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Bar Inventory Basics: What Is Liquor Inventory?

January 26, 2021
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Scott
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Bar inventory, liquor inventory, drink inventory, call it what you will. It's tedious.

All the long, late nights spent after close counting sticky bottles.

But boy howdy is it important. Especially with all the spills and comps most bars deal with.

There’s bar management software that makes it about a thousand times easier with a perpetual inventory system, sure. But getting the most out of a bar inventory app requires understanding what the software is doing.

That’s why we’re going to look into the basics of bar liquor inventory (40) today.

What is Bar Inventory?

At its most basic, taking bar inventory is the process of counting everything you have twice. Then, you figure out how much of it you used over that period of time. That's known as calculating inventory usage.

That’s really the point of bar inventory: to calculate your inventory usage over a specific timeframe.

Basic Bar Inventory

Here’s how taking drink inventory typically plays out.

The bar manager(s) or bartender(s) count everything behind the bar and in onsite storage. That means logging the type of alcohol or mixer and the volume. They’ll comb through the speedrack, the storage closet, the refrigerators, the shelves, the cellar, everywhere. And they’ll come up with (hopefully accurate) counts for everything. This is the beginning inventory number.

Then, after a set period of time, they’ll do it again. Same items, same process. The result of this second count is the ending inventory number.

The bar manager will then consider the amount of each product that was received during the set period of time. This is the received inventory number.

With these three numbers, bars and restaurants calculate inventory usage.

Bar Inventory Analysis

Based on your inventory usage, you calculate your inventory variance, pour cost, and par levels. All crucial metrics to making profitable decisions and a bar or restaurant manager.

What, exactly, does taking bar inventory tell you about your bar?

A lot:

  1. The sustainability and opportunities for your bar or restaurant profit margin, along with opportunities to enhance both
  2. Your bar's variance, AKA your shrinkage or loss or excess inventory
  3. What your par level and reorder point for each product should be
  4. What your pour cost is and ways to decrease it
  5. Which products are in demand and which aren't. With implications for strategic alcohol pricing and what you should order from your vendors going forward.

In fact, taking bar inventory is the single most effective way to optimize your bar and restaurant operations and profitability. Here’s why.

How Taking Bar Inventory Saves Money

Let’s talk about everyone’s favorite subject, money.

Specifically:

All the ways liquor management can make you piles of it.

You can now put your inventory usage levels to work for you. There are three metrics that use inventory usage that affect bar profitability. Variance, pour costs, and par levels.

Helps Identify Product Variance

Calculating variance shows the difference between the amount of product sold and the amount of product used. It's also called shrinkage or loss.

In a perfect world, those two amounts are the same, but this is not that world.

If a product's variance is 20%, it means that, of all the product used, 20% is lost and not sold.

The cause of high variance is varied. It's often some combination of getting away from standard liquor pours and standard wine pours. But mistakes, breakage, and theft, too.

Calculating variance for every product will give you a precise picture of where money might be slipping through the cracks.

It’s one of the best ways to use alcohol inventory (40) usage rates to boost your profits, but not the only way.

Helps Calculate Pour Cost

A product’s liquor cost (see liquor cost calculator) is one of the key insights into its profitability. And, all products taken collectively, into a bar’s overall profitability.

Pour cost, or liquor cost, is the amount of a drink’s selling price it takes to create the drink. That includes wholesale purchase price, labor cost, etc.

Most bars shoot for an average pour cost of 20%, with target liquor pour costs dipping even lower, to around 15%.

Whatever products have the lowest pour cost are most profitable. Knowing your profitable products helps you make informed decisions. From where bars get their alcohol to profitable drink menu engineering.

But there’s still one more important way to use your inventory usage rates to save money and boost profit. Par levels.

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Helps Set Par Level Inventory

Finally, you set par level inventory. The par level definition: the minimum amount needed to keep it in stock at all times. You can apply it to every item on your full bar liquor list. It’s based on historical usage data, which is easy to generate with a bar management software.

It also helps cut down on sitting inventory. This is where consistently calculating inventory usage comes in handy. Because par level is set on your past inventory usage trends. That ensures you’re meeting demand but not sitting on too much unused product.

Cuts Down on Sitting Inventory

Sitting inventory, or dead stock, is product on your shelf that you’re not selling … yet. It could even be spoiling and going bad. It’s taking up valuable space from other products you could be selling, and it's tying up your money. Here’s a look at the benefits of decreasing your sitting inventory and how to do it. The benefits of reducing your bar’s sitting inventory are many.

You'll:

  • Free up more cash for operations and profit
  • Free up more space on your shelves for products that are selling
  • Save money on distributor delivery costs, because you’re ordering less
  • Save time taking when taking inventory, because you’ve got less inventory to manage
  • Reduce your shrinkage; the less product you have, the less you stand to lose (learn more about how to stop shrinkage)

Here’s how to reduce your bar’s sitting inventory:

  • Set the right par levels. This can’t be stressed enough. This is the reason par level inventory exists.
  • Don’t be swayed by bulk discounts from your distributor. Unless you know, based on usage levels, that you'll use all the product you order.

Knowing how to calculate this stuff is half the battle. The other half is mastering the process.

Bar Inventory Template

If you’re taking physical inventory, you’ll need a bar inventory spreadsheet. Either print one out and record your counts on it IRL or carry a laptop around with you while you count and use a spreadsheet.

Either way, you can download a free bar inventory spreadsheet from the link above.

The Ideal Bar Inventory Method

One you start taking bar inventory consistently, the benefits of doing so are easy to achieve.

But consistent execution of bar inventory, along with tracking and analysis, is another thing entirely. It requires manual counting, data record keeping and storage, and calculations.

There’s a way you can simplify everything, though. That’s automating your alcohol inventory. The right bar inventory software counts, manages, and analyses your inventory all on its own. You’ll know what price points make sense for what products based on purchase price and demand. And you’ll know it all quickly.

Then you can spend more time running your bar, not counting its bottles.

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