Bar inventory is the total supply of beer, wine, spirits, and mixers that your restaurant or bar has on hand. The phrase “bar inventory” can also refer to the process of physically counting that supply. Restaurant workers may feel that inventorying is worse than a month of Mondays but, with the right planning, it doesn’t have to be.
How to Do Bar Inventory Using Point-of-Sale
Restaurant managers can use the computing power of a cloud-based point-of-sale (POS) to help maintain liquor and bar inventory. Most large restaurant groups rely on POS systems or third-party integrations to track liquor inventory. Restaurant owners with only one venue may find this process overly granular. If that is you, see the spreadsheet strategy below. If you plan to expand, however, it is a good idea to get familiar with this functionality; it is the most efficient way to track costs across multiple venues.
1. Input Bar Inventory Items into POS
Before you can get a clear inventory picture from your POS, you need to tell it what to track. The easiest way is to connect your POS to your vendor accounts so you can place and receive orders directly through the POS. For example, Revel Systems POS includes an inventory management function that allows restaurant owners to place orders with suppliers directly through the POS, track inventory from the moment it is ordered, then depletes your virtual stock in real-time as products are rung into the POS.
If you don’t use your POS for ordering, you can enter items individually. Some POS systems allow you to scan bar codes from items to input into their tracking system, and others will enable you to import vendor and ingredient information via spreadsheet. All of them have the option to enter each item by hand manually. If you are a new restaurant beginning your inventory management system from scratch, your POS partner will usually help input your beginning information.
This process can be time-consuming. It’s essential to keep in mind, however, that all the time you spend entering products into your POS is time you will save later when the time comes to count your inventory physically. Another benefit of this process is that you can’t help but become deeply familiar with your product offering.
To maintain an accurate real-time inventory in your POS, it is crucial that you either place your orders through the POS or take time every week to input the information from current invoices into your POS system. The key to using a POS for inventory is consistency. If you do not keep the information current, then your virtual inventory will never be accurate.
2. Tie Items to Drink Recipes
Bottles and cans of ready-to-drink beverages are simple to track; a case of 12 bottles is 12 items in inventory. The POS needs to be told, however, how to handle 750-milliliter bottles of wine served by the glass and spirits served by the drink. For wines served by the glass, it is as simple as updating the unit size and cost per unit in the item description.
For spirits that are components of cocktails, you need to create beverage recipes in the POS so that when a bartender rings in a martini, the system knows to remove 2 ounces of vodka from your virtual inventory. Like entering all of your products into the POS, this can take time as well. However, these hours will make your reporting fast and accurate.
A key function of restaurant management is analyzing reports to assess the health of the business. Keep in mind that your POS can only give you reports that are as accurate as the data you put into it. If you change the recipe for your signature Manhattan from 1.5 ounces of rye to 2 ounces, you must update the recipe. If customers are frequently modifying a beverage with a different spirit, it is a good idea to enter this as a new recipe so your bartenders can ring it in properly when your bar is busy.
3. Count Physical Bar Inventory
In your POS dashboard, navigate to the inventory screen. You will find an option for “physical inventory” or “physical inventory count.” From there, the options are generally pretty intuitive. In Revel, for example, you input physical counts directly into the iPad that houses the POS. Although for an additional fee, you can opt for the inventory app that enables you to count physical inventory on a smartphone.
When performing a physical count, there are some best practices to keep in mind:
- Count when the bar is closed: This does not have to mean counting into the wee morning hours. Many bars split the inventory count between teams. The closing manager and bartender can count the back storage and walk-in refrigerators. The opening manager and bartender can count the stock in the bar and reach-in refrigerators the following morning.
- Spread the workload: Use multiple workstations to perform the count. Many POS systems have a smartphone app for counting that enables you to set permissions for different individuals to count certain sections of your inventory.
- Count before pending deliveries arrive: You need a static inventory count to compare to invoices for the same time period. Therefore, a strict cut-off point is important. Your sales and costs need to be in the same timeframe. If you use your POS to receive deliveries, it is best to avoid scheduling deliveries for days that you are counting inventory.
