Purchasing, Receiving, Storage, And Inventory

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The remaining articles discuss managing the business
side of the bar, which begins with providing the beverages
to be sold to customers. No matter how much experience
a bar owner has, it is sometimes difficult to keep
up with trends and how they affect beverage orders.
Rarely is a liquor or wine order ‘‘standard’’ from week to week and
month to month, yet a steady supply of product must be maintained
and tracked to ensure that what is being purchased actually produces
sales. Managing the storeroom is a third priority. This includes both
physical care to maintain the quality of the products and theft prevention
to maintain quantity.
This article examines purchasing policies and decisions; the routines
of purchasing, receiving, and issuing; the inventory records and
procedures commonly used; and the use of inventory figures to measure
bar cost and purchasing efficiency.

* Decide what, when, where, and how much liquor, beer, and wine to
buy.
* Decide what to look for when selecting suppliers and examining
their prices and discounts.
* Establish par stock for each bar and minimum and maximum storeroom
stock levels.
* Know the functions and relationships of purchase orders, invoices,
and credit memos.
* Set up routines for ordering and receiving.
* Store each type of beverage properly, efficiently, and safely.
* Establish inventory procedures and conduct physical inventories.
* Determine inventory value, bar cost, and inventory-turnover rate.

You may wonder how such a straightforward subject as buying liquor
and supplying it to the bar could take up so many pages. Part
of the answer is that alcoholic beverages are an investment in
income-producing stock and there are many facets to making the
best investment for the least money. Another part of the answer is
that the purchasing and record-keeping processes are critical to other
aspects of the business. Still another part is that alcohol has an irresistible attraction
for many people so if you don’t keep track of it, it will ‘‘evaporate,’’ so to speak.
The goal of beverage purchasing is to provide a steady supply of ingredients for
the drinks you sell at costs that will maximize profits. The purchasing function
moves in a continuous cycle with several distinct phases:
* Planning and ordering. Selecting what you need at the most advantageous
prices.
* Receiving. Taking delivery of exactly what you have ordered—brands, sizes, and
quantities—at the specified prices and in good condition.
* Storing. Keeping your beverage supplies in a place that is secure against theft
and deterioration until needed.
* Issuing. Transferring your beverages from storeroom to bar, where they will be
used to make drinks for your customers.

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The sale of these drinks keeps the cycle revolving since you must continuallyreplenish the supplies consumed. But the cycle does not revolve by itself; it mustbe managed. The process must be responsive to needs (sales volume and customertastes), to the market (supply and price), to cash flow (money available for investment),and to indicators of change in any of these factors. The beverage managermust know what is going on at all times. In a small operation purchasing may bethe responsibility of the bar owner or the head bartender. Large operations usuallyhave a full-time beverage manager, while hotel and restaurant chains often have anentire department devoted to purchasing and other aspects of beverage management.However the principles and problems are much the same, no matter howbig or small the enterprise is.PLANNING THE PURCHASINGThe term purchasing, as it applies to food-and-beverage operations, is usually atwo-step process. The first step is the selection process, which involves makingthe decisions about what is to be served; which brands, sizes, and quantities tobuy; what to make from scratch or to purchase premade. Selection also impactsthe amounts, styles, and sizes of glassware to be used. These must also be orderedin sufficient quantity and kept in inventory.The second step is the procurement process, or the method used for purchasingitems. This involves choosing and working with vendors, using a standard systemof ordering, deciding on a budget and sticking to it, and determining how oftento replenish stock.Many factors go into making purchasing decisions. Some are management policiesthat once established should be followed to the letter. Others are day-to-daydecisions based on current situations. They all boil down to what to buy, where tobuy it, how much to buy, when to buy, and what to pay.What to BuyDeciding what to buy involves two basic policy decisions: the quality of the beveragesyou will pour and the variety of items you will have available. To meetcustomers’ needs and avoid overstocked bars and storerooms, today’s bar managersuse a policy commonly known as category management. This involves trackingwhat sells and what doesn’t and using that information to create a beverage programthat delivers the best product mix to customers and the maximum profit for thebar. Today’s sophisticated point-of-sale (POS) system can be an invaluable tool inaccomplishing this. The POS is very much like a personal computer. Its touchscreentechnology and easy programmability give the user the ability to track multipletypes of data, including the brands of alcohol used in a drink and the serverwho sold it. (Making note of servers who are not selling much is also valuable asan indicator of who needs additional training.)In a large operation the POS terminals are workstations linked to a centralcomputer, which is, ironically, also called a server. Another feature of these systemsis the capability to keep a running inventory, automatically ‘‘deleting’’ the standardamount of each liquor that is used to mix each cocktail. Theoretically this shouldgive a bar manager almost instant usage numbers, which can later be comparedwith the actual physical inventory. Some systems can even be programmed to draftpurchase orders and e-mail them to a wholesaler when inventory reaches certainlevels.

In a large chain computerization and category management are tremendouslyhelpful. A company that operates several units can compare brand movementamong locations and refine the menus, inventories, and promotional strategies accordingly.For example Ruth’s Chris Steak Houses, a popular Southern fine-diningchain based in Louisiana, noted that one bar sold hardly any cognac. This wasbecause the cognac was located in a seldom-seen portion of the backbar.Market Watch magazine is an additional source that can be used to track beveragetrends and desirable brands. According to the research firm Impact Databank, a‘‘hot’’ brand is:* An established brand with a minimum 20-percent annual growth rate.* A brand that has experienced double-digit growth rates for the past three years.* A product that is new but ‘‘significant’’ in some way. ‘‘Hot brands’’ must alsomeet annual volume requirements:* For spirits, 200,000 9-liter cases* For major domestic-beer brands, 3.4 million 2.25-gallon cases* For other, specialty-beer brands, 1.1 million 2.25-gallon cases* For imported beers, 1 million 2.25-gallon cases* For domestic wines, 250,000 cases* For imported wines, 200,000 casesThese findings are published regularly in Market Watch. Computers and technologygive bars and restaurants access to more specific brand information thanever before. This negates the old shotgun-marketing approach, in which a bar wouldtry one idea, then another, and another, in hopes of ‘‘hitting’’ on something successful. With research the decisions are better informed and more likely to reaprewards.Quality and Variety. Quality should be a primary consideration in brand selectionbecause it depends on your clientele: what they expect and what they are willingto pay for. It would be foolish to buy premium brands or boutique California winesfor a low-budget clientele, and equally foolish not to offer such items in a luxuryrestaurant. As in everything else you must know your customers.Beyond this you must consider the quality of your well brands, which are theliquors that you pour in mixed drinks when the customer does not ask for a specificbrand. Also known as house brands or house liquors, these represent about half ofthe liquor used in an average bar. Choose a set of well brands and stick with themfor the sake of consistency in your drink recipes. Many bars use inexpensive brandsin the well on the theory that customers can’t tell the difference in a mixed drink.Other bars use familiar, advertised brands in the middle price range. Still othersuse premium brands—this is sometimes called a premium well or super well—that they feature with pride in their merchandising. By carrying premium brandsin the well, in addition to making an impression, you eliminate having to carrywell brands. This means less inventory and less cost. Premium brands are a goodchoice for bars where clientele is value-conscious, that is, willing to spend a littleextra to receive a higher-quality drink. Superpremium brands have the advantagesof strong name recognition and customer loyalty, but they will not be worth theextra expenditure if you don’t do a good job of letting your customers know thatthese brands are being used.

