Lesson 10

Beverage Control Systems

Understanding and adopting

stock and beverage control
systems.

Lesson 10: Beverage Control Systems

Lesson Overview

10.1 Introduction
10.2 Managing costs and revenue to make profits
10.3 Policies for pricing
10.4 Stock control
10.5 Receiving, checking, storing and issuing controls
10.6 System of bar books
10.7 Cellar management
10.8 Control of possible losses in the bar
10.9 Controls for beverage production
10.10 Point-of-sale systems for stock and beverage control

Conclusion
References

Lesson 10: Beverage Control Systems

Aims and Learning Outcomes of the Lesson

On completion of this lesson the learner will be expected to be

able to;

Identify the major planning areas involved to manage

costs, pricing and revenue for achieving profits.
Apply the controls, techniques and documentation for
receiving, storing and issuing products.
Outline the rationale and procedures for stock control in
bars
Explain the point of sale systems used for stock and
beverage control in bars.

Lesson 10: Beverage Control Systems

10.1 Introduction

There are many benefits for having specific procedures for

the control and recording of stock and beverages in your
bar premises.
Operating a regular and rigorous system of stock taking
and beverage control within your bar will help you to;
control costs,
achieve profit margins acceptable for the success of the
business
help you to identify problem areas in relation all the
products, stocks, beverages etc of your bar business.

Lesson 10: Beverage Control Systems

10.2 Managing costs and revenue to make profits

Profit figures are not significant until they are expressed in relation to other elements
Lillicrap & Cousins (2010) refer to these elements as the relationship between the costs of running the operation,
the revenue received and the profit made.
Understanding of these relationships is the key to fully comprehensive cost control in food and beverage
operations.

A plan for profit generation and financial sustainability

Starting point: a good financial plan must include a monthly or annual budget with projections for expenditure and
income.

Try to be detailed, objective and realistic when formulating your projections of costs and revenue in relation to
desired profit.

Gather as much detail as possible and be flexible with adjustments before applying it to a future that might
change before it arrives.

The ideal method used to monitor your projections is Sales Projection sheet (Chapter 10 table 10. p. 191).
(use past trading accounts to project future sales) this information is used to plan for the month/year ahead (i.e. more or
less staff, new products and services, renovations).

Project the Bar Expenses (Chapter 10 table 10.2 p. 192 - provisional projected budget), your major expenses
are classified as fixed and variable.
Fixed costs: (ie.rent, insurance and taxes etc) Variable costs: (i.e. advertising, supplies, beverage costs, etc)

Total the bars expenses and express them as a percentage of your projected sales for the bar for the
month/year.

To find the percent of your revenue (sales) which you pay for your expenses, divide the individual expense or
total expense into the revenue (sales) figure. (Chapter 10 Table 10.3 p. 194)

Lesson 10: Beverage Control Systems

10.2 Managing costs and revenue to make profits

(continued)

Refining your budget setting financial projections

Understanding your bars financial situation allows you to plan for the upcoming months and year.

Base your projections on previous annual or monthly profit and loss income statements.

Highlighted Chapter 10 p. 192 Table 10.3 - incorporate the changes and costs you envisage for the upcoming
year Chapter 10 p. 193 Table 10.2.
Other financial projection tools

Break even point

Cash flow forecast

Projecting profit levels

Be realistic in your expectations, be creative when souring specific information (i.e. use contacts, friends, industry
contacts). You should consider the following: business rates, overheads / costs, sales information, rent costs, profit
and loss, income statements see table 10.3 p. 194, private eye local observations, trade patterns and values).

Variable rate, contribution rate and break even point : These points play a pivotal role in the relationship
between cost, revenue and profit in your bars performance.

Variable rate (VR) calculation - Formula: VR = Variable cost divided by sales = VR%
(18.100) / (50,000) = 0.362 or 36.2%
36.2% of every sale is needed to cover the variable costs. Remember bar sales and variable costs will rise simultaneously.

Variable Cost calculation: Reverses the Variable rate calculation. If you know the variable rate, you can find the
variable cost, by multiplying the total sales by the variable rate.

Formula: (50,000) x 0.362 = 18,100 (variable cost)

Lesson 10: Beverage Control Systems

10.2 Managing costs and revenue to make profits

(continued)

Variable rate, contribution rate and break even point (cont):

Contribution

rate / margin : If 36.2% of every dollar (or local currency) is required to cover the bars variable costs, then
the remaining amount (63.8%) is commonly referrred to as the contribution rate. Contribution rate pays for (i.e. fixed costs
and accepted profit levels). Contribution rate formula: 100 - 36.2% (variable rate) = 63.8% (contribution rate).
Contribution margin formula: 50,000 18,100 = 31,900 (contribution margin).

