Challenge
A very busy restaurant bar’s beverage costs was 27%, a full 5% points above what was budgeted. The owners carefully re-priced the drinks, did a menu-mix analysis, and had measured pour devices installed on the liquor bottles. The beverage costs hardly budged. The client suspected theft and asked Coyle to refer independent professional mystery shoppers to the bar to see who was stealing.
Solution
Coyle spent time with the client and about some basic controls:
- What was the percentage of cash sales?
- How aligned was the POS with what the bartenders poured?
- How often did they audit the bartender banks?
- How often do they do inventories?
- Were there security cameras in place?
It was immediately determined that the client did not have a consistent foundation of controls in place. One of the security cameras was broken. The starting banks were different for different shifts. Each night there was over $500 in ‘Open Liquor’ drinks recorded to the POS (making inventory data worthless). Bartenders shared POS keys/logins, and management never did a mid-shift audit of a bartender’s cash drawer.
Coyle, at no charge, advised the client to fix the security camera, force the bartenders to explain every ‘Open Liquor’ ring, standardize the banks, and insist that bartenders use their own keys for each transaction.
Management noticed an immediate increase in average daily receipts. Since it would take a full-month to normalize the new inventory, Coyle referred independent professional evaluators to conduct additional observational bar shops. It was immediately evident that many transactions were not being properly entered into the POS, while many were not entered at all. Here is an observation from one of the evaluator’s findings:
When Erik served me the two Gin & Tonics, he quoted me a price of $16. He then moved onto the next guest and took their order for two draft beers. I placed two $10 bills on the bar and stepped back allowing another guest to take my place at the bar. Erik served the guests the two beers and asked for $12. The guest gave Erik a credit card. While Erik processed the credit, Ernie the bar-back cleared the empty glassware and put the two $10 bills in a pile of other bills, and eventually put those bills into the tip bucket. Erik settled the credit card transaction and several guests were shouting orders to them. Erik proceeded to complete these orders forgetting entirely about my transaction. I observed Erik pick up the cash from another transaction and make an entry into the POS over 15 minutes after serving Cosmopolitans.
The loss of revenue was incidental not purposeful, and shoppers saw variations of this type of missed transaction time and time again over a few short days.
Coyle advised management to institute two policies. First, the bartender had to close each transaction prior to beginning a new one. Secondly, a receipt was printed for each transaction presented with all change.
Outcomes
Beverage costs returned to budget levels, providing over $2,000 of increased profits on peak weeks.
The lesson learned was that bartenders improved performance simply because management paid more attention and eliminated sloppy procedures. It was then that a good bar mystery shopping program was launched. Shoppers could observe dozens of transactions instead of just a few to ensure that compliance to the ringing procedures remained intact.
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