- Count in pairs: Two sets of eyes better ensure accuracy. More than anything, however, counting in pairs prevents potential theft or the appearance of it.
- Use the same team to count inventory: At every inventory interval, schedule the same team to perform the physical count. They will get faster and more efficient.
4. Scan for Errors in POS Report
This is where the administrative work you did will pay off. Once your physical count is done, you should be able to pull a report to show your expected inventory alongside your physical inventory. Scan for any unexpected numbers and take a moment to recount items that look shocking. Most of the time, these large differences are due to simple human error. Overages could be the result of an invoice that wasn’t received in the POS. Shortages could be deliveries that were incorrectly restocked.
How to Do Liquor Inventory Using a Spreadsheet
You can get an accurate inventory count without integrating your purchasing and recipes into your POS. It just takes a bit of planning. Many small bars and restaurants operate with a detailed series of spreadsheets. Whichever method you choose, the most important thing is that all of your managers know and use the same system. Sloppy inventory management costs your business money at the bottom line.
1. Track Your Bar Purchases
When you first opened your doors as a bar or restaurant, your inventory was obvious. It was written clearly on all the invoices that arrived with your deliveries. To keep your inventory current, you must continue to track your invoices and keep your product costs updated. Many restaurants track this via an invoice tracking spreadsheet that contains the vendor name and invoice number plus the costs allocated by revenue center as in liquor, wine, beer, and so on.
Example Invoice Tracking Sheet
If you take time at the end of every shift to input your invoices into a tracking sheet, it shouldn’t become overwhelming. This is also a terrific time to cross-check that the invoice price of the items you ordered matches what you expected to pay. This will ensure that your inventory count reflects the true value of the stock you have on hand.
2. Arrange Your Inventory Sheet
Don’t file those invoices away just yet. If you have not yet created an inventory sheet, your invoices are the best place to start one. This is a separate sheet from the invoice tracker. This is the sheet that you will use to count your physical inventory. It should include product information, like the price and the unit size as well as an accurate product description. Arrange your sheet in categories like beer, wine, spirits, and nonalcoholic beverages.
Some full-service restaurants count nonalcoholic beverages like tea and coffee as part of their food inventory. If you count these items as food, it is important not to saddle your kitchen with the cost of nonalcoholic mixers that are used to make cocktails. If lemon juice is used to make lemonade, that might be food cost, but if you go through a gallon of it to make lemon drop martinis, that should be counted in the bar inventory.
After you have separated your inventory sheet by product type, take a moment to arrange each section the same way you organize the items in your bar or storage room so that it is easy to count. If you arrange all items alphabetically on the shelf, in all storage areas, and on your inventory sheet, counting will go faster. The template below is an excellent place to start.
Once your items are arranged in an organized fashion, your last step will be to ensure that you have included a column for each of your storage locations. With spirits, in particular, it is a good idea to have multiple storage locations in your establishment, most of which remain locked. Because of its high cost and potential for dependency, liquor is highly prone to theft.
3. Count Each Storage Location
With your updated inventory sheet in hand, you are ready to start your physical inventory count. Depending on the size of your inventory, the size of your bar, and the number of storage locations you have, counting inventory can take a couple of hours. It is important to set aside plenty of time. Mistakes are more common when you rush. At best, mistakes on a physical inventory count will result in an incorrect analysis of your operation. At worst, mistakes mean you’ll have to restart your count.
To ensure an accurate inventory count: The process of counting physical inventory is the same, whether using spreadsheets or a POS. The same best practices described in step 3 of the previous section apply to each. When relying on spreadsheets, however, it will speed your process if you upload your inventory sheet to a tablet or laptop and input your counts directly into the spreadsheet, rather than printing out inventory sheets and writing in counts by hand.
4. Total Your Inventory Sheet
Once you have entered all of your inventory into your spreadsheet, it is time to get your totals. To ensure that your totals are accurate, verify the cost of each bottle with the price listed on the invoice. Once you are sure that the line items are correct, tally the combined dollar amount of your entire beverage inventory to get one number for your total inventory.
