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Friday, July 10, 2009

What Should Our Bar Cost Be?

Hi Joe

What would you say my expectations for beverage cogs should be in a private club, not a member owned club?




Thanks for your input, I’m trying to do an analysis and I need some solid guidelines on what it should be.


A well controlled bar is a great source of profit. Many bar operators are out of control and the result over time is unnecessary selling price increases. Alcoholic beverages are highly regulated and the customers order specific brands. This makes for relatively stable costs (usually change quarterly) and no specification issues.

[Feel free to download this simple tool on my Food Cost Control Library site.]

I like to track a simple weighted average figure rather than a hypothetical benchmark. Depending on the level of service, occupancy costs and other factors beyond the cost of alcoholic beverages, your selling price will vary. Sales need to cover all costs and provide a profit (even if your goal is break even at the club, you should budget for risk and cover slightly more than your costs).

Using a weighted average, you should track a handful of key bar items: well vodka drink, premium vodka drink, domestic beer, imported (or micro-brew) beer, house wine and premium wine. Weight each item by the respective sales impact. Sales for all well pours for the well vodka, sales for all premium liquor for the premium vodka, sales for all domestic beers, sales for all premium beers, sales for all house wines and sales for all premium wines.

You simply enter the selling prices and cost of the alcoholic beverages. The Weight column should total 100% or use your total sales. The Ideal column equals the cost divided by the selling price. The Weighted column will supply the answer to your question. This column weights each Ideal figure based on the share of sales for the category.

Feel free to add more categories. The weights should always equal 100% of sales. Guard against going into too much detail. We are not trying to solve every issue with the formula. You will find the current bar cost percentage is higher than the formula result. Resist requests to complicate the formula. Leave all non-alcoholic items out of the pouring cost.

I have found numerous bar operations with major problems (theft, over-pouring, wasting draft beer, lost revenue, etc.) splitting the atom over lemon wedges, olives, and wine sent to the kitchen. Create a separate line item to track the non-alcoholic beverage activity and kitchen wine, liquor and beer.

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