Using cheap liquors in the well but charging higher prices for them is downrightunethical—and if you think you are fooling your customers, you are only foolingyourself. Taste your own drinks and you will notice the difference, just as yourcustomers will. You might save a few pennies per drink, but you will never knowhow many or why customers never came back and how many others they toldabout your ‘‘cheap, high-priced drinks!’’ Besides you don’t save all that much. Take,for example, a liter of Scotch that costs $15 and one that costs $9. If the portionis 1 ounce the $15 Scotch costs 44 cents per drink and the $9 Scotch costs 26cents, a difference of 18 cents per drink. Are the savings worth it when you maylose customers?Since all drinks made using well brands are typically sold at the same price, youcan calculate the overall cost of your well by averaging it. Take the wholesale costof the six standard well products (gin, bourbon, Scotch, rum, vodka, and tequila),then divide by 6 to arrive at an average cost per liter. Divide that figure by 33.8(and subtract any spillage allowance) to determine the cost per ounce of your wellbrands.For further waste control arrange the sequence of well brands in your speed rail(the bottle-width rack in the underbar) in this fashion:GIN & BOURBON & VODKA & SCOTCH & RUM & TEQUILALight and dark liquors are interspersed so they are less likely to be used accidentallyby a bartender in a hurry.The second major decision is the variety of items you will stock. The averagebar in the United States may carry as many as 130 liquors and liqueurs on thebackbar, and a showy backbar lined with bottles is the hallmark of many operations.Some bars take pride in never having to tell a customer, ‘‘I’m sorry but we don’thave that.’’ Such a policy, while it can be good merchandising for some types ofclientele, has the potential of expanding inventory indefinitely with items that donot move. Liquor that does not sell does not earn a penny of profit, except to thedegree that it contributes to atmosphere and image on that great-looking backbar.Many bars prefer to limit their offerings to popular and well-advertised brandsof each item, with the number of brands varying with the type and size of theoperation. If a customer calls for a brand that you don’t carry, you probably won’tlose either the sale or the customer if you can offer a well-known brand of comparablequality. But be sure to offer the alternate to the customer; do not try tosubstitute another brand without the customer’s knowledge. That is a very badpractice that will only create an image of mistrust for your place and your bartenders.Still another approach is to deliberately limit the number of brands anditems that you stock by developing a printed drink menu based on a small numberof beverages, as discussed in last article. Most customers will respond to such amenu by ordering from the drinks listed; questions of call brands and unusualdrinks seldom come up.Where you draw the line on the numbers of brands and items that you stockwill depend on your clientele, your type of enterprise, your volume of business,and the money available for such an investment. But it is wise to draw the linesomewhere—then hold it. A common mistake is to let your inventory grow, overtime, to unmanageable levels. Products do fall out of fashion, as in any industry.One way to avoid a proliferation of brands and bottles is never to add a new itemof unpredictable demand without eliminating a slow-moving item from your list.In this case ‘‘slow-moving’’ means a product that takes nine months or longer to useup a single bottle.

You also need to keep up with new products and anticipate changes in customertastes. One way to do this is to consult frequently with the salespeople for thewholesale buyers you deal with. They know who is launching a huge advertisingcampaign or coming out with a new light beer, as well as which new liqueur orimported beer is big in California or New York and is coming your way. Manybeverage managers have a regular time for sales personnel to call. In this way themanagers are not interrupted while immersed in some other task, and the salesperson has a receptive audience. Do not, however, let anyone tell you what youshould buy. Consider suggestions, but measure them against your own ground rulesand current needs.Sales representatives will push their own products; that is their job. Comparewhat they say with what their competitors say and make up your own mind.Another way to keep up with trends is to read sales and market surveys in trademagazines, such as Market Watch, for their survey results of those hot new brands.For local trends remember to read the liquor-store advertisements in your localnewspapers.Beverage buyers can often peruse catalogs on CD-ROMs to find what they need.In many cases these have eliminated the bulky product notebooks and print catalogsthe suppliers once used. If a beverage is available somewhere in the world andis distributed by someone, it is very likely that you can locate it on the Internet oron a particular supplier’s catalog on disk. The next logical step is to link your owncomputer to the vendor’s so that you can access current price lists, availability, anddelivery information, and can place orders by e-mail. On some systems you canspecify a replacement product that you would consider acceptable if your firstchoice is not available. The most sophisticated systems enable you to access historicaldata, such as how frequently you have ordered a certain product, or are setup to ‘‘cost’’ drink recipes.No matter how sophisticated the ordering process, buying individual productsis still mostly a matter of brand selection and common sense. When the liquor orbeer brand concerns the customer, buy the brands that your customers will buy.For your well select the brands that make the quality of drinks you want to pour.This applies to your vermouth and liqueur choices as well. It is a good idea totaste your own mixed drinks with different brands of spirits and liqueurs. Genericliqueurs in particular can taste quite different from one brand to another, and theexpensive imported brands are not necessarily the best.Purchasing WinesBuying wines is somewhat more complicated than buying beers and spirits. Onereason is that customer demand is less clear-cut. For house wines more and moreenterprises are replacing generic wines with inexpensive varietal wines in 1-literand 1.5-liter bottles. Some restaurants pour house wines by the glass from 750-millileter bottles and have the same wines available for sale by the bottle. An alertwaiter can often convert orders for two or three individual glasses to a bottle ofwine for the table.Wines for a printed wine list require a different approach. Because wines varyfrom one winemaker to another, one vintage to another, and one year of age toanother, you must either rely on an expert or know a good deal about winesyourself. You can safely buy most young whites, rose′s, and some of the simplerreds and sell them right away. The older the vintage date, the more skeptical youshould be.

