Variance is the difference between items used and items sold, and it’s a term that strikes fear into the very hearts of bar owners without systems in place to combat it.
Everyone who has owned a bar for more than a year knows theft behind the bar is one of the biggest headaches in the industry. Left unchecked, it can cause a business to lose massive amounts of money and result in an owner losing everything.
The solution to liquor losses is adopting the correct mindset, then implementing procedures that deter it from occurring. After years upon years of advising bar operators about this specific issue, I’ve assembled a short list of the things bar operators need to believe and do to stop liquor losses immediately.
1. Stop believing that it can’t happen to you because you trust your employees.
This is, perhaps, the worst thing to believe if you own a bar. Everyone will steal from you regardless of how good your relationship is with them. Ironically, friends and family of owners who become employees are often the source of massive theft from bars—you really can’t trust anyone you hire to not steal based on their own “good character.”
The sad reality is the vast majority of your employees will steal provided they believe it will A) go undetected, and B) there are no ramifications. You must accept that you can’t control people’s morality, you can only control whether they believe they’ll get caught.
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To successfully combat this problem in your business, you have to first believe that it can—and probably is—happening in your business, and that the quality of your relationships with employees is irrelevant.
2. Implement regular variance reports.
Variance reports are a measurement of usage—calculated by weighing bottles and counting—and comparing that usage to theoretical usage, which is based on what was rung into the POS. Most operators rely solely on costed inventory reports, which usually consists of eyeballing open bottles, counting unopened bottles and kegs, and tilting kegs to estimate what’s inside. This gives operators a rough idea of on-hand inventory counts, which they compare with their purchases and sales to see if their liquor orders fall within a certain percentage of sales.
This is not the same thing as a variance report, which compares what was used versus what was sold. The comparison a variance report allows is where operators can drill down to each product and analyze where the bartending team made mistakes. Without a specific item by item comparison, it’s impossible to give staff accurate feedback on where they fell short. If you are serious about getting rid of liquor theft, you need precise itemized variance reports.
3. Coach, reprimand, and repeat.
How you manage your team based on the data you get from your variance reports is how you’ll ultimately get your people to ring in everything and keep losses to a minimum. Successful operators make a big deal out of every little mistake on their variance reports and threaten swift consequences if the mistakes continue. This is a never-ending conversation between owners and staff once variance reports are a regular part of the routine.
To successfully eliminate theft, a bar owner must continually take the information from the variance reports and instruct their teams to do it perfectly every time, or else. Although this sounds simple, it really isn’t when you take this message to a large group of bar owners. Some bar owners don’t reprimand bad behavior, so even though they may have data from a variance report that shows tremendous losses, the losses continue because the owner doesn’t have enough courage to confront staff and manage them correctly.
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The data on its own does nothing without a strong voice using it to coach and reprimand. To successfully eliminate liquor losses, operators must use the data from variance reports to coach their teams.
4. Replace non-compliant people.
Liquor losses are eliminated by firing all the people who choose to disobey your policies about ringing everything in properly the first time. Operators who continually struggle with liquor losses don’t seem to get this. They try to work with non-compliant people instead of replacing them, which never works.
When inventory is missing and the only people who were working were the staff you’re addressing, they didn’t ring it in and that’s all there is to it. If you show them a couple variance reports that show shortages and they don’t make improvements, the next thing you need to show them is the door. Replacing non-compliant people who are stealing is the endgame of variance reports, and this is what ultimately permanently removes the problem of theft within a business.
5. Stay vigilant.
Even after you implement regular variance reports and fire your troublemakers, you’ll need to stay on your toes to detect and stomp out any losses you see on your reports. A bar is like a ship sailing on the ocean in that no two days are the same.
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There will be times when POS systems fail, bartenders pour sloppily, draft beer lines foam uncontrollably, and disgruntled employees decide to take a little extra for themselves. There are also the inevitable changes in staff, which typically result in liquor variance fluctuations. The point is, you’ll always have to have eyes on the inventory as a regular procedure in your operation. Staying vigilant keeps your business theft free for the long term, and is the key attribute seen in operators who experience little to no liquor losses.
Looking for a more secure future? David Scott Peters is tackling the issue of employee theft at Nightclub & Bar Show 2020 during his presentation “Behind Bars: How to Prevent Employee Theft." Robert Smith and Manny Marquez of Nightlife Security Consultants will present “Savvy Security for a Positive Guest Experience” and the National HOST Security Certification Program, the official hospitality security program of Nightclub & Bar Show.
Kevin Tam is a Sculpture Hospitality franchisee with over a decade of experience working directly with bar, restaurant and nightclub owners on all points of the spectrum. From family-owned single bar operations to large companies with locations on an international scale, Kevin works with them all and understands the unique challenges each kind of company faces.
He is the author of a book titled Night Club Marketing Systems – How to Get Customers for Your Bar. He is also a regular writer for Bar and Restaurant, and publisher of a Newsletter called the No B.S. Inventory Control Letter, which is a series of how-to articles, industry-related Rants and “Random Thoughts About Weight Lifting.”