Stock takers reports
Many in the licensed trade have no idea of the help that a stock takers report can be in understanding their business. They pay a small fortune every few weeks for a near stranger to come in and count their stock, check their purchase records and delve into their sales records and then have no idea of what is finally presented to them means. Yet there is a wealth of info in these reports which the manager / owner should be aware of and fully understand.
Often the view is that the stock taker just states what you already know, that is that the stock has suffered "shrinkage" and I must admit to a certain degree I can see their point. However by looking more closely at the report you can gain far more information than just this.
A pub or bar etc is first and foremost a business and needs to make a profit for it to survive, but not just any amount of profit, it needs to make enough profit to at least pay its bills and give the owner a living. Many will have written a business plan when they first took on their venture and that plan should have contained a break-even point (the point at which sales made have generated enough profit to cover all the fixed costs for the business in a year). To obtain their break-even point many use the previous years sales figures and covert them into projected sales for the next 12 months and they perform the same action on the fixed costs (all costs that are not stock related). At the start these figures are of course pure guess work but as the year goes on they can be checked for accuracy and adjusted accordingly.
The danger is that they assume that the sales are achieving the target gross profit percentage and that becomes fixed in their mind and all other factors fly out the window. The Landlord is told by selling his product at a certain price he will generate a certain percentage profit and thus convinced that is what he achieving on all of his sales. I have seen bars selling a premium larger for the same price as a session larger, often being to afraid to put the price up. Not realizing that by putting the price up they do two things, firstly achieve the correct GP% on the premium larger and secondly if the customer chooses to drop down (or switch as it were) to a session larger then they achieve a higher GP% on volume sales (pint for pint) as they did before. 100 people drinking 5 pints of Stella will drink 500 pints, so put the margin up on the Stella they return more profit for you if they stay on it, if they switch then you make more money than before anyway.
Selling Stella at the same price as Carling, say £3.00 a pint, cost to you of Stella is high compared to Carling, so you only make £1.20 a pint, where as Carling is cheaper for you to buy so you make £1.50 a pint. Now say you put Stella up to £3.30 a pint. 25% of customers remain with stella so you make another 125 X 0.30p of profit which is £37.50. 70% switch to Carling so you make 350 X 0.20 extra in profit (£1.20 per pint Stella old price and £1.50 Carling per pint profit)so an extra £70 profit for you plus £37.50 means an extra 107.50 profit. Great so far; but say you loose 5% because of the hike that's 25 pints at £1.20 which is a £30.00 loss in profit. Off set this against £107.50 and your profits rise over all by £77.50. on reduced sales.
Now to get back on track; believing your making a profit and making an actual profit are worlds apart in the licensed trade. For instance if you are turning over £300,000 per year and are making 70% by your prices, that's £210,000 in profit. However, you're actually only making 60% because of lapse stock control, own consumption, complementary drinks, high waste, staff on the take etc then you will only make £180,000 in profit but still believe that you are making the higher amount. This would mean at the end of the year you are down £30,000 which would almost certainly result in your own personal profit being very nearly wiped out.
Your stocktaking report should therefore show you your target GP% and your achieved GP% and it is the achieved GP% you should concentrate on as it is the true margin you are operating on. The closer you can bring these two percentages together the healthier the business will be. Always budget to the achieved GP% and never to the target GP%. Any landlord who tells you that they operate on a GP% that is their target GP% is misguided. And if they are very lapse over stock control they are heading for big trouble.
If you are looking at buying a business then you will be given the sales figures and told the overall GP% achieved, t/O 300,000 on a 70% margin. Now this will be target GP%, based on the mark up on the products and not the actual GP%, so always when considering the viability knock at least 10% of the stated margin. If the books still show a potential profit then you have a fighting chance if not my advice would be to walk away from the deal.
Your Stock takers report will, as mentioned before, help you identify what amount of stock "shrinkage" your establishment has suffered during the period covered by the count. Our software does not use allowances but relies on the user entering their exact consumption. The reason for this is that over the years we have seen many Landlords when faced with large stock deficits just increase their allowances to mask the problem. If you really have no idea as to how much stock you are consuming yourself or giving away then the recommendation is that you stop using allowances and start recording you actual consumption.
