, if your staff is simply making the same drink, over and over again, as a way of bringing a new product to market, that might not be as wise a use of resources as testing out several new drink offerings simultaneously. Efficiency here is the key.
Find the perfect mix of creativity and efficiency
At the end of the day, bars are entertainment and hospitality establishments, and so all of this focus on the bottom line should not act as a brake on creativity. But here’s the really counter-intuitive insight - adding new restrictions and limits on your bar program might actually make your bar program more, not less, creative. It’s similar to a startup company trying to bootstrap itself to profitability, versus a well-funded company. A company without all that extra funding is going to be a lot more creative with how its resources are being utilized.
And not all creativity needs to be reserved for new drinks creations. You also have room to play with the sales and marketing costs for your bar. Social media, for example, is an important new way to bring down costs significantly. Instead of running expensive ads in print media, for example, why not set up free social media accounts instead?
And some bars are even re-thinking tried-and-true offerings, such as Happy Hour. In one example, Happy Hour has morphed into Aperitif Hour. Not only does that sound interesting and creative, it’s also a clever way to bring down costs. That’s because aperitifs tend to have lower ABV, and the less alcohol there is, the lower the cost. As a result, aperitifs like vermouth or fortified wine are actually easier on the bottom line than more expensive branded liquors.
Right-sizing the costs of your bar program is always an ongoing process. There is always a new business practice that you can adopt, a new trend that you can leverage, or a better technology that can help to streamline operations. As long as you are just as passionate about running a creative bar program as you are about running a profitable bar, you will have the best of all possible worlds.