Best Practices

If you want to run a successful wine program the diligent somm usually becomes a veritable variance Hawk.

Running a restaurant—especially if it’s your first time—is like wandering through a field of landmines blindfolded.  Variance can quietly demolish your profits if left unaddressed.

Being vigilant with precise pours is a key component in the zen of the sommelier’s arsenal.

Defining the minefield called variance:

• This difference between your purchases and sales can come from many hidden sources:

1. Unrecorded sales—one offs aren’t a problem, but if you aren’t recognizing certain types of sales, your product costing may be off.  Batching Banquet wine-sales may be simpler during service, but you lose insight into your actual beverage costs.
2. Bad inventory counts – this can happen but corrects itself over time.
3. Breakage—stuff breaks, it happens.  Make sure you capture it and write it off, or else you will lose track.
4. Over pours/unrecorded “tastes”—your staff should be encouraged to let customers taste, but all these should be recorded as comps at the end of the night.  Over pouring can slowly bleed a beverage program through a thousand cuts (or glasses).
5. Theft – this is a difficult but unavoidable area to address.

Why is it important:

• Restaurants live and die on two things: Top line revenue and margin.  Margins are razor thin in the industry as it is.  Variance is what eats away directly at margin and can be the difference between making it and being amongst the 60% that never make it past the first year.  

How does variance impact the bottom line?

You can have great top-line revenue (great for cashflow!) but if you’re losing product/money through variance, your profit margins will be eaten away until you get control of it.

• A practical example:  here’s a program that’s already running on the edge of acceptable cost and is probably struggling a bit to make the margins work.  The Variance value shows the difference between what the restaurant should have had on hand at the end of an inventory cycle to what was actually counted.  Having nearly 5% of inventory sounds pretty awful, and it is.  When you factor in the cost of missing product to that month’s Cost of Goods sold, it reduces overall profitability by nearly 3%.

So how do you control it? This is where the Zen of the Somm comes in…

5 tips to minimize variance (although you’ll never get entirely rid of it!)

1. Make sure you set up a process of capturing all sales and properly depleting your inventory so your cost of goods sold calculations are accurate.  This especially includes if you batch-sell wines for banquets/buy-outs.  You’ll never get an accurate understanding of your profit margins if you don’t.
2. Breakage –  See above!
3. Front of House policy – any product poured needs to be accounted for.  This means training your staff to capture all non-revenue pours (tastes, waste, staff consumption) and record all of your comps every night. (If you don’t write it off, it’s just straight loss).  
4. Make sure your staff is pouring exactly to whatever ounce measurement you’ve decided is a glass.  The math gets scary here quickly: if you sell 20 glasses a night and you over-pour by an ounce, then by the end of the month, you’ve just given away 2 cases of wine.  
5. Manage your inventory.  Matching your sales and depleting your inventory on a nightly basis will help you track your cost of goods sold and manage variance like a hawk.  Hey, we’ve got a system that does that!

Experienced sommeliers and beverage directors will tell you that running a successful BTG program involves a lot more than picking out five reds and four whites. There are many details to consider, from serving size to pricing to which wines to serve, and as is common with a lot of things in the restaurant industry – little adjustments can have a large impact on the bottom line.

Tip # 1:  The wine list is for your customer, not you. Let your inner wine geek go:

We’ve all been there – looking at the BTG list and thinking that it needs some spark, some obscure, rare vintage to show off our knowledge and wine-ninja purchasing skills.

Yes, wine professionals have an important role in guiding the consumers toward new wines, and through that guidance larger trends in the industry may form.  But don’t mistake your role as transitory wine counselor with being an industry trendsetter. It’s unlikely that you alone are going to bring about a revolution of consumer palates by featuring thin reds unearthed from obscure agricultural backwaters or, as we’ve seen often lately, flights of perturbingly orange-hued wines.

Seriously, as tempting as it is, and we know it’s tempting, indulging your personal  “inner wine geek” ties up working capital with wines that  aren’t going to sell at a justifiable volume.

After that, one of two things is going to happen:

A: the bottles are going to sit in your cellar and do your bottom line no good (slow movers are like money stuffed under a mattress), or worse,

B: you’ll sell a glass or two, but the open bottles will oxidize because you couldn’t turn the bottle quickly enough.

This effect can be reduced if your staff is properly trained to introduce customers to your more off-beat selections, but keep in mind that there are other hidden costs to this approach. You will have to spend extra time familiarizing your staff and they will have to spend significantly more time per table hand-selling, all for an item that may have a low conversion rate. This does not make strict financial sense.  

There are of course exceptions to the rule. Bottle preservation systems can significantly delay an open bottle’s demise by days, weeks, or even longer, making it possible to carry several of your geekiest, slow-moving wines at a time without the risk of spoilage.

Build a wine list that’s appealing to your customers by utilizing tip #1  with the following:

For the sake of your professional pride, let one slot on the list be for your peculiar tastes of the time but let the other slots be your “ringers” – wines that are popular with your customers and can be bought at a lower cost while turning over in inventory as rapidly as possible.

Remember, your wine program isn’t necessarily about pleasing yourself, it’s about pleasing your customer.

It’s a simple yet effective strategy. Balance and harmony.

The zen of the sommelier.