If the report shows a large or obvious deficit on just one or two lines then the chances are you have a "drinker" hitting your stock for free. drinkers tend to stay with their favorite tipple and will drink it for free with little concern about being caught. They will stay with the same tipple which should quickly identify them. Their are one or two things that may slow this process. The first being that you the Landlord may happen to enjoy the same tipple and are not recording what you actually consume of it. The other may be that more than one of them may on the same free tipple which would make it harder for you to pin down the exact cause of the problem. Again record all you own consumption and complementary give aways and make sure your staff know you are doing this. Using our software and your till you can actually track individual lines reset the tills underlying reports when the barrel or bottle goes and then when it goes again run the report and compare the recorded sales against the stock used. As you will have to perform this action whilst the pub is open and staff are about then the message will get through that you are on to something and hopefully the problem will cease without any further action from you.
"Drinkers" can also be a relative of your staff who happen to drink whilst they are working. The best question you can ask during an interview for new staff is - Why do they want the job? - after all the hours can be long and unsociable. If the reply comes back, as it often does, "I need the money" then you have an instant flag to watch. For if after they declare they need the money their other half starts to drink in your bar apparently spending money they have not got then you may be subsidizing their drinking. Quite often their partner does not start drinking in your bar straight away but leaves a few weeks for your new staff member to "bed In". Always place new starters on a 3 months trial and watch out for this problem.
Now if your report is all over the place when it comes to shrinkage then the chances are you have a "till dipper" who is after the cash rather than free drinks. The stock can be out over many lines because they often add rounds up in their heads and hit no-sale to obtain just the customers change. This means that many different lines of product are falling victim to shrinkage. A clever "till dipper" will take the money they aim to steal from you at the beginning of their shift and make the shortfall up by placing the money in the till without ringing in the round or rounds. The stupid ones try to lift the money either as they go or at the end of their shift.
Protecting yourself from this kind of loss is hard. Try not to over float your tills, this will reduce the amount of money available to the dippers who lift the cash at the start of their shift. The best time for a till dipper to lift the money is when the bar is quiet and you are not about so near the start of the day is ideal for them. Clear the tills of cash at regular intervals of all high value notes. Do not remove the no-sale function from the till - though this may appear to make it easier for the dippers it will also give you a record of which staff member is opening the till on a no-sale, giving a good pointer as to whom the problem lies with. Watch for counters used to record the amount off money they have repaid into the till, or under rung in the case of those who lift at the end of the day. Many will use a system of placing wrong coins into a tills compartment, say pennies in with pounds etc each penny having a notes value say £5, £10 or £20 and when their target is met the coins are returned to the correct compartment. Others move bottles on the shelve or use bottle tops to record their tally.
Try and break your daily routine, many staff know when their employers are not going to be about, trips to the cash and carry, bank or even the afternoon catnap if performed on a regular bases are all god given opportunities for them to lift the cash. Should your tills ever be over by a large amount then the chances are you have a till dipper, it normally means that they have done the under-ringing and have not had the chance to lift the money. Try and buy the best till or POS equipment you can afford and cash each till separately. Covert cameras are always a good form of protection.
Waste is another problem with every bar from fobbing to miss poured drinks they all take their toll on you bottom line. To cut down on waste keep a waste book and staff record all their mistakes in it. Clean problem beer lines twice a week during the summer month. Carling can fob a lot in the summer and will benefit from a twice weekly clean. It is better to throw away a couple of extra pints a week then have pints of the product running down the sides of customers glasses. Keep separate glasses for cider and strong smelling spirits such as Pernod. Try not to keep same colored spirits next to each other on the optics. Always ask the customer how much of a splash they require when adding post mix mixers to prevent drowning their drink. Check and clean your optics regularly.
Do not over order stock and make sure that stock rotation is uppermost in all your staff's minds. Sell off any stock that is running short dated and consider de-listing it - in retail it is said that "often your first loss is your best loss". Offering the customer a too bigger range of choice can lead to higher waste partially wines. Keep the bar area clear of clutter and keep plenty of thimble measures clean and available. Buy your crisps if you can from the cash and carry, that way you get to choose the dates.
Line cleaning is a high cause of waste but a very necessary one. A number of steps can be undertaken to reduce the waste generated by line cleaning and we shall look at these in a moment. Firstly we should look at your stock takers report to see if the "allowance" allocated to line cleaning is actually correct. In my years I have seen many an over claim for line cleaning in stock reports, including bars that sit right over the products house in the cellar directly below them resulting in a line holding of less than half a pint per product yet a stocktakers allowance of believe it or not no less than 5 pints per line.