To complete the sheet in the template above, you will need to locate two more numbers: your total purchases and total sales, separated by product category. Your total sales can be found easily through your POS, or by tallying the sales from your end-of-shift manager reports. Total purchases will come from your invoice tracking sheet.
Add these numbers to the appropriate sections of your inventory count sheet. With your total inventory, total sales, and total purchases figured you can begin to see how well your bar program is performing. With these figures in hand, the rest of the math becomes very straightforward.
Using Your Liquor Inventory Count
Whether you count on a spreadsheet or in a POS, you should be looking at two numbers, at least: total inventory and total purchases. To get a good look at the health of your bar program, you need two more figures: starting inventory and total sales. Starting inventory is just the total inventory from your last physical count. Total sales can easily be pulled from your POS, whether or not you use it to manage your inventory. With these numbers in hand, you can begin to figure your costs.
Figure Beverage Costs
There are two kinds of beverage costs that a bar or restaurant owner should be concerned with: actual beverage cost and theoretical beverage cost. Both of these numbers are separate from the target beverage cost of 20% to 30% of sales that you and your team might already have in mind. The numbers are related, however. The actual and theoretical costs tell you how close you are getting to your target and can help you figure out where your bar program has opportunities to improve.
Theoretical Beverage Cost
Theoretical cost is what your beverage cost should be based on your purchases, sales, and the per-drink cost of all of your beverage items. If you manage your invoices and inventory via your POS or an integrated third-party app, this number will appear in a beverage cost report pulled from the manager dashboard.
If you don’t use your POS to manage your inventory and invoices, you can figure theoretical cost manually. First, you must know what the per-drink cost of each beverage on your menu. This is adding the cost of each ingredient together to get a single number. Ideally, you would have performed this calculation when you priced your beverage menu.
For a vodka martini, the per-drink cost might look like this:
2 ounces vodka $2.75
.75 ounce dry vermouth 20 cents
2 olives 25 cents
Bamboo skewer 5 cents
Per-drink cost $3.25
You need the per drink cost as well as the number sold for each drink for the time period you are inventorying. As you are going through this process, it is a good idea to track these figures on a spreadsheet as well. This sounds like a lot of math, and it is. Which the most effective bar and restaurant owners spread the workload over the months leading up to their opening. If you are playing catchup, it is important to know that after you have done this foundational work, your future costing processes will go much more quickly.
To figure your theoretical beverage cost manually, you need to multiply the per drink cost of each drink sold by the number of units of that drink that sold in the timeframe you are inventorying. So, if you count inventory every week, you are looking for the number sold in the previous week only. Any POS, whether or not you use it for tracking your inventory, will have a product mix (p-mix) report showing itemized counts.
Once you have all the numbers you need, the basic equation looks like this:
[[(Drink A drink cost × Drink A units sold) + (Drink B drink cost × Drink B units sold) + (and so on, until all drinks are included)] / Total beverage sales] × 100 = Theoretical beverage cost
Actual Beverage Cost
After figuring theoretical beverage cost, figuring the actual beverage cost is easy. For the actual beverage cost, you need four numbers. First, you need the value of the total inventory you started with at the beginning of this inventory period. If you are inventorying weekly, this number would be the total inventory number from the previous week. This is your starting inventory.
Next, you need the total purchases you made for the current inventory period. In a weekly inventory format, that would be the total of all the beer, liquor, wine, and beverage invoices for items that were delivered this week. These are your total purchases. Then, you need your total beverage sales for the same time period; this we’ll refer to as total sales. Lastly, you need the total inventory value for items you currently have in inventory like the total dollar value of all the bottles you and your team just finished counting. This is your ending inventory.
Once you have these four numbers, the math is easy:
[[(Starting inventory $ + Total purchases $) – Ending inventory $] / Total sales] x 100 = Actual beverage cost
Figure Beverage Variance
Now we’re ready for the big number: variance. The difference between your actual costs and theoretical costs is your variance. Variance is the number that will tell you the most about how effectively you are managing your bar program. If you are bracing yourself for more tedious math, you can relax.
Variance is very simple:
Actual beverage cost – Theoretical beverage cost = Variance
The smaller the variance, the more efficiently your bar is running. Your variance will probably never be zero; that is OK. The important thing is to look at what the number might be telling you. Let’s say your beverage cost target is 25%. When you priced your cocktail menu, you took that margin into account for all of your menu pricing. So, the vodka martini that costs you $3.25 to make is listed at $13.
Suppose after your inventory count, your actual beverage cost is coming out at 30%. Before starting to look for broken or stolen bottles of your top-shelf spirits, consider your variance. If your theoretical beverage cost is 29.4%, then your variance is only 0.6%. This might indicate that you over-ordered this week and are carrying a heavy inventory. Maybe a large party that you were preparing for canceled after your deliveries arrived, so you are left holding more wine than you expected.
Locate Sources of High Costs
We already discussed how a heavy inventory load might set your operation above your targets. Missing your targets is not horrible if your variance is less than 1%. If your variance is high, above 5%, that can indicate shrinkage. Shrinkage is items that you paid for that disappear, unsold, from your inventory. The three biggest causes of shrinkage are spillage, breakage, and theft.
Spillage can be beverages that are sent back to the bar because customers didn’t like them, drinks that spilled before they made it to a customer, or beverages that are comped to customers. Breakage is what it sounds like―bottles that broke after you paid for them. It can be the result of inattention, poor training, or fear. If a barback drops a couple of bottles of top-shelf liquor and fears that he or she might be fired, they are not likely to tell you about it.
Theft is not always as obvious. Sometimes, it isn’t even malicious. Staff may not be aware of how their actions impact the bottom line when they overpour drinks or spend a slow afternoon experimenting with your spirits to create several variations of a new cocktail.
“Maybe you can’t account for 10 cases of rum one summer weekend. Mojitos were flying that week, so you burned through some product but, still, where are those 10 cases? Your ace bartender, let’s call him Rick, would never steal and, after all, he is an ace. He even calls himself that. Rick has been free pouring for years so, in his mind, he’s an ace at that too. Well, if you pour test our friend Rick, you’ll find his six-count 1.5-ounce pour he’s used for a decade has turned into a six-count 2-ounce pour, and he’s overpoured every one of your top-selling drinks for that week. How much rum flew out the door?”
—Will Benedetto, Director of Bars, IGC Hospitality.
Unless it is an obvious data entry error, it can be challenging to locate the exact source of high variance. Frequently, the best option is to create systems that prevent it in the first place.
Adjust Your Bar Operation to Reduce Variance
Spillage and breakage are best controlled through training. If a barback is overloading boxes to bring to the bar and dropping some in the process, a bar manager can teach him a more efficient way to stock or get a bar cart for the staff to use. If drinks are being sent back to the bar because customers don’t like them, it might be time to have a bartender training or refresh the cocktail menu.
Theft can be tricky. Many honest mistakes can look like theft. If a delivery driver shorts your order accidentally, it can look like theft. It is usually an honest mistake. Delivering to many venues every day, a person could grab the wrong box from his truck.
This is why a manager or lead bartender must check every delivery as it arrives to ensure that the invoice reflects the delivery accurately. If any bottles are broken, opened, or otherwise poor quality, they should be refused, and the adjustment noted on the invoice.
Sometimes, however, shrinkage is theft, either from customers or employees. Sadly, employees are the likelier culprits. If you are concerned about employee theft, a robust inventory management program is usually enough to deter opportunists. You can also institute a system where bartenders are only restocked with full liquor bottles when they provide a manager with the empty ones.
If you have pronounced issues with shrinkage, it might be worthwhile to place security cameras in or near your liquor storage areas. A company like SimpliSafe, for example, offers high-definition security cameras that transmit video via Wi-Fi or cellular network. A motion sensor on the front of the camera alerts you when there is activity, and you can access the live stream of video via a smartphone, tablet, or computer. At $99, each can be a cost-effective alternative to a professionally installed camera system.
Adjust Your Bar Operation to Reduce Inventory
To keep your costs in line, it is best to keep your inventory as lean as you can without running out of things. Sometimes, this is easier said than done. Maybe you usually order and sell one case of sauvignon blanc every week at $120 per case. This week, there is a promotion: 10 cases at 20% off, or $96 per case. It sounds like a great deal. If you have the space to store that many boxes for that amount of time and don’t need the $960 elsewhere, maybe it is.
With your usual traffic, it will take you 2.5 months to sell those 10 cases. In the meantime, you may need to repair a floor drain, or one of your bartenders may fall ill, causing the rest of the team to hit overtime to cover their hours, and thus increasing your payroll costs. You saved $240 in the long-term but, in the short-term, you spent $840 more than you would have in a single week.
It’s wise to consider all of the variables before committing to deals that have large upfront costs. There are, however, times when slow-moving items are unavoidable. High-end bar programs, in particular, may need to retain slow-moving bottles of rare spirits to remain competitive. If you have a glut of spirits and need to clear space in your inventory room, try pairing a slow-moving, high-cost item in a recipe with a lower cost item. Drink specials are a great way to do this.
“I got a vatted rye whiskey that I thought would have higher call appeal. After a couple weeks of not selling, I sold it in an American Trilogy (rye, apple brandy, orange bitters, and a Demerara sugar cube). The apple brandy offset the rye price. I made the business a decent profit, got rid of that stock, and introduced a new cocktail to my customers and staff that would be an easy call and upsell.”
—Alexander Barbatsis, Consulting Mixologist, LA Bartend
Bar Trends to Watch
Now that you’re tracking your inventory, it’s important to know what to have in it. These are some bar trends we see taking hold through 2020.
- Cannabidiol (CBD) will be big: National Restaurant Association members listed CBD-infused food and beverages as their top two trends to watch in 2019, a trend that is only expected to grow in 2020.
- Nonalcoholic beverage options will increase: When the brand that represents Guinness and Johnnie Walker funds a nonalcoholic spirit, it’s a big deal.
- Robots could become bartenders: Maybe not in restaurants just yet, but possibly in casinos and airport lounges. The MGM Resorts in Vegas tested an automated system in 2019. With Keurig’s Drinkworks Home Bar system entering the market at a consumer level, an automated bartender for the small business market may not be far behind.
Frequently Asked Questions (FAQs) About Bar Inventory
These are some commonly asked questions about the process of maintaining and tracking bar inventory. If you don’t see your question below, add it to the comment section.
How often do bars do inventory?
Bars and restaurants should perform a physical inventory count at least monthly. Although many of the top bar programs choose to perform weekly inventory as a standard operating procedure. Weekly inventories give you a deeper sense of how efficiently your bar program is operating than any other change you make. If you are struggling to keep your costs in line and hit your targets, a weekly count of your physical inventory is necessary to identify where you need to shore up your operation.
How do you weigh bottles for bar inventory?
Some bars choose to weigh bottles when counting inventory, rather than estimating the percent of spirit remaining in them. Weighing is more accurate but can also be more time-consuming. To weigh bottles, be sure that you have a well-calibrated scale. Then, determine the tare weight of each bottle as you want to weigh the actual spirit alone to keep your counts accurate. Ensure consistency by checking that all of your inventory records and pricing are scaled by the weight of product, not volume.
How much profit do bars make on alcohol?
This is where figuring overall liquor cost comes into play. No hard and fast rule applies across the board, but if all your costs are on target, a well-managed bar program can expect to make 30% to 40% profit on spirits, after costs and expenses are accounted for. An individual bar may be different, however, as the costs of liquor licenses and rent vary widely based on location.
Bottom Line: How to Do Liquor Inventory
Maintaining bar inventory is a necessary task in a well-managed restaurant. It requires attention to detail and the consistent participation of your whole team. It can be a big undertaking, but the good news is that the more you perform physical inventory counts, the faster they get. If you do not currently have an efficient inventory process, the most important step you can take is to begin.
A well-integrated POS like REVEL can be an incredible partner in helping maintain your inventory. The reporting power that a POS provides can improve accuracy, save time, and provide detailed reports that might be tedious to develop on your own.