Shrinkage – The Profit Killer

Loss of inventory can be devastating to any business, especially when it comes to liquor inventory for bars and restaurants. In hospitality, shrinkage is discovered when you count all your bottles, add the number of bottles you bought, then subtract what you sold. If your actual counts are lower than expected – that’s shrinkage. Liquor literally has disappeared and the business wasn’t paid for it – it’s vital to minimize that loss to run a successful restaurant. But how does it happen in the first place? For bars and restaurants, the most common culprits are poor employee training and administrative errors. But, without a way to identify exactly which employees need training on how much your standard pours are, you are flying blind.

According to Forbes, in 2018 shrinkage cost businesses $46.8B in the US alone. This can be a crippling problem for businesses, as it hits the bottom line twice. When most think of shrinkage, the obvious pain point is the increased costs due to the loss of inventory. Over-pours, free drinks and “lost” bottles means you have to replace that inventory so you can serve the next customer. There is another underlying issue that tends to be overlooked though, and that is the foregone revenue. That drink was consumed by a customer you just didn’t get paid for it. This loss of revenue has a 5-8x impact on your profits over and above the increased costs.

Shrinkage hurts all bars. Don’t let it keep hurting yours.

Because of these two hits, your business now has a much smaller profit margin. Not only has money been wasted, but your customers are getting an inconsistent experience. If someone orders a signature cocktail off your menu, Bob, Sally and Joe’s drink should all taste the same. Or even worse, if you run out of stock in a crucial ingredient a customer could be unable to get their favorite cocktail which could turn into a customer that never returns. Causing profit loss on 2, and maybe even 3 levels, shrinkage is truly Jack The Ripper of restaurant industry profits. 

Another big problem associated with shrinkage is the difficulty many owners face in pinpointing exactly what is causing it. Inventory is usually done weekly at the most, and many owners only see the accounting and books of the inventory, only seeing the actual storage rooms when they visit the establishment. So unless an owner is babysitting their staff while inventory is done, shrinkage is a difficult thing to track down. The gap in time from when the shrinkage occurs and when management notices can make it impossible to try and unravel the exact cause. Due to all this difficulty in tracking down issues, many owners resort to simply monitoring pour costs – basically a set percentage of liquor purchase costs compared to revenue. This is akin to admitting a certain level of loss is acceptable and potentially ignores what could be fundamental issues behind your bar.

Fixing the black cloud that is shrinkage can have a huge impact on not only your business’s bottom line, but the functionality of your restaurant as a whole. So, what is the quick and efficient solution to shrinkage? BarMinder. By installing the BarMinder inventory system into your business, your inventory worries will be a thing of the past. You get real-time accountability for every bottle from when it enters your establishment until it goes into the trash. This means it’s much easier to identify which employees need refreshers on their training so that you can provide every one of your customers with exactly the experience you design.

BarMinder provides bar and restaurant owners an automatic digital inventory count that gives you a count on a physical hub in your location, or the BarMinder mobile app. Simply put a sticker tag on the neck of the liquor bottle, check it into the system, and know exactly what you have in your inventory at all times with confidence. Reduce shrinkage, reduce overhead and make more money with BarMinder.

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