Menu economics: Building a profitable beverage program

Mark Willingham Uncategorized

Menu economics: Building a profitable beverage program

 

Source: NRN

Bret Thorn

Sep 28, 2015

 

Alcohol can be a great profit center at restaurants. Beer, wine and spirits are all generally more profitable than food, and their sales are usually incremental to whatever food guests are buying.

 

But to get the most out of alcohol sales, operators can benefit by developing strong corporate cultures around alcohol and having systems in place to measure sales and control inventory.

 

Managing costs

 

Pour cost – how much it costs to make a drink compared to how much a restaurant or bar charges for it – is easy enough to calculate: If you use $1 worth of ingredients and charge $5, that’s a 20-percent pour cost. But there are other considerations when it comes to managing the cost of a beverage.

 

Claire Sprouse, who, with partner Chad Arnholt, runs the beverage consultancy Tin Roof Drink Community, said time is money, too, and not just in terms of labor cost: If a drink is fast to make, you can sell more of them, she said.

 

So at Izakaya, a new restaurant in Houston for which she and Arnholt developed the beverage program, she has bartenders come to work early – and has them paid as non-tipped employees for that time – to prepare ingredients that will make their jobs easier during service.

 

Old Chicago bills itself as the “craft beer authority,” but its liquor sales are healthy. Photo: Old Chicago

 

“If we can make a compound syrup – a syrup with a few different ingredients – instead of having the bartenders picking up three different bottles during service, we’re not cutting into the guests’ time. So that’s important to us,” she said.

 

Izakaya’s popular $11 Highball Tropical is made with vodka, pineapple sherry and ginger beer. But the sherry is infused with pineapple ahead of time, strained and then fortified with vodka before service. “So when they go to make that drink it’s literally a pour into a highball glass with one bottle, and then ice, and then top it with ginger beer. So that’s a great drink because it’s not only cost-effective, but also time-effective, and we’re able to sell a lot more drinks because some of our better sellers are these really quick, easy-to-make drinks,” she said.

 

Sprouse also makes sure that top-sellers like that also have good pour costs, however.

 

She said that if she’s aiming for a 20-percent pour cost, some cocktails with more obscure ingredients or expensive alcohols might have costs as high as 25 percent – such as the Fuku Bounce, a $13 drink with sparkling wine, pear brandy, lemon and togarashi – but they give authority and prestige to the cocktail program overall and are important to attract a certain type of high-spending clientele. “But that’s balanced out by a drink that’s going to appeal to a lot of people and might be a little bit of a cheaper pour cost for us,” she said.

 

Regardless of the cocktail, they generally have better margins than beer and wine, which is one reason why CraftWorks Restaurants and Breweries, Inc. – parent company, based in Broomfield, Colo., of Rock Bottom Restaurant & Brewery, Gordon Biersch Brewery Restaurants, Old Chicago Pizza & Taproom and several smaller concepts – makes sure it has a robust overall bar program.

 

Stuart Melia, Craftworks vice president of beverage, said that although Old Chicago bills itself as the “craft beer authority,” its liquor sales are healthy.

 

“Our liquor mix is higher than some of casual dining’s total alcohol mix,” he said, noting that alcohol accounts for 38 percent of Craftworks’ total sales, and beer is just 24 percent. Hard liquor makes up much of the rest.

 

He said cocktails have more price flexibility than beer.

 

“With cocktails, depending on what brands [of liquor] you want to use, you could put a great cocktail on the bar top for $5, or you can do it for $10,” he said. “You really have the luxury with using different brands to manipulate your cost or margin,” because many customers will pay more for prestigious alcohol brands.

 

“It’s in the operator’s favor to use some of these premium brands at a high price point if your guests will pay that.”

 

Exactly how much they will pay depends on the environment and customer, he said, noting that Old Chicago doesn’t have cocktails higher than $8, but he can charge $10 at Gordon Biersch.

 

Determining the price is one thing, but sometimes the cost of a drink can be flexible, too. Sprouse said that when she and Arnholt start developing a drink, they first make it exactly how they want to, without regard for cost. “Then we figure out the cost for it and we go from there and see if we need to rework an ingredient or a proportion to make sure we’re getting our costs in line,” she said. That might mean a less expensive alcohol or mixer, or using high-impact ingredient with relatively low costs, such as sherry, for which a little can go a long way.