“If a BTG wine list is composed of more obscure wines, it runs the risk of being too aloof and not resonating well with customers. A good BTG wine list is something of a balancing act.  It should reflect the theme of your wine list overall, yet showcase popular “staple” wines with recognized premium selections. If that’s done well, then there’s room for a few “geeky”, but approachable, wines.” –Hristo Zisovski, Beverage Director, Altamarea Group

Tip # 2 :  Price it Right and Win – Just like the game show

Reasonable consumers make decisions purely based on an item’s price and perceived value. Sometimes there’s an explicit measurable value that differentiates a product (a $500 laptop that has 1T of memory is clearly lesser than a $750 laptop that has 2T of memory), or a clear differentiator between price categories ($30k car will get you to a destination but a $45k one will get you there with greater comfort and panache).

What is Value?

In the world of subjective experience–like wine–this notion of value becomes less clear. Is there actually five times more value to be derived from a $200 bottle of Bordeaux versus a $40 Argentinian Malbec?  Adding to the problem, customers are most likely unfamiliar with the wines on your BTG list—sure, if you’re ordering a Spanish Albarino, you might have some idea of what you’re getting into, but it’s rare for even wine-savvy folk to know exactly what sort of experience they’re purchasing. In these cases, consumers fall back on various cues to determine “reasonableness” of value as a guide to their purchasing: basically they already have a notion of a certain price they want to pay.

BTG quantity sold by price. Biggest sellers fall within a tight price interval

You’ll see this pattern develop over time.  Take a look at your BTG sales reports over the longest stretch of time possible—if you chart out all the points, you’ll see that generally, the majority of your sales take place in a tight band of similarly priced items.

Value isn’t just about cost either.  It’s about cost versus the perceived value of experience, which is heavily guided by social cues your customers have ingested long before they ever sat down in your restaurant.  As such, they may be willing to pay $30 for a glass of Krug Grand Cuvee because rappers and Mark Cuban have reinforced that one should send a bundle on celebratory bubbles, but may be recalcitrant towards ponying up far less for an obscure Trousseau from the Arbois.  So even though your customer may have made a decision about what they wanted to pay even before looking specifically at your wine list, they can be nudged to pay more (or pay less) depending on the perceived desirability of a specific wine.

Thus, social cues can lead to determining the “sweet spot” or set point that the customer is willing to pay. If they flinch at a suggested wine, chances are they want an alternative in a different price point.

As a sommelier, the challenge is finding that perfect wine in your customers price point.

This is where the zen of the sommelier comes in.

If your BTG wines are suffering from these factors, you’ll need to take action:

• The wine isn’t well known—you’ll need to invest more to market it, part of which may involve “promotional” pricing
• The BTG prices are perceived as too high—you may need to downshift your entire program, to bring the bulk of items to be within the band of what your customer wants to pay
• The wine doesn’t go with anything on the menu

Reducing the BTG price, offering suggested food pairings and enlisting your servers to promote these wines can all help. Little adjustments can make a large impact on sales.

Accommodate your customers needs by adjusting the above options and voila, the price is right.

“One of the biggest mistakes new sommeliers and beverage directors make is tying up too much of their budget in wines that won’t sell quickly, keeping their costs too high to replenish or even introduce new wines that have a better chance of turning over. The best way to avoid this is knowing exactly who is your target and then select wine by the glass that you know will sell, and sell quickly. Making a “cool” list for yourself doesn’t match with running a successful business.”  Mauro Cirilli – Beverage Director, Press Club & Schroeder’s Restaurant

Created by sommeliers, for sommeliers, BinWise is the complete beverage management system designed to simplify the way you run your program.

How to lower beverage costs with BinWise

A wine by the glass (BTG) program is an important part of every successful restaurant’s beverage strategy. A recent study from the Wine Market Council and the Nielsen Company found that 44% of American adults drink wine, and more than half of those consumers order wine by the glass when dining.

Although BTG may be lucrative, it is increasingly difficult to manage well, especially for restaurants with higher volumes and a large number of BTG offerings. On average, most restaurants have a 15%-20% inventory variance for their BTG programs because sommeliers and beverage managers lack the tools to identify problems in a timely manner. Variance issues like overpouring can result in a loss of hundreds or even thousands of dollars in “lost” product in any given month

How BinWise helps

Here’s the good news: BinWise is the perfect solution for addressing problems related to BTG programs, and is trusted by restaurants all over the world. BinWise helps restaurants manage their wine and beverage programs, all on one platform, enabling them to:

• Take inventory
• Purchase products
• Deplete inventory
• Report and analyze data

BinWise is successful in helping restaurants reduce their BTG program costs by providing visibility into variances every time inventory is taken, highlighting areas that need attention. Our variance report combines beginning inventory, purchases and daily POS sales depletion resulting in a theoretical count compared to an actual physical count.

A practical example

The following data from an actual customer illustrates how using BinWise can significantly aid in addressing variance issues. This restaurant’s BTG wine program made up over half of its wine sales.

• Average inventory value of $200k
• Average total monthly wine sales of $125k
• Average monthly BTG sales of $65k.

In analyzing their inventory variances, the restaurant discovered that nearly one-third of their wine variances were caused by their three top-selling BTG wines. Further analysis led to the discovery that in addition to overpouring and unrecorded comps, the restaurant‘s “Bottomless Mimosa” was the major cause of the discrepancies, leading the team to make adjustments to their BTG program.

The result: a savings of $750/month or $9K/year.

BTG Variance Report

Below are examples of savings other restaurants have gained by using BinWise to manage their BTG program. Depending on the size and value of the restaurant’s inventory and BTG program, the amount of savings will vary.

Sample Savings based on BinWise’s Customers

BinWise is a data-driven, cloud-based platform that allows you to manage all your beer, wine and spirit programs in one place. We make it easier and faster to place orders, receive products, conduct inventory and manage beverage lists, while providing actionable reporting to lower costs and increase revenue, all within a single application.  Book a demo and let us help you be more successful