Fine whites and reds require special purchasing decisions. These wines shouldnot be sold to customers before they are ready to drink. This means you must tieup your money in the wine cellar while they mature or take a chance on purchasingthem later at higher prices—if they are still available. Keep supplies of the wineson your list in line with demand without overbuying. If you run out you lose salesand disappoint customers, but if you overbuy you have money tied up unproductivelyand may run the risk of having a wine outlive its lifespan in storage. (Thesefactors reinforce the need for a good by-the-glass program.)The Internet is becoming an important factor in wine sales: it has made it easierfor bar owners and cellarmasters to find out what other people are paying for wines.All they need to do is peruse the Web pages of wine wholesalers and retailersaround the country, as well as the wineries themselves. Distributors who pad theirwholesale prices unnecessarily can easily be found out by your doing some onlinecomparison-shopping.eVineyard is an interesting case study and is still for the most part considereda grand experiment worth watching closely in the world of wine sales. This onlinewine-sales company has avoided the tricky interstate alcohol-delivery issues byobtaining retail licenses in each of the states it serves. The company passes alongan order to a local wholesaler, who fills the order and delivers it to the user.eVineyard’s average gross margin is 32 percent, which is good when you considerthat the company carries no inventory and does not have to split its margin withretailers.However, the earliest e-commerce wine sales companies, Virtual Vineyards andWine.com (the latter now owned and relaunched by eVineyard), were part of the‘‘dot-com’’ boom and bust. They had encouraging early sales figures but not enoughlong-term business savvy. Peter Granoff, the founder of California-based Wine.com,has pointed out that one problem with online wine sales is that the freedom of ecommerce naturally resists the rather old-fashioned constraints of the wine industry:a three-tiered sales hierarchy (winery/wholesale distributor /end user) and anoutmoded regulatory system. Today with 26 states and the District of Columbiaallowing limited direct shipments of wine to consumers, the Internet may simplybe outgrowing the traditional ways of buying wine.No one knows where this will lead but none of it is especially good news forwine distributors, whose ranks are already dwindling. To prevent large chains fromgrossly undercutting them in price, some of the smaller, independent fine-winedistributors are pooling their purchases to secure volume discounts. Others arebeing swallowed up by larger distributorships.Internet wine sales were given a huge boost in May 2005 when the U.S. SupremeCourt ruled that states that permit in-state wineries to sell directly to consumerscannot deny that right to out-of-state wineries. Opponents (including state governments,evangelical Christians, and Mothers Against Drunk Driving) argued thatallowing direct wine sales to individuals could not ensure full tax collection on thesales, and would mean less control over underage drinkers’ ability to obtain alcohol.Wine producers’ representatives countered that in this age of distributorship consolidation,the smaller wineries are at a sales disadvantage—they have difficultyfinding distributorships that want to take them on at all and can sell more wineby selling it themselves, no matter where the customers are located.Distributors are still a crucial part of a successful bar business, and we’ll discussyour relationships with them later in this article. For now remember that thedistributor’s sales force is knowledgeable about industry trends and will often bringnews of wine bargains. You will need to decide which should you buy, and whichshould you pass up.

* Post-offs and closeouts are deals that help distributorships move slow-selling winesor to clear out a product line that they are soon planning to drop altogether.Look carefully at the offer and consider the background details. Why are thesewines not selling? Are they too old? Not quite ‘‘good enough?’’ Were they overpricedto begin with and are just now being offered at a fair price for theirquality?* Vintage clearances are offered to make space in a distributor’s warehouse forincoming newer wines. These offers usually come with a minimum number ofcases that must be ordered to receive the discounted price, which means asizable investment on your part. We suggest making the distributor an offer thatyou can afford. Yes, it’s an investment of both cash and storage space, but youmay be surprised at how much room for negotiation there is in this type of deal.* Exclusives are deals offered to a buyer because of a solid relationship witha supplier, whether it’s the sales rep who calls on you regularly or someonehigher up in the organization. The word exclusive should indicate exactly whatit means: that your business is the only bar in the area pouring this particularwine. (Retailers can sell that wine, but none of your competitors can.) Whetheryou participate in an exclusive deal depends mostly on the wine savvy of yourcustomer base. If your customers will not necessarily appreciate the exclusivityof the deal or if the products are not upscale enough to warrant exclusivity, itis acceptable for you to pass it up. An exclusive arrangement may also comewith minimum orders and other special requests by the distributor.We should also mention that suppliers often offer very favorable discounts tofeature a wine in your by-the-glass program so be sure to ask about that. It is alsoimportant to be wary of a discounted price for a wine that may be approachingdeterioration. Taste wines before you buy them, then choose according to what youknow about your customers’ tastes and get as much expert advice as you can. (Youmight find it helpful to reread before on developing a wine list.)Where to BuyThe beverage buyer does not always have a great deal of choice about where tobuy. State laws, which vary from one state to another, govern the purchase and saleof alcoholic beverages. Local laws also come into play. First a buyer should studythe laws of the state, county, city, and even precinct as they apply to liquor purchases.In 19 states or jurisdictions the retailer, the seller of alcoholic beverages tothe consumer, must buy from state stores. These states are known as control statesor monopoly states. In the remaining states, known as license states, and theDistrict of Columbia the buyer is typically allowed to purchase from any wholesalerlicensed by the state and, in some states, from licensed distributors and manufacturersas well. Figure 13.1 lists the current status of each state. However, there maybe local restrictions. For example, a county may have a law against buying inanother county. To further complicate matters the requirements and limitations areusually not the same for beers and wines as they are for spirits.FIGURE 13.1 CONTROL STATES AND LICENSE STATES__________________________________________________________________________Control States                            License States__________________________________________________________________________Alabama                         Alaska           Mississippi (retail only)Idaho                           Arizona          MissouriIowa^a                           Arkansas         NebraskaMaine                           California       NevadaMichigan                        Colorado         New JerseyMississippi (wholesale only)    Connecticut      New MexicoMontana                         Delaware         New YorkNew Hampshire                   Florida          North DakotaNorth Carolina                  Georgia          OklahomaOhio                            Hawaii           Rhode IslandOregon                          Illinois         South CarolinaPennsylvania                    Indiana          South DakotaUtah                            Kansas           TennesseeVermont                         Kentucky         TexasVirginia                        Louisiana        WisconsinWashington                      Maryland         Wyoming (retail only)West Virginia                   Masschusetts     District of ColumbiaWyoming (wholesale only)        Minnesota__________________________________________________________________________^a Iowa has no state stores; its control board, as sole wholesaler, sells to privately owned outlets it licenses to sell to retail consumers.__________________________________________________________________________

In license states alcoholic beverages are sold to retailers by a number of wholesaleliquor distributors. Each of these distributors will offer a wide variety of brandsand will probably pride themselves in offering a few ‘‘exclusives,’’ that is, productsor brand names not available from other distributors in that market. Depending onyour state’s laws the makers of the products (or the importers, if they come fromanother country) may sell to distributors, and the distributors sell to the retailers.Almost always you will have to deal with several suppliers, who carry differentitems and brands. In some areas the healthy competition among suppliers worksto your advantage since each one tries hard to come up with ways to please orimpress you, the customer. In many states, however, there are now only a fewmajor distributors.This has some important implications for the individually owned bar. First productchoice may be limited, especially for less-well-known or unusual items. Secondthe fewer the vendors, the less likely it is that a buyer can negotiate for more‘‘personalized’’ service, such as specific delivery times. The monopolistic trend forcessmaller bars to conform to the dictates of the vendor.In most license states, a master list is published monthly (by the state’s liquorcontrol authority) containing the names of all of the wholesalers in the state, thelines they carry, and the prices they charge. Monthly beverage journals list discountand post-off (sales) schedules. Individual wholesalers also have product catalogsand price sheets, quantity discounts, special sales, and promotional materials. Asyou learned earlier in this article at least some of this information is available onCD-ROM. Control states publish lists of all the brands available and their prices,along with the addresses of state stores. Dealing with sales representatives is ofteneasier than working with lists. Although you may not be able to buy from themdirectly, they can tell you where you can buy their products. They can also keepyou informed of special sales and promotions.The Impact of ConsolidationThe wine industry is as good a place to start as any in the discussion of consolidation,which is the overarching trend in the beverage business today. As withmany other industries a few major, multibillion dollar international companies nowdominate the scene. Constellation Brands has become the world’s major wine marketer,surpassing longtime leader E & J Gallo Winery. Since 1999 ConstellationBrands has acquired Robert Mondavi, Simi, Franciscan Estates, Paul Masson, ArborMist, and Sebastiani Vineyards, among others. The Gallo wine empire includesseveral Californians (Mirassou, Louis Martini, Turning Leaf), as well as vineyardsin Australia (Black Swan), New Zealand (Whitehaven Wine Company), and Italy(Ecco Domani). Smaller California wineries and their brands have been snappedup by London-based Diageo, which owns Beaulieu Vineyards, Barton & Guestier,and Moet & Chandon; British-owned Allied Domecq owns Atlas Peak, Buena Vista,and Clos du Bois, to name a few, as well as vineyards in five other countries.Branches of long-respected wine family trees have been twisted, turned, and graftedby these megasales.In the brewing industry the headlines are no less startling. South African Breweries(SAB) paid $5.6 billion to acquire Miller Brewing Company of St. Louis,Missouri, and renamed the company SAB-Miller. SAB went on to acquire Italianbrewer Peroni and is (as of this writing) in a bidding war with Anheuser-Busch forthe Harbin Brewing Group of China. The Adolph Coors Company and Molson,Canada’s largest brewer, merged in 2004. Interbrew, a Belgian beer-maker, hasmerged with AmBev of Brazil to create what may be the world’s largest brewer interms of sales. The new company, InBev, will control 11.4 percent of the worldbeer market, surpassing Anheuser-Busch’s 10.7 percent. In Australia (as of thiswriting) the Foster’s Group (the beer conglomerate of Foster’s Lager fame) is attempting a hostile takeover of the wine conglomerate Southcorp. If successful theresult will be yet another major world beverage corporation.

These events do not exactly bring to mind the picturesque winery and the hardworkingfamily who proudly tends to their vines and manages their business (wefervently hope that there will always be a place for the niche product and smallorganization). In the meantime retailers and restaurateurs must believe that consolidationin the supplier and wholesale tiers will have a positive impact overall. Itmight. It generally means more brand advertising aimed at consumers (paid for bythe large companies) and serious marketing and training support for people whosell the products. So it is worthwhile to follow the news of these corporate incarnationsand be alert to the changes that market consolidation brings.Supplier RelationsWhen you have a choice price is certainly one reason to buy from one supplierrather than another, and you should always get competitive bids for large ordersfrom different suppliers. But there are many other considerations, including whichservices a supplier does or does not offer. For instance:* How often does the supplier deliver? The more frequently, the better; and dailyis best, even though you do not order daily. You do not have to stock as muchand can get something quickly in an emergency.* Does the supplier alter quality, quantity, and/or delivery-time standards? Youdon’t want to deal with someone who has basic organizational problems.* Where is the supplier located? Suppose you are in a rural area and your suppliersmust travel more than an hour to reach you. Does distance affect the deliveryschedule? What about the weather? Will your wine or beer travel for hours inthe hot sun? Will snow and ice interrupt service?* What resources does the supplier have? Is it a large and varied inventory keptwell stocked, or a small stock that is continually being depleted? Does the supplierhave temperature-controlled warehouse facilities? Refrigerated trucks?* Does the supplier give proper and systematic care to goods in storage or intransit? Are wines kept at proper temperatures? Are bottles kept on their sidesor upside down if traditional corks are used? Are draft beers and unpasteurizedpackage beers kept refrigerated?* Is the supplier’s office and warehouse organized, clean, secure, and professionaloverall? (A visit to these facilities can tell you quite a bit.)* Must you buy a certain minimum per order? Is there a maximum? Can youadjust your orders to meet these requirements? Is it worth it?* Does the supplier extend credit, and what are the terms? (This is not often anegotiable point because of government restrictions.)* Can you buy mixes and accessories from the supplier at advantageous pricesand quantities?* What is the supplier’s lead time, or the time between ordering and delivery?(You must estimate consumption and order far enough ahead to compensate forthe gap. The shorter lead time, the better.)* How much consultation and training of your staff members is the supplier willingto give? (Some wine distributors are willing, for instance, to organize winerytours for buyers and key staff members, even to other states or countries.)* Is the distributor’s staff willing to participate in sales-boosting activities, such asarranging wine tastings and dinners? Is the company willing to donate productsfor charitable events?* What other services does the supplier offer: e.g., blank order forms, promotionalmaterials, 24-hour telephone service?The number of suppliers that a bar deals with usually depends on the varietyof products it wishes to carry. You should consider more than one supplier for eachcategory (beer, wine, spirits) because brands play such a strong role in your needsand because one vendor may be out of stock on one of your critical items. Not allsuppliers carry all brands, by any means. If more than one supplier carries thesame brand, go with the one that offers the best service and seems by all accountsto be running a profitable business. Avoid doing business with suppliers—at least,for the moment—if there are any signs of financial trouble.

The explosion of e-commerce has opened some new doors for purchase and, asyou learned in the discussion of the 2005 U.S. Supreme Court decision, has createdsome new controversy. Alcoholic beverages no longer have to move within thetraditional three-tier system, from producer, to distributor, to retailer. Thebusiness-to-business movement is still in its infancy with alcohol because it is morestrictly regulated than most other types of products and because every state seemsto have a tangle of different laws about selling it. But in the future these restrictionsmay be further weakened in court challenges.Distributors stand to lose an estimated $25 billion in product markups if retailerscould purchase every type of alcohol directly from producers: distilleries, wineries,brewers, and importers. But some forward-thinking merchants say that the cybermarketplaceactually makes it easier to do business with distributors. When pricelists and orders can be e-mailed, instant or short-term specials can be offered viacomputer, and catalogs of items can be viewed and updated online, the bar manageror purchasing agent is the ultimate beneficiary.One more point should be made, and it is about your own professionalism indealing with beverage suppliers. These are generally hard-working salespeople whocare deeply about their product lines and can bring a great deal of knowledge andenthusiasm to your beverage program. When you make an appointment with abeverage supplier, be sure to keep it. In fact it is a good idea to set regular meetingtimes specifically for them to present anything new that they have to offer. Youcertainly don’t have to buy it all, but don’t close your mind to interesting newitems; be willing to try them in small quantities as your budget allows. Distributorsalso have events to which customers are regularly invited, such as open houses,trade tastings, and wine dinners. Attend them if you can. They are good networkingevents, where you will have a chance to learn more about your competitors, aswell as the products that are being showcased.How Much to BuyThis is a central question for the beverage buyer. The answer is enough but nottoo much: enough to serve your customers what they want but not so much thatnumbers of bottles stand idle on shelves for long periods, thereby tying up moneyyou could put to better use. If you overorder the bottles will sit around too long;if you underorder you might find yourself running out of popular brands andunable to get more on short notice. Your goal is to never run out of your wellbrands, your house wines, your draft beers, the popular bottled beers, and callbrands of spirits. But you might not reorder a slow-moving item until your lastbottle is half gone.Establish a par stock for each bar in your facility, using a form similar to theone in Figure 13.2. You can determine par stock needs from your detailed salesrecords. (If you are still in the planning stage you can "guesstimate" your rate ofsale.) A general rule is to have enough of each type and brand to meet 11/2 timesthe needs of your busiest day of the week. For a small restaurant bar averaging$500 in daily sales, this might work out to be the open bottle plus two full onesfor each fast-moving brand, and the open bottle plus one extra for each slowermovingbrand.From par-stock needs for each bar, you can determine what you should have in
the storeroom to back them up. This then becomes your par stock for the storeroom,
or your normal storeroom inventory (that is, merchandise on hand). You can
also use par stock to measure your daily consumption. The bottles it takes to bring
the bar stock to par represent roughly the consumption of the day before. Over a
week’s time these bottles will yield an accurate figure of average daily consumption.
This can guide your rate of purchase. Par stock is also a way of keeping up with
customer tastes. You know which brands are moving quickly because you have par
stock as a measure of their popularity. As such par stock tells you what to buy, as
well as how much you are using. Whatever your buying interval, it is a good idea
to set minimum and maximum stock levels for each item, to maintain your storeroom
inventory. The minimum level may be supplemented by a reorder point that
gives you lead time so that the stock does not drop below the minimum level
before you receive delivery. Your maximum level represents the dividing line between
enough and too much. Like the par-stock level at the bar, it should represent
11/2 times what you expect to need before you replenish your supply.

The prices might be better since theliquor dealer may get better quantity discounts on bar items, such as maraschinocherries and cocktail onions, than the grocery dealer does. Service might be better,too. The food wholesaler may pay little attention to your small order, whereas theliquor purveyor wants to keep your beverage business. The liquor dealer may alsosell in smaller quantities than the grocery wholesaler, and if you have a smallenterprise it may take forever to use a case of olives or a gross of napkins.Keep in mind that liquor purveyors do not handle such items as lemons, limes,oranges, celery, eggs, milk, cream, and ice cream. You will buy your produce froma produce dealer and your dairy supplies and ice cream from a wholesale dairy.Such items must be refrigerated in the storeroom or go straight to the bar, icecream must go straight into the freezer.When working out your orders you will have a choice of can or bottle sizes formany items. The cost per olive or per ounce is nearly always cheaper in the largercontainer sizes. However, consider deterioration once the container is opened. Ifyou use only half a can of something and have to throw out the rest, you have notsaved any money.Receiving, storing, and issuing bar supplies follow the same procedures used foralcoholic beverages. Like items must be stored together and the stock must berotated at each delivery. All types of bar supplies are counted on the regular physicalinventory. However, once a container is opened it is considered used and is notcounted.SUMMING UPA good purchasing manager provides an adequate supply of beverages at all timeswithout overinvesting in idle inventory. Purchasing involves both the selection andthe procurement of everything needed to run the bar. The modern bar manageruses a category management system, tracking what sells well and what does not(most often by computer) and using the information to adapt the drink menu todeliver a beverage program that meets customers’ needs and is profitable for thebusiness.It is important to maintain good relationships with suppliers and to understandtheir pricing systems so that you can evaluate the true values (to your operation)of the sales and discounts they may offer. The Internet has made it easy to checkprices and obtain product information from a variety of sources; suppliers may offerproduct catalogs on CD-ROM, and your computer system may be linked to theirsto facilitate online ordering. But it is still important to maintain human contactwith the distributor’s salespeople and to build solid working relationships withthem. Schedule regular appointments to taste new items, utilize the sales and trainingmaterials they can provide, and attend the events they host or sponsor. If youoperate in a control state you must purchase your liquor from state-run stores orwarehouses; good working relationships are just as important in these cases.A careful system of records is maintained at all phases of the purchasing cycle.Start by determining the par stock necessary to outfit your bar to be ready for abusiness day, and be able to track the path of every bottle and its contents, fromthe time it is received to the time the empty is turned in. Through such recordsmanagement can keep up with usage trends, as well as pinpoint possible problems(from thefts to slow sellers) and the responsibility for them at any stage along theway from purchase to sale.Physical inventory at regular intervals provides the basis for figuring needs, costs,and losses. Written or computerized perpetual-inventory records provide standardsagainst which the physical inventory can be measured. Storeroom areas shouldinclude strict security precautions and limited access. The system should include aseries of forms for recording sales, discrepancies, par stock, and other standards.A well-organized, well-managed purchasing system can contribute to profits bykeeping costs down, efficiency up, and supplies flowing.