 

She said there’s no flexibility when it comes to the cost of specific brands of alcohol in Texas because of the way the distribution is set up.

 

That’s not true everywhere, however.

 

Ahmass Fakahany, CEO and owner of the Altamarea Group, which operates 17 restaurants, including fine-dining restaurant Marea in New York City and more casual Osteria Morini with locations in New York City, Washington, D.C., and Bernardsville, N.J., said that by having a good idea of how much of a specific alcohol he’s likely to use, he can negotiate more effectively with his suppliers and distributors.

 

“We model for each bottle how many drinks we should sell and how fast the inventory goes down, so we know exactly when to order and how much to order for the group. And [our distributor] says, ‘Well, great. We can now manage our daily sales better because we know what Altamarea will buy’,” he said, noting that distributors might not only be able to provide preferential pricing, but also help with other needs, such as storage. He said it was like a judo move, “where you use the weight of someone else to your advantage.”

 

For the uninitiated, alcoholic beverages might seem like an easy sell, but restaurants that take their eyes off their bar program can see sales fall quickly.

 

“Once upon a time, our sales were 50 percent food, 50 percent bar,” said Nick Kegg, marketing director of The Greene Turtle, a 37-unit chain based in Hanover, Md. “But as the Turtle started expanding we started to see a trend with new restaurants that were more 75/25 [food/bar]. We decided we wanted to take back what belongs to us,” namely, bar sales.

 

So in March they launched a “raise the bar” initiative.

 

Kegg said The Greene Turtle started last year by brainstorming with bartenders and franchisees, asking what the chain was doing badly, what their competitors were doing better, whether they were pricing things appropriately and so on. The company also consulted with their suppliers and distributors. Once The Greene Turtle had a new happy hour menu, new glassware, new cocktails and new service standards, it tested the new program in six restaurants, following up with weekly calls with those restaurants.

 

“Four weeks in, we changed things that didn’t work. If you’re going to fail, fail fast,” Kegg said. “As soon as we felt really good about what we put into test, we knew we had to get it out in front of everyone.”

 

Since then, The Greene Turtle has seen a 12-percent increase in sales of sprits, 4-percent increase in beer and 1-percent increase in wine sales.

 

Changes included doing away with glassware the company has had since the 1980s and introducing smaller 14-ounce and 9-ounce glasses and premium mixers, teaching customers to drink smaller, better cocktails, which not only made for more elegant drinks but smaller drinks with lower costs. “We’ve seen a 1 percent decline in liquor cost along with the sales increase,” Kegg said, adding that they are currently running a pour cost of around 16 percent.

 

Kegg said they also redefined the bartenders’ role, doing away with the paragraph-long job description they had before and replacing with “fun specialists who are on point and everyone’s friend.”

 

Each bartender was required to decide whether to become an expert in beer, wine or spirits and taught tactics to make customers into regulars, including personalizing their experience – changing the TV channel for them, recommending drinks, and learning their guests’ names – and being aware that as bartenders they’re supposed to put on a show with long drink pours, cup flipping, dramatic drink shaking to show that they’re experts at what they do.

 

Melia said Craftworks in general and Old Chicago in particular have a strong focus on their beer program, with 32 different regional beer menus for the chain’s roughly 100 locations as well as daily “fresh sheets” indicating seasonal or daily specials.

 

Imported beers are all served in the traditional mugs and glasses from their respective breweries, and domestic beers are served in glasses that are appropriate for the beer style – Willi-Becher for lagers and Nonic for ales.

 

“You’re going to drink beer as the brewery intended you to enjoy it,” he said.

 

Kegg said he thinks many restaurants overlook their beverage programs, “and I think it’s going to drive your check average, drive additional trial, drive additional traffic into your restaurant, and if you can merge your beverage program with your food, then you’re creating a full experience. And I think people are just as often sharing pictures of unique, fun drinks on social media as they are with food when they go out to eat.”

 

On top of that, drinks are more profitable than food, he said.

 

“The increase in sales that we’ve seen driven through beverages definitely bring some more to the bottom line,” he said. “You can’t be mad at that.”