For bar owners and operators, efficient inventory practices represent a huge opportunity to reduce costs and run a more profitable bar.
Businesses that hold on to too much inventory waste time counting and recounting idle product. This idle product crowds storage space, which makes tracking your usage more difficult and servicing customers a complicated process—not to mention the losses that come from increased breakage and theft. The higher a bar’s excess inventory, the higher its exposure to unnecessary operating expenses and lost productivity, and the lower its general profitability.
By sinking cash into excess inventory, businesses also constrain themselves by reducing access to funds for other expenses, like rent and payroll. Excessive inventories mean that bars with otherwise healthy balance sheets can struggle to make these critical expenses in the short run, crippling their ability to keep the doors open. Better inventory practices represent an insurance strategy against this risk.
We’ve shown you some good practices for doing your liquor inventory. We’ve also discussed why inventory efficiency should be measured in weeks, not simply in units or dollars.
Though we usually recommend that you target 2-3 weeks of sitting inventory for individual items, we know that actual practices vary between bars. We also know that such variance is related not just to management proficiency, but also to the product mix unique to each beverage program, as well as the volume of product sold.
We’ve taken a look at our customers’ ordering and inventory data to measure the inventory programs of bars and restaurants across the country. We then analyzed how that varied by product category, in order to develop more specific targets for your bar’s operations.
Let’s dive into the data.
It’s not surprising that beer programs seem more efficient on this metric. A given supply of beer takes up more physical space than a supply of spirits that is equivalent in dollar terms; the cost of holding onto too much beer inventory is more obvious to a bar manager. This, combined with physical limitations on the number of beers a bar can offer on tap, means the urgency of minimizing beer inventory is made much clearer.
In contrast, because spirits are so valuable on a per-ounce basis, a substantial supply doesn’t take up as much physical space. As a result, bars often stock a wide variety of spirits, even when many of the individual items don’t sell often. Since weeks of inventory as a metric is dependent on usage in relation to total inventory, these “tail” products contribute significantly to excess inventory.
Of course, the issues that come with having a large spirit or wine menu can be increased if managers aren’t effectively managing their ordering and inventory processes. The urge to order excessive product in dollar terms is particularly strong when that product doesn’t seem to take up much space; having proper bar inventory and data tools is vital for getting an objective sense of waste.
Though we’ve looked at how inventory efficiency varies between product categories, it’s worth pointing out that the size of a beverage program also has consequences for inventory efficiency. Any program with a higher volume of sales should be more efficient because of the “thick market” effect described previously. So, we should also compare beverage programs based on their sizes to find more exact benchmarks for inventory efficiency.
The following visualizations look at the inventory efficiency of specific product categories—beer, wine and spirits—to see how operational efficiency ranges based on the volume of sales of that category. In these groupings, “small” denotes bars that order less than $1,000 of the given product type on a weekly basis. “Medium” indicates bars that order between $1,000 and $2,500 of the product type weekly, and “large” is for bars that order more than $2,500 of the given product type weekly.
A large bar that is heavy on beer and spirits, but sells very little wine, might find itself in the “large” bucket for those categories, and in the “small” bucket for wine; a small wine bar might instead find itself in the “medium” bucket for wine, but in “small” for the other two product categories.
The larger the beer program, the higher and more consistent its sales. Because of this, you might expect that as a program increases in scale, inventory efficiency should increase. Yet, though this trend held true for small and medium beer programs, 50% of the large beer programs had more weeks of sitting inventory than the middle 50% of medium-sized programs.
Why might this happen? It might be that some of the largest beer programs specialize in having a very wide selection of beers and, as a result, sit on proportionally more excess inventory for their less-popular (“tail”) items. Many of these tail items are specialty beers that are more expensive and tap into more niche tastes; as a result, each individual item will have inconsistent demand, driving category-level excess inventory upward.
The range of product types within the spirit category is so diverse that it benefits the most from the impact of consistent demand. Even the smallest spirit programs often carry a relatively wide array of products, even if many of those products aren’t consumed often. Such programs’ inventory efficiency is also affected by quantity discounts on spirits, which often result in purchases of many weeks of excess product.
The highest volume programs, in contrast, sell much more of each product but don’t necessarily carry a wider variety of unique items. As a result, they absorb the full benefits of having thick consumer demand without having to increase their product selections, as the largest beer and wine programs often do.
Wine exhibits similar trends to those we saw in beer. While the most inventory-efficient of the largest wine programs sat on leaner inventories than the best of the medium and small programs, many of these programs had more excess inventory than most of the medium-sized wine programs. This is mostly attributable to their investment in a large and diverse wine selection, of which many are “tail” items that addressed niche tastes and do not sell very often.
These industry trends provide a valuable look into how bars and restaurants are operating around the country. For more critical insights into the food and beverage industry, subscribe to the blog, below, to follow the trends—we release new results every month.
Want to find out how you can use this data to improve your beverage program? Schedule a chat with one of our product specialists, and find out how BevSpot can help you.