In a large chain computerization and category management are tremendouslyhelpful. A company that operates several units can compare brand movementamong locations and refine the menus, inventories, and promotional strategies accordingly.For example Ruth’s Chris Steak Houses, a popular Southern fine-diningchain based in Louisiana, noted that one bar sold hardly any cognac. This wasbecause the cognac was located in a seldom-seen portion of the backbar.Market Watch magazine is an additional source that can be used to track beveragetrends and desirable brands. According to the research firm Impact Databank, a‘‘hot’’ brand is:* An established brand with a minimum 20-percent annual growth rate.* A brand that has experienced double-digit growth rates for the past three years.* A product that is new but ‘‘significant’’ in some way. ‘‘Hot brands’’ must alsomeet annual volume requirements:* For spirits, 200,000 9-liter cases* For major domestic-beer brands, 3.4 million 2.25-gallon cases* For other, specialty-beer brands, 1.1 million 2.25-gallon cases* For imported beers, 1 million 2.25-gallon cases* For domestic wines, 250,000 cases* For imported wines, 200,000 casesThese findings are published regularly in Market Watch. Computers and technologygive bars and restaurants access to more specific brand information thanever before. This negates the old shotgun-marketing approach, in which a bar wouldtry one idea, then another, and another, in hopes of ‘‘hitting’’ on something successful. With research the decisions are better informed and more likely to reaprewards.Quality and Variety. Quality should be a primary consideration in brand selectionbecause it depends on your clientele: what they expect and what they are willingto pay for. It would be foolish to buy premium brands or boutique California winesfor a low-budget clientele, and equally foolish not to offer such items in a luxuryrestaurant. As in everything else you must know your customers.Beyond this you must consider the quality of your well brands, which are theliquors that you pour in mixed drinks when the customer does not ask for a specificbrand. Also known as house brands or house liquors, these represent about half ofthe liquor used in an average bar. Choose a set of well brands and stick with themfor the sake of consistency in your drink recipes. Many bars use inexpensive brandsin the well on the theory that customers can’t tell the difference in a mixed drink.Other bars use familiar, advertised brands in the middle price range. Still othersuse premium brands—this is sometimes called a premium well or super well—that they feature with pride in their merchandising. By carrying premium brandsin the well, in addition to making an impression, you eliminate having to carrywell brands. This means less inventory and less cost. Premium brands are a goodchoice for bars where clientele is value-conscious, that is, willing to spend a littleextra to receive a higher-quality drink. Superpremium brands have the advantagesof strong name recognition and customer loyalty, but they will not be worth theextra expenditure if you don’t do a good job of letting your customers know thatthese brands are being used.

Using cheap liquors in the well but charging higher prices for them is downrightunethical—and if you think you are fooling your customers, you are only foolingyourself. Taste your own drinks and you will notice the difference, just as yourcustomers will. You might save a few pennies per drink, but you will never knowhow many or why customers never came back and how many others they toldabout your ‘‘cheap, high-priced drinks!’’ Besides you don’t save all that much. Take,for example, a liter of Scotch that costs $15 and one that costs $9. If the portionis 1 ounce the $15 Scotch costs 44 cents per drink and the $9 Scotch costs 26cents, a difference of 18 cents per drink. Are the savings worth it when you maylose customers?Since all drinks made using well brands are typically sold at the same price, youcan calculate the overall cost of your well by averaging it. Take the wholesale costof the six standard well products (gin, bourbon, Scotch, rum, vodka, and tequila),then divide by 6 to arrive at an average cost per liter. Divide that figure by 33.8(and subtract any spillage allowance) to determine the cost per ounce of your wellbrands.For further waste control arrange the sequence of well brands in your speed rail(the bottle-width rack in the underbar) in this fashion:GIN & BOURBON & VODKA & SCOTCH & RUM & TEQUILALight and dark liquors are interspersed so they are less likely to be used accidentallyby a bartender in a hurry.The second major decision is the variety of items you will stock. The averagebar in the United States may carry as many as 130 liquors and liqueurs on thebackbar, and a showy backbar lined with bottles is the hallmark of many operations.Some bars take pride in never having to tell a customer, ‘‘I’m sorry but we don’thave that.’’ Such a policy, while it can be good merchandising for some types ofclientele, has the potential of expanding inventory indefinitely with items that donot move. Liquor that does not sell does not earn a penny of profit, except to thedegree that it contributes to atmosphere and image on that great-looking backbar.Many bars prefer to limit their offerings to popular and well-advertised brandsof each item, with the number of brands varying with the type and size of theoperation. If a customer calls for a brand that you don’t carry, you probably won’tlose either the sale or the customer if you can offer a well-known brand of comparablequality. But be sure to offer the alternate to the customer; do not try tosubstitute another brand without the customer’s knowledge. That is a very badpractice that will only create an image of mistrust for your place and your bartenders.Still another approach is to deliberately limit the number of brands anditems that you stock by developing a printed drink menu based on a small numberof beverages, as discussed in last article. Most customers will respond to such amenu by ordering from the drinks listed; questions of call brands and unusualdrinks seldom come up.Where you draw the line on the numbers of brands and items that you stockwill depend on your clientele, your type of enterprise, your volume of business,and the money available for such an investment. But it is wise to draw the linesomewhere—then hold it. A common mistake is to let your inventory grow, overtime, to unmanageable levels. Products do fall out of fashion, as in any industry.One way to avoid a proliferation of brands and bottles is never to add a new itemof unpredictable demand without eliminating a slow-moving item from your list.In this case ‘‘slow-moving’’ means a product that takes nine months or longer to useup a single bottle.

You also need to keep up with new products and anticipate changes in customertastes. One way to do this is to consult frequently with the salespeople for thewholesale buyers you deal with. They know who is launching a huge advertisingcampaign or coming out with a new light beer, as well as which new liqueur orimported beer is big in California or New York and is coming your way. Manybeverage managers have a regular time for sales personnel to call. In this way themanagers are not interrupted while immersed in some other task, and the salesperson has a receptive audience. Do not, however, let anyone tell you what youshould buy. Consider suggestions, but measure them against your own ground rulesand current needs.Sales representatives will push their own products; that is their job. Comparewhat they say with what their competitors say and make up your own mind.Another way to keep up with trends is to read sales and market surveys in trademagazines, such as Market Watch, for their survey results of those hot new brands.For local trends remember to read the liquor-store advertisements in your localnewspapers.Beverage buyers can often peruse catalogs on CD-ROMs to find what they need.In many cases these have eliminated the bulky product notebooks and print catalogsthe suppliers once used. If a beverage is available somewhere in the world andis distributed by someone, it is very likely that you can locate it on the Internet oron a particular supplier’s catalog on disk. The next logical step is to link your owncomputer to the vendor’s so that you can access current price lists, availability, anddelivery information, and can place orders by e-mail. On some systems you canspecify a replacement product that you would consider acceptable if your firstchoice is not available. The most sophisticated systems enable you to access historicaldata, such as how frequently you have ordered a certain product, or are setup to ‘‘cost’’ drink recipes.No matter how sophisticated the ordering process, buying individual productsis still mostly a matter of brand selection and common sense. When the liquor orbeer brand concerns the customer, buy the brands that your customers will buy.For your well select the brands that make the quality of drinks you want to pour.This applies to your vermouth and liqueur choices as well. It is a good idea totaste your own mixed drinks with different brands of spirits and liqueurs. Genericliqueurs in particular can taste quite different from one brand to another, and theexpensive imported brands are not necessarily the best.Purchasing WinesBuying wines is somewhat more complicated than buying beers and spirits. Onereason is that customer demand is less clear-cut. For house wines more and moreenterprises are replacing generic wines with inexpensive varietal wines in 1-literand 1.5-liter bottles. Some restaurants pour house wines by the glass from 750-millileter bottles and have the same wines available for sale by the bottle. An alertwaiter can often convert orders for two or three individual glasses to a bottle ofwine for the table.Wines for a printed wine list require a different approach. Because wines varyfrom one winemaker to another, one vintage to another, and one year of age toanother, you must either rely on an expert or know a good deal about winesyourself. You can safely buy most young whites, rose′s, and some of the simplerreds and sell them right away. The older the vintage date, the more skeptical youshould be.