Break even Point (the level of operation at which total costs equal total sales which equals no profit or loss)
Break even point formula:

total fix costs / contribution rate = break even point

9,900 / 0.638 = 15,517 (This bar needs 15,517 each month just to break even).
Further formulas for setting break even points (Chapter 10 p. 196).

Cash flow projections

Cash

does enter and exit your bar business at the same rate (money can be tied up in equipment)
flow forecast is a short term forecast of cash flowing into your bank and cash flowing out weekly or monthly
To create this forecast consider the following (predict your total income, predict your total expenditure fixed and variable
costs, subtract your total income for your total expenditure to obtain the income less expenditure (costs) figure, enter
separately below these figures figure for the cash at the start of the month and cash at the end of the month, complete this
task each month for 12 months plus projections and you will meet your financial obligations when they fall due in future.
Further information: Chapter 10 p. 197
Sargent & Lyle (2003) contend that managing your cash flow is about having the right amount of money available in the
right place at the right time.
Cash

Lesson 10: Beverage Control Systems

10.3 Policies for pricing

Policies for pricing food and beverages can differ from bar to bar.

Lillicrap & Cousins (2010) maintain that irrespective of the method adopted, you should a clear pricing policy or
objective in mind, these objectives can include; Sales volume maximisation, Market share gain, profit maximisation,
market penetration (Chapter 10 - p. 198)

When you have decided on the policy, you need to adopt the most suitable pricing method

Pricing Methods
Method 1: Gross Profit: expresses the amount of Gross profit realised on the sale of products and is determined by
dividing the gross profit by the sales price.
Gross Profit Formula:
Gross Profit = Selling Price - Cost of drink
11.40 3.99
= 7.41 (gross profit) .
Gross Profit margin formula: Gross profit margin = Gross Profit / Selling price
7.41
/ 11.40 = 0.65, or 65% (gross profit margin) .
Further examples for use: (Chapter 10 p. 199).
Method 2: Demand / Price relationship: Set your prices based on individual customers, the market place, local
competition to stimulate demand. Create a balance across all food and beverage products to help drive good margins.
Introduce prices incrementally and observe the changes to gauge the effect.
Method 3: The cost /price relationship: Every bar must determine its own cost percentage to produce the profit needed.
Sales Price = Total cost of ingredients divided by cost percentage
3.99
/
0.35
= 11.40 (sales price)
Converting the cost percentage into a multiplier: 100% (Sales price) / 35% (cost percentage) = 2.857 (multiplier)
2.875
x 3.99 = 11.40 (sales price)

Lesson 10: Beverage Control Systems

10.4 Stock Control

Why do we count stock, well to calculate the sales figures for the bar, we also count the stock and beverages to
calculate the cost of these sales and to determine the gross margins achieved on these sales.
When we should count the stock?, preferably at the start or the end of the days trading, ideally when the bar is
closed.
The frequency of these counts really depend on the size of your bar. Further information: (chapter 10 pp. 200-201
Regular stock control can provide information which is vital to highlighting poor controls
Stock Control Helps the Bar to: Eliminate over stocking (insurance problems, tying up money), eliminate under
stocking, assist with accounting for all items of stock and beverages, highlighting possible problem areas for example
pilferage, ascertain current stock levels and their relevant prices this information is useful in your decision (purchasing
policies), poor stock rotation.
Types of Stock Control: annual stocktaking, perpetual inventory, periodic stocktaking.
Stock Accounting Procedures / Stock Controller Duties: (chapter 10 pp. 201-202 for discussion)
Stock Control Methods (management tools):
Minimum stock levels: simplest method, used in most bars, relies on the bar owner or manager visually
checking stock levels. Once a stock item reaches a predetermined minimum stock level you re-order.
Just in time (JIT): popularised in Japan, to reduce money tied up in stock, relies on a close and trusting
relationship with your suppliers. The advantages are that it transfers stock holding costs back to your food and
beverage suppliers who act as your warehouse.
Stock forecasts: functions like cash flow forecasts showing an opening stock balance, expected sales for the
month and a closing stock balance. The expected sales can be based on historical sales; figures can be
adjusted for growth and seasonality.
Good supplier relationships: good relationships with your key suppliers is important in gaining their trust,
getting reliable supplies of quality stock and negotiating better payment terms for your bar.