The above example may be the extreme but it re-enforces my belief that many allowance for cleaning are greatly inflated on stock reports, mostly through ignorance on the Landlords part. Worryingly these errors are not being highlighted nor corrected by stock takers. Indeed in the past stocktakers I have had to deal with have sat in the office at set up time and asked me the amount of beer in each line and have accepted figures given without question. Never once have I actually seen a stocktaker actually calibrate the lines to verify the landlords claims. This one bar had no fewer than 18 lines each claiming 5 pints that's a staggering 90 pints every week allowed for line cleaning, over one 11 of beer or lager a week. When checked most contained less than a quarter of a pint that's a true cost of 4.5 pints (plus a little for run off from rinse to product). This unlikely allowance of 90 pints times 6 meant every stock take the stock taker had 513 pints in their reports being reported as a legitimate loss when in fact they were not. The imbalance this single error made the whole report in my opinion totally useless.
Calibrating your lines could not be easier and should be done without delay. Simply collect and measure all product run off when performing a clean, on all lines. Then collect and measure all the rinse water when changing back to product, include the over lap of water and product. Add the two totals together and divided by 2 and you have you line holding.
Cutting the waste lost to line cleaning is not just restricted to the clean itself as mention before failing to clean properly can result in far bigger losses in the long run. A great saving can be made in relation to real ales by simply cleaning the line every time a barrel goes. Using side by side is the best method for this, by side by side I mean having two beer engines next to each other both dedicated to that product, one would be live and thus dispensing the other would be in soak, having had it's line thoroughly cleaned. When the barrel goes then new one is ready to go and the old one can be cleaned thoroughly without interruption to service and at no extra loss of stock.
Never clean the lines after closing at night which is a common practice within he trade. Why? well two reasons. Firstly as part of this practice many either sell off the beer to a select band of customers invited to stay after time to enjoy the privilege. Some times they are given the product in an effort to build up customer relations, both are illegal and against licensing laws. You must close your bar at your stated time, and a paying gust cannot become a non paying guest outside licensing hours. Therefore should you get the knock on the door during one of these sessions then your defence of " its a private party and I'm not charging" is not a valid one in the strict letter of the law. However that said luckily enough the average bobby on the beat is not quite as offay with the licensing laws as they might be. The other reason is that it will encourage you to be more generous or liberal with you waste than what you otherwise might be should you clean first thing in the morning. There is also a good risk that you will actually rush the clean.
Waste is also caused by bad stock management, over-ordering, bad rotation, bad ordering and bad displays all add to the waste totals.
Over-ordering, though most ordering is to a certain degree guess work steps can be taken to turn this process into a more educated guess. Always keeps records of your orders and go back and look at them for corresponding times, I also like to record what the weather was like and if any extraordinary events were held that week, parties, bands funerals that sort of thing. Try to establish a normal stock holding and use it as the minimum and indeed the maximum amount of stock you would hold for an average week. Your stock takers reports should give information on your stock holding in days and ours will indeed suggest stock holding levels for you.
Bad ordering is where you order stock that simply does no sell and is the result of an order that on reflection you should not have placed in the first place. It is also carrying to many lines of the same product, i.e. having 6 lines of blended whiskey when 3 or 4 would do. Giving the customer too much choice in wines is another. Try not to cater for every possible taste by having to many lines concentrate on the main ones. Certain pubs will sell certain lines better than others, real ales for town or community locals don't sell to well in circuit bars. Milds are regional and so on. Do not fall for sales patter from pushy reps.
Bad rotation is a big cause of waste, if you can bottle up yourself that way you know your stock is being rotated correctly. Always check the dates of products when you are preparing your orders. Never order huge quantities of products that have a short shelf life and always check the dates on those products that are being delivered.
bad stock display is another cause of waste. Slower lines should have more facings. Seasonal lines should be displayed only for the season, for example ginger wine and advocaat being manly winter drinks should not be given prominent display space during the summer, quite often they a found to hide summer lines such as Pimms. Your back bar is your form of a shops window and what you display there is what will sell so keep it fresh an relevant and free from clutter - especially staff drinks!
If you are not sure how to organize your back bar then pop along to your nearest muli-chain outlet and see how their back bars and chillers are laid out for after all these boys have paid market researches a tidy fortune to be told how to lay out their products in order to reach the maximum return. You can use this info for free! And as a bonus you might also learn what is selling in the area.