Fine whites and reds require special purchasing decisions. These wines shouldnot be sold to customers before they are ready to drink. This means you must tieup your money in the wine cellar while they mature or take a chance on purchasingthem later at higher prices—if they are still available. Keep supplies of the wineson your list in line with demand without overbuying. If you run out you lose salesand disappoint customers, but if you overbuy you have money tied up unproductivelyand may run the risk of having a wine outlive its lifespan in storage. (Thesefactors reinforce the need for a good by-the-glass program.)The Internet is becoming an important factor in wine sales: it has made it easierfor bar owners and cellarmasters to find out what other people are paying for wines.All they need to do is peruse the Web pages of wine wholesalers and retailersaround the country, as well as the wineries themselves. Distributors who pad theirwholesale prices unnecessarily can easily be found out by your doing some onlinecomparison-shopping.eVineyard is an interesting case study and is still for the most part considereda grand experiment worth watching closely in the world of wine sales. This onlinewine-sales company has avoided the tricky interstate alcohol-delivery issues byobtaining retail licenses in each of the states it serves. The company passes alongan order to a local wholesaler, who fills the order and delivers it to the user.eVineyard’s average gross margin is 32 percent, which is good when you considerthat the company carries no inventory and does not have to split its margin withretailers.However, the earliest e-commerce wine sales companies, Virtual Vineyards andWine.com (the latter now owned and relaunched by eVineyard), were part of the‘‘dot-com’’ boom and bust. They had encouraging early sales figures but not enoughlong-term business savvy. Peter Granoff, the founder of California-based Wine.com,has pointed out that one problem with online wine sales is that the freedom of ecommerce naturally resists the rather old-fashioned constraints of the wine industry:a three-tiered sales hierarchy (winery/wholesale distributor /end user) and anoutmoded regulatory system. Today with 26 states and the District of Columbiaallowing limited direct shipments of wine to consumers, the Internet may simplybe outgrowing the traditional ways of buying wine.No one knows where this will lead but none of it is especially good news forwine distributors, whose ranks are already dwindling. To prevent large chains fromgrossly undercutting them in price, some of the smaller, independent fine-winedistributors are pooling their purchases to secure volume discounts. Others arebeing swallowed up by larger distributorships.Internet wine sales were given a huge boost in May 2005 when the U.S. SupremeCourt ruled that states that permit in-state wineries to sell directly to consumerscannot deny that right to out-of-state wineries. Opponents (including state governments,evangelical Christians, and Mothers Against Drunk Driving) argued thatallowing direct wine sales to individuals could not ensure full tax collection on thesales, and would mean less control over underage drinkers’ ability to obtain alcohol.Wine producers’ representatives countered that in this age of distributorship consolidation,the smaller wineries are at a sales disadvantage—they have difficultyfinding distributorships that want to take them on at all and can sell more wineby selling it themselves, no matter where the customers are located.Distributors are still a crucial part of a successful bar business, and we’ll discussyour relationships with them later in this article. For now remember that thedistributor’s sales force is knowledgeable about industry trends and will often bringnews of wine bargains. You will need to decide which should you buy, and whichshould you pass up.

* Post-offs and closeouts are deals that help distributorships move slow-selling winesor to clear out a product line that they are soon planning to drop altogether.Look carefully at the offer and consider the background details. Why are thesewines not selling? Are they too old? Not quite ‘‘good enough?’’ Were they overpricedto begin with and are just now being offered at a fair price for theirquality?* Vintage clearances are offered to make space in a distributor’s warehouse forincoming newer wines. These offers usually come with a minimum number ofcases that must be ordered to receive the discounted price, which means asizable investment on your part. We suggest making the distributor an offer thatyou can afford. Yes, it’s an investment of both cash and storage space, but youmay be surprised at how much room for negotiation there is in this type of deal.* Exclusives are deals offered to a buyer because of a solid relationship witha supplier, whether it’s the sales rep who calls on you regularly or someonehigher up in the organization. The word exclusive should indicate exactly whatit means: that your business is the only bar in the area pouring this particularwine. (Retailers can sell that wine, but none of your competitors can.) Whetheryou participate in an exclusive deal depends mostly on the wine savvy of yourcustomer base. If your customers will not necessarily appreciate the exclusivityof the deal or if the products are not upscale enough to warrant exclusivity, itis acceptable for you to pass it up. An exclusive arrangement may also comewith minimum orders and other special requests by the distributor.We should also mention that suppliers often offer very favorable discounts tofeature a wine in your by-the-glass program so be sure to ask about that. It is alsoimportant to be wary of a discounted price for a wine that may be approachingdeterioration. Taste wines before you buy them, then choose according to what youknow about your customers’ tastes and get as much expert advice as you can. (Youmight find it helpful to reread before on developing a wine list.)Where to BuyThe beverage buyer does not always have a great deal of choice about where tobuy. State laws, which vary from one state to another, govern the purchase and saleof alcoholic beverages. Local laws also come into play. First a buyer should studythe laws of the state, county, city, and even precinct as they apply to liquor purchases.In 19 states or jurisdictions the retailer, the seller of alcoholic beverages tothe consumer, must buy from state stores. These states are known as control statesor monopoly states. In the remaining states, known as license states, and theDistrict of Columbia the buyer is typically allowed to purchase from any wholesalerlicensed by the state and, in some states, from licensed distributors and manufacturersas well. Figure 13.1 lists the current status of each state. However, there maybe local restrictions. For example, a county may have a law against buying inanother county. To further complicate matters the requirements and limitations areusually not the same for beers and wines as they are for spirits.FIGURE 13.1 CONTROL STATES AND LICENSE STATES__________________________________________________________________________Control States                            License States__________________________________________________________________________Alabama                         Alaska           Mississippi (retail only)Idaho                           Arizona          MissouriIowa^a                           Arkansas         NebraskaMaine                           California       NevadaMichigan                        Colorado         New JerseyMississippi (wholesale only)    Connecticut      New MexicoMontana                         Delaware         New YorkNew Hampshire                   Florida          North DakotaNorth Carolina                  Georgia          OklahomaOhio                            Hawaii           Rhode IslandOregon                          Illinois         South CarolinaPennsylvania                    Indiana          South DakotaUtah                            Kansas           TennesseeVermont                         Kentucky         TexasVirginia                        Louisiana        WisconsinWashington                      Maryland         Wyoming (retail only)West Virginia                   Masschusetts     District of ColumbiaWyoming (wholesale only)        Minnesota__________________________________________________________________________^a Iowa has no state stores; its control board, as sole wholesaler, sells to privately owned outlets it licenses to sell to retail consumers.__________________________________________________________________________

In license states alcoholic beverages are sold to retailers by a number of wholesaleliquor distributors. Each of these distributors will offer a wide variety of brandsand will probably pride themselves in offering a few ‘‘exclusives,’’ that is, productsor brand names not available from other distributors in that market. Depending onyour state’s laws the makers of the products (or the importers, if they come fromanother country) may sell to distributors, and the distributors sell to the retailers.Almost always you will have to deal with several suppliers, who carry differentitems and brands. In some areas the healthy competition among suppliers worksto your advantage since each one tries hard to come up with ways to please orimpress you, the customer. In many states, however, there are now only a fewmajor distributors.This has some important implications for the individually owned bar. First productchoice may be limited, especially for less-well-known or unusual items. Secondthe fewer the vendors, the less likely it is that a buyer can negotiate for more‘‘personalized’’ service, such as specific delivery times. The monopolistic trend forcessmaller bars to conform to the dictates of the vendor.In most license states, a master list is published monthly (by the state’s liquorcontrol authority) containing the names of all of the wholesalers in the state, thelines they carry, and the prices they charge. Monthly beverage journals list discountand post-off (sales) schedules. Individual wholesalers also have product catalogsand price sheets, quantity discounts, special sales, and promotional materials. Asyou learned earlier in this article at least some of this information is available onCD-ROM. Control states publish lists of all the brands available and their prices,along with the addresses of state stores. Dealing with sales representatives is ofteneasier than working with lists. Although you may not be able to buy from themdirectly, they can tell you where you can buy their products. They can also keepyou informed of special sales and promotions.The Impact of ConsolidationThe wine industry is as good a place to start as any in the discussion of consolidation,which is the overarching trend in the beverage business today. As withmany other industries a few major, multibillion dollar international companies nowdominate the scene. Constellation Brands has become the world’s major wine marketer,surpassing longtime leader E & J Gallo Winery. Since 1999 ConstellationBrands has acquired Robert Mondavi, Simi, Franciscan Estates, Paul Masson, ArborMist, and Sebastiani Vineyards, among others. The Gallo wine empire includesseveral Californians (Mirassou, Louis Martini, Turning Leaf), as well as vineyardsin Australia (Black Swan), New Zealand (Whitehaven Wine Company), and Italy(Ecco Domani). Smaller California wineries and their brands have been snappedup by London-based Diageo, which owns Beaulieu Vineyards, Barton & Guestier,and Moet & Chandon; British-owned Allied Domecq owns Atlas Peak, Buena Vista,and Clos du Bois, to name a few, as well as vineyards in five other countries.Branches of long-respected wine family trees have been twisted, turned, and graftedby these megasales.In the brewing industry the headlines are no less startling. South African Breweries(SAB) paid $5.6 billion to acquire Miller Brewing Company of St. Louis,Missouri, and renamed the company SAB-Miller. SAB went on to acquire Italianbrewer Peroni and is (as of this writing) in a bidding war with Anheuser-Busch forthe Harbin Brewing Group of China. The Adolph Coors Company and Molson,Canada’s largest brewer, merged in 2004. Interbrew, a Belgian beer-maker, hasmerged with AmBev of Brazil to create what may be the world’s largest brewer interms of sales. The new company, InBev, will control 11.4 percent of the worldbeer market, surpassing Anheuser-Busch’s 10.7 percent. In Australia (as of thiswriting) the Foster’s Group (the beer conglomerate of Foster’s Lager fame) is attempting a hostile takeover of the wine conglomerate Southcorp. If successful theresult will be yet another major world beverage corporation.

These events do not exactly bring to mind the picturesque winery and the hardworkingfamily who proudly tends to their vines and manages their business (wefervently hope that there will always be a place for the niche product and smallorganization). In the meantime retailers and restaurateurs must believe that consolidationin the supplier and wholesale tiers will have a positive impact overall. Itmight. It generally means more brand advertising aimed at consumers (paid for bythe large companies) and serious marketing and training support for people whosell the products. So it is worthwhile to follow the news of these corporate incarnationsand be alert to the changes that market consolidation brings.Supplier RelationsWhen you have a choice price is certainly one reason to buy from one supplierrather than another, and you should always get competitive bids for large ordersfrom different suppliers. But there are many other considerations, including whichservices a supplier does or does not offer. For instance:* How often does the supplier deliver? The more frequently, the better; and dailyis best, even though you do not order daily. You do not have to stock as muchand can get something quickly in an emergency.* Does the supplier alter quality, quantity, and/or delivery-time standards? Youdon’t want to deal with someone who has basic organizational problems.* Where is the supplier located? Suppose you are in a rural area and your suppliersmust travel more than an hour to reach you. Does distance affect the deliveryschedule? What about the weather? Will your wine or beer travel for hours inthe hot sun? Will snow and ice interrupt service?* What resources does the supplier have? Is it a large and varied inventory keptwell stocked, or a small stock that is continually being depleted? Does the supplierhave temperature-controlled warehouse facilities? Refrigerated trucks?* Does the supplier give proper and systematic care to goods in storage or intransit? Are wines kept at proper temperatures? Are bottles kept on their sidesor upside down if traditional corks are used? Are draft beers and unpasteurizedpackage beers kept refrigerated?* Is the supplier’s office and warehouse organized, clean, secure, and professionaloverall? (A visit to these facilities can tell you quite a bit.)* Must you buy a certain minimum per order? Is there a maximum? Can youadjust your orders to meet these requirements? Is it worth it?* Does the supplier extend credit, and what are the terms? (This is not often anegotiable point because of government restrictions.)* Can you buy mixes and accessories from the supplier at advantageous pricesand quantities?* What is the supplier’s lead time, or the time between ordering and delivery?(You must estimate consumption and order far enough ahead to compensate forthe gap. The shorter lead time, the better.)* How much consultation and training of your staff members is the supplier willingto give? (Some wine distributