Beverage Cost Control in Food Service

We examined how food cost is controlled in article three. In this article, the focus shifts to learning how to achieve beverage cost control.

Beverage costs reflect an operation’s control systems, management skill level, and value provided to customers. Beverage sales are an easy way to increase profitability because the costs are lower and the gross margin is far greater for beverages than for food.

However, beverage costs must be controlled if an operation is to reach the maximum potential of gross profit from beverage sales.

Objectives of Beverage Control in Agricultural Catering

The objectives of beverage control are similar to those of food control. In simple terms, it is to determine and report on the actual and potential sales and costs for each beverage outlet and to take corrective action where necessary.

Beverage control is simpler than food control for many reasons, including:

There are fewer beverage items to handle than food.
Beverages are purchased in standard unit sizes of known standard qualities.
Beverages are not as highly perishable as foods.

It is important, however, that strict control of beverages is maintained at all times for such reasons as:

The danger of bar staff appointing themselves as ‘unofficial partners,’ e.g., a barman paying no overheads and no wages yet, if bringing in bottles of spirits and selling them and pocketing the money, is depriving the operation of that amount of sales and profit.
It is easier for bar staff to steal money than it is for food staff.
Beverages are more tempting than food to many staff.
Beverages are, in the main, more expensive and contribute more to profit than food items.

Calculation of Beverage Costs in Agricultural Operations

Beverage Cost Control in Agricultural Food Service

There are several basic terms which need to be explained with reference to the calculation of beverage costs:

1. Beverage Cost Percentage: This refers to the cost of beverages sold as a percentage of sales of the beverage.

2. Gross Profit: The excess of sales over the cost of the beverage expressed as a percentage or in financial terms.

3. Potential Beverage Cost (or Sales): The beverage cost (or sales) under perfect conditions; this may be expressed as a percentage or in financial terms.

Methods of Beverage Cost Control in Agricultural Catering

There are many different methods in use today to control costs, the various methods depending on the size of the operation, the volume of business, owner or managed operation, etc., and the level of sophistication of control required.

Each of the different methods in use could be classified under one of the following six basic types of beverage control systems. Whatever method is adopted, it would be of little value unless the previous steps of control had been efficiently implemented and enforced, i.e., the control of purchasing, receiving, storing, and issuing; production planning; the establishment of standard yields, standard recipes, standard portion sizes, and inventory.

1. Bar Cost System for Agricultural Beverage Service

This system is similar to that for the basic food cost report and the detailed food cost report. It may be produced for each bar separately or for all of the beverage operations.

2. Par Stock or Bottle Control System in Agricultural Beverage Management

This is a simple yet effective method of beverage control, and it is particularly useful for the smaller type operation where there are few full-time control staff. The following points should be noticed:

The level of par stock is established for each bar, i.e., to establish for each beverage the number of bottles required for a busy day plus a small safety factor. This number is determined to be the stock level to be held in the bar at the beginning of the service each day. To simplify the system, only full bottles are counted; partial bottles are not counted.
The number and type of empty bottles are noted each day, this being the amount and type to be requisitioned for the day.
The potential sales are based on the quantities issued at selling price and are compared to actual revenue received.
Adjustments to be made to the initial selling price if many mixed drinks are sold. This may only be necessary if the difference between the potential and actual sales figures gives cause for investigation.

The particular advantages of this system are its simplicity and ease of operation. The system assumes that over a short period, the level of partial bottles remains relatively constant so that it becomes unnecessary to count each bottle’s contents to determine the total sales.

Theoretically, the sales value of today’s issues should equal yesterday’s revenue. This would be unlikely, however, but over a short period, the sales value of issues to date should equal the revenue to date figures.

3. Potential (or Standard) Sales Value System in Agricultural Beverage Control

This system is designed to control beverage sales and, therefore, beverage costs by setting a sales value on each bottle item carried in stock. The revenue value of each bottle is based on the standard size of the drink, the contents of the bottle, and the selling price for each drink.

The sales value of each drink is called the potential (or standard) sales value. The system requires, as a basis for its operation, established standards for a bottle code number system, drink recipes, drink sizes, glassware, and par stocks.

Whenever the bottle size, drink size, or recipe changes, a new calculation must be made and recorded, as this can affect the price of a drink and should require the price to be reviewed.

The various calculations which have to be made to establish the potential sales values are concerned with:

i. Full Bottle of Spirits: The potential sales value of a full bottle of spirits, etc., which at times may be sold over a bar, is equal to the selling price established by management. As little handling is involved in selling a full bottle, its price will usually be lower than when sold by the individual glass.
ii. Spirits, etc., Sold by the Glass: The sales value for a bottle of spirit, wine, etc., which is to be sold by the glass, is calculated as in the following example:
iii. Potential sales value for a bottle of whisky:
- Size of bottle: 26 2/3 oz
- Size of a straight drink: 5/6 oz
- Selling price per drink: N1.25
- Number of drinks per bottle: 30 (as determined by management)
- 30 x N1.25 = N37.50
- (Number of drinks) (Selling price per drink) (Potential sales value of one bottle)
iv. Soft Drink and Mineral Water Sales: The potential sales value of soft drinks, etc., depends on the establishment; it could, for example, be:
A fixed price when sold on its own or when with another drink, e.g., gin and tonic water.
At a lower price when served as part of a mixed drink, e.g., a straight 5/6 oz drink of whisky may cost N1.25; a split bottle of dry ginger may cost N0.45; as a mixed drink, whisky and dry ginger may be priced at N1.05 and not N1.70 as would be the case in (i) above.
The cost of soft drinks is included in the price when selling spirits.
It should be noted that if a lower or inclusive pricing system is adopted, adjustments must be made when preparing the control sheets so that an accurate potential sales figure is calculated.
v. Cocktails, etc.: If all drinks served to customers were sold as straight drinks or full bottles, it would be simple to calculate the potential sales value. When drinks are sold as cocktails containing two or more high-selling-price items, it often requires an adjustment to be made when preparing the control sheets, similar to the following example:
vi. Calculation of the sales potential value of a dry martini:
- Ingredients: 2 ½ oz gin, ¼ oz vermouth, ice, lemon peel. Selling at N2.25.
- Selling price:
- Dry gin: 1 ¼ oz N1.25
- Vermouth: 1 ¼ oz N1.00
- Therefore, as a dry martini:
  - Dry gin: 2 ½ oz potential sales value 2.50
  - Vermouth: ¼ oz potential sales value 0.20
  - Total: N2.70
  - Differential of gin and vermouth sold as a martini = N0.45. Therefore, for each martini sold, N0.45 must be subtracted from the potential sales value.
When the sales of mixed drinks on analysis are found to be low, there would be little need to go into great detail to calculate the allowances for the various mixed drinks. It is only when the difference between the actual money taken in the bars differs from the potential sales value by, say, more than 2 percent that detailed analysis of sales and allowances needs to be done.

4. Inventory or ‘Ounce’ System for Agricultural Beverage Tracking

This method is recognized as the most accurate (non-automatic) method of determining the amount of beverage sold. It is used at times when investigating the cause of an unacceptable difference recorded between the actual and potential results in a beverage report; it is, however, a complicated and difficult system to operate for large units with a full range of beverage service unless aided by a mini-computer. The system requires:

An accurate and detailed analysis of all sales by type and brand of drink sold, for each selling outlet.
The calculation of the actual consumption of each type and brand of drink based on the daily physical stocktaking, giving opening and closing stock levels of bars, plus any issues, and minus any transfers out to other bars.

All drinks sold are converted back to the number of ounces of each type and brand of drink sold using the standard beverage recipes.

The total consumption of each kind of drink per sales bill has then to be compared with the actual consumption determined from the physical inventory and any adjustments.

The main disadvantages of this control system are:

The time required to analyze sales and stock levels daily.
The time required to calculate the daily consumption for each selling outlet.
Additional difficulties if a large number of mixed drinks are sold and if drinks of different sizes are sold in each selling outlet.

5. Banqueting and Function Bar System in Agricultural Events

Should the banquet department have its own storage and bar areas, it can operate and be controlled in the same way as any other bar. If, however, a bar has to be set up for each separate banquet or function, it will be necessary for an authorized person to requisition for each event from the main cellar and then, immediately at the close of the event, to return all unsold beverages.

Bottles issued would be the quantity issued from the cellar for that function. Bottles returned are the bottles and part bottles (calculated in tenths of a bottle) unused and returned to the cellar. The number of bottles issued minus bottles returned is equal to the number of bottles used.

Actual cost is the purchase price paid per bottle, or half or split. The potential sales per bottle is the selling price per drink multiplied by the standard number of drinks per bottle.

It would be normal practice for the bar staff at a function not to be paid until the actual and potential sales calculations had been made and found to be satisfactory.

6. Automated Beverage Dispensing System in Agricultural Catering

There are many types of mechanical and automated beverage dispensing machines available, all designed to assist management in controlling beverage costs.

As a method of controlling beverages, it is very efficient, but the question of the cost of the installation and its suitability for some types of operation may preclude it from being considered.

Control Checklist for Agricultural Beverage Management

As with food control, a beverage control checklist, similar to the one below, can be produced to act as an aide-memoire to help identify the reason(s) for variances in standards.

1. Purchasing, Receiving, Storing, and Issuing Procedures

Purchase specifications prepared for all main items.
Purchase orders completed in detail for every purchase made.
Purchases made from nominated or approved suppliers only.
Deliveries timetabled for a slack period so that quantity and quality inspection may be efficiently carried out.
Copy of purchase order sent to delivery point for checking against deliveries.
All deliveries entered onto the goods received report and credit notes obtained for any variance between goods and delivery note.
Credit notes obtained for all returned empties and ullages.
All deliveries to be entered onto bin cards, etc., on the day of delivery.
Issues of beverages to be against authorized signed requisition only.
Cellar ledger and any other records kept to be up to date and accurate.
Access to cellar restricted.
Check that all bottles are stamped with the establishment stamp and are correct bottles for the particular bar. Check bottle disposal area contains no ‘foreign’ bottles.

2. Bar Procedures in Agricultural Beverage Service

Bar stock to be replenished by written and authorized requisition, or by using a ‘full for empty’ bottle system.
Bars to use standard recipes, standard drink sizes, and glassware.
Bars to sell ‘house brands’ for all drinks unless specifically requested by the customer, as they will normally give a higher gross profit. ‘House brands’ may, for example, be determined by a brewery owning a chain of pubs, restaurants, and hotels, when it would quite naturally wish to sell its own products in preference to those of its competitors; or by a company that has no liquor ties but negotiates a price-advantageous contract with a supplier. In both cases, the prices paid for the particular ‘house brand’ would normally be lower than if purchased otherwise.
Check that all bar sales are properly recorded.
Periodically check proof of liquor in open bottles if tampering is suspected.
Check that beverage price lists are displayed and freely available to customers.
Check frequency of ‘breakages’ recorded.
Check ‘shortage’ or ‘overs’ recorded by accounts department for each bar.
Check that bar staff have no access to till rolls, etc.

2. Beverage Control Procedures in Agricultural Operations

Check and marry up delivery notes, credit notes, invoices, and goods received report.
Check arithmetic on all paperwork.
Check correct discounts are being allowed.
Check delivery notes, etc., to cellar inwards book.
Maintain beverages perpetual inventory book.
Maintain container charges and credits for period inventory.
At set periods, complete a full inventory of all chargeable containers, e.g., crates, kegs, soda syphons, etc.
At set periods, complete a full inventory of cellar and compare to beverage perpetual inventory book.
Prepare a stocktaking report of value and type of goods, rate of stock turnover, etc.
At set periods, complete a full inventory of the stock of each bar for beverage control reports.
Maintain daily and to-date beverage control reports, the amount of detail depending on the size of the operation and the volume of business.
Prepare end-of-period beverage reports for management and highlight any problem areas for corrective action.

Challenges in Beverage Control in Agricultural Catering

Beverage control is not as difficult or involving as food control. What at times is a problem is the dishonest employee, and this is usually difficult to detect. The typical problems are bar staff who:

Bring in their own bottles of spirits, etc., sell the contents to customers, and then pocket the money. This results in a busy bar with disappointing cash takings.
Drink at work: Bar staff who help themselves to the odd drink soon get into the habit of it unless it is quickly detected. This results in lower-than-expected cash takings or customers having short-measure drinks which ‘compensate’ for the free drink taken by staff.
Fail to ‘ring-up’ each drink sold and pocket the money taken from the client. This also results in lower cash takings.
Provide free drinks for friends, which also results in lower cash takings.
Under-charge the customer. The customer, being an accomplice of the bar staff, orders a drink, pays for it, and is given change in excess of what it should be. This results in bar takings being lower than they should be.
Short-change customers. This is a very common problem of bar staff giving customers less change than they should and pocketing the difference for themselves.

An effective beverage control determines and reports on actual and potential sales and costs and also makes corrections where appropriate.

Beverage control is simpler than food control because beverages are fewer in number to handle, they are purchased in standard unit sizes of known standard qualities, and they are not as highly perishable as foods.

There are several methods of beverage control: Bar Cost System, Par Stock or Bottle System, Potential (or Standard) Sales Value System, the Inventory or “Ounce” System, Banqueting and Function Bar System. Beverage dispensing machines also assist in controlling beverage costs.

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