Lesson 10: Beverage Control Systems

10.5 Receiving, Checking, Storing and Issuing Controls

Receiving stock and beverages:

The stock and equipment of the bar is expensive, mistakes reduce profits.
Poor stock receiving systems encourage dishonesty.
A comprehensive system for receiving stock and beverages can counteract these threats, should be adopted and actively
operated at the point of delivery for the bar;
This area should not be staffed by people with little or no specialized knowledge.
All goods received have a monetary value and that it is essential to ensure that exactly this value in goods is properly
accounted for and received.

Checking the stock and beverages and signing for deliveries

inspect the delivery dockets carefully

check the items listed on the delivery docket correspond with the items listed in the order book
inaccuracies must be communicated to the manager, owner
examine the stock for best before dates, breakages or missing seals
never sign any delivery dockets until you are fully sure that the order for delivery is in tact and correct.

Storing of Beverages
Storing involves keeping your food and beverage supplies until needed in a place that is secure against theft and deterioration.
Storage of beverages is ideally separated into five areas as follows;

main storage area for spirits and red wine (13-16 degrees Celsius)

a refrigerated area of (10 degree Celsius) for storage of white and sparkling wines

a cold room necessary for kegs (3-16 degree Celsius(7) depends on beers stored

a totally separate area for empties

an area held at a temperature of 13 degrees Celsius for storage of bottle beers and soft drinks.

Issuing of Food Stocks and Beverages

A requisition form from an authorized member of staff, for example, head chef, restaurant manager or from the storekeeper,
informing the purchasing manager of low levels of items (chapter 10 p. 206 Figures 10.1 / 10.2).

Lesson 10: Beverage Control Systems

10.6 System of Bar Books

The Principle Internal Bar Books

Delivery book
Purchase order book
Returnable bottle (R.B Kegs) book
Spillages, discounts, ullage book
Cash and safe control book
Requisition book

Further information: Chapter 10 pp. 207 209 System of Books for discussion.

Lesson 10: Beverage Control Systems

10.7

Cellar management

Banuage et al (2010) contends that the cellar plays an important part in the day-to-day operations of any licensed
premises.
The cellars main role is to provide an area where beverages and stocks can be stored in a secure, safe, hygienic
fashion, the area must be easily accessible with a good lighting system

Layout and configuration

Dittmer & Keefe (2006) suggest that your bar should have cellar floor plan and to keep it posted to the cellar door for all
authorized staff for location products and to maintain order and efficiency.
Cellar layout other conditions and techniques to also consider Further information: Chapter 10 pp. 210-211)

Ventilation
Humidity
Temperature
Beverage crates
Kegs
Cellar flap doors and handrails
General safety notices
Chains and wall attachments
Lighting
Cleaning agents and chemicals.

Healthy wine storage and cellar organisation: (best practices Chapter 10 p. 210)
Bin cards / product labelling: contains information about size, special storage information, brand name and
movements of stock normally fixed to the shelves similar to shelf labels. Some bars will also stamp their expensive wines and spirits with their own
company stamp (for security reasons makes it impossible for staff members to claim that a product was their personal property.
Health and Safety in the cellar: Gases, machinery, chemicals. Only senior staff with proper training should be allowed to work in the cellar
area. Further information: Chapter 7 Cellar Safety Management pp. 131-135 and The Drinks Handbook Chapter 1 pp. 23- 35)

Lesson 10: Beverage Control Systems

10.8

Control of Possible Losses in the Bar

Areas to Consider;

Pilferage.
Stock waste control, overflowing of drinks, poor storage conditions, lack of waste reduction
techniques.
Bar owners requisitions.
Cash register control, understatements, misuse of the cash register, cash register not properly
programmed.
Free drinks, discounts or allowances for goods need to be properly recorded
Accounting errors or missing delivery dockets (free goods, purchase prices, returns, credit
notes not accounted)
Credit for customers, when food and alcohol has been allowed on credit to customers
Department requisition mistakes, (between bars, lounges, restaurants, nightclub bars)
Overbuying: forecast of your future stock orders to reduce overbuying
Mixed drink pricing problems, incorrect quantities, inconsistent prices for your overall drinks
offering
Stock control personnel inexperienced, unfamiliarity with the unique terminology, the product
sizes used or served and the culture of the bar industry
Staff employment, crucial element, references must be thoroughly checked
Security and safety of the stock, proper cellar management, no unauthorized personnel gain
access to your stock areas for whatever reasons.

Lesson 10: Beverage Control Systems

10.9 Controls for beverage production

In the bar industry its crucial to adopt control systems and techniques which help to establish standard
procedures for the preparation, size and production method for all your food and beverages.
If your bar can keep control in this area you have a significant opportunity to maximise your profits on all
products

Systems and techniques for creating controls in this area

Setting a standard drink size for beers, spirits and wines

Adopting standard food and cocktail recipes

Standard glassware, crockery

Free pour

Hand held measures, jiggers and optics

Further information:

(Chapter 10 p. 213 & Appendix IV)

Lesson 10: Beverage Control Systems

10.10

Point-of-sale Systems for Stock

and Beverage Control

Computerized systems for example Micros, Geller MP with integrated microcomputer links are
quite common in the bar industry.
The primary function of most POS systems is to track sales.
A good system will be able to record the following information in hourly, daily, and month-to-date
increments as needed: product sales mix, revenue (per shift, sales period, or server), an open
check report, server-tips report (which is also used for tax purposes in the USA), and total
revenue.
More sophisticated POS systems also interface with inventory and purchasing programs to
follow beverages and other bar items from initial purchase, to use, to the eventual collection of
revenue

Lesson 10: Beverage Control Systems

Conclusion

Effective stock and beverage control can make a significant difference to the efficiency and the
profitability of your bar business.
Stock control is about having the right amount of stock on hand when it is needed.
Efficient stock control will ensure that your bars financial capital is not tied up unnecessarily and it
ensues that adequate levels of products are maintained to satisfy customer demand.
Stock and beverage control can be useful in limiting losses to the bar through theft, fraud or poor
working methods which can result in high levels of waste especially in perishable goods or breakages.
It can also identify fast and slow moving stock.
It is crucial that your bar adopts a comprehensive system for the receiving, checking, storing and
issuing of stocks, this system should be supported by an internal system of bar books to control all the
products, services and functions of your bar.
No control system can genuinely claim to be 100 percent safe and secure, if you accept this statement
than it is crucial that your bar continues to identify problematic areas to control possible losses.
The sustainability of any bar is based on its ability to generate profits, consider the formulation of a
proper costing structure (updated regularly) and pricing policies for your bar which focuses in detail
on the individual and collective cost and sales prices plus the gross profit margins achieved by your bar.
Its crucial to adopt control systems and techniques which help to establish standard procedures for
the preparation, size and production method for all your food and beverages.
The cellar plays an important part in the day-to-day operations of any bar, its main role is to provide an
area where beverages and stocks can be stored in a secure, safe, hygienic fashion, this area must
be easily accessible with a good lighting system and only accessed by Senior staff members with the
appropriate Health and Safety training.

Lesson 10: Beverage Control Systems

References

Bamunuge, H, Edwards, G, Nutley, J. (2010) Food & Beverage service, 2nd ed, City & Guilds, Essex: Heinemann.
BOC Gases. (2010) Sure Serve Programme, BOC : Ireland.
Davies, B., Lockwood, A, Alcott, P., Pantelidis, I. (2012) Food and Beverage Management, 5th ed, Oxford: Routledge.
Dopson, L.R., Hayes, D. K (2011) Food and Beverage Cost Control, 5th ed, New Jersey: John Wiley & Sons.
Dittmer, R. P and Keefe, D,P. (2006). Food, Beverage and Labor Cost controls, 8th ed, New York, John Wiley & Sons Inc.
Elliott, M. S. (2006) How to Run a Successful Pub, Oxford: How to Books.
Lillicrap, D. and Cousins, J. (2010) Food and Beverage Service, 8th edition, London: Hodder Education.
Murphy, J. (2007) Stock Management Vital to Maintaining Profits, April Issue, Licensing World, Jemma Publications Ltd: Dublin.
Murphy, J. (2008) Overcoming Fraud and Dishonesty, December Issue, Licensing World, Jemma Publications Ltd: Dublin.
Murphy, J. (2006) Workplace Health and Safety in the Irish Licensed Industry, July Issue, Licensing World, Jemma Publications
Ltd: Dublin.
Murphy, J. (2006) Storing your wines, Licensing World, October, Dublin: Jemma Publications Ltd.
Murphy, J. (2009) The importance of cellar safety, licensing World, October, Dublin: Jemma Publications Ltd.
Murphy, J. (2013) Principles and Practices of Bar and Beverage Management, Goodfellow Publishing Ltd, Oxford: England.
Murphy, J. (2013) Principles and Practices of Bar and Beverage Management The Drinks Handbook, Goodfellow Publishing Ltd,
Oxford: England.
Katsigis, C. Thomas, C. (2007) The Bar & Beverage Book, 4th ed, New Jersey: John Wiley & Sons Inc.

Web resources

www.barkeeper.ie
www.bergliquorcontrols.com
www.bar-stock.com
www.smartbar.eu

Information for hospitality professionals.

Liquor controls for the hospitality industry.
Bar stock control systems.
Bar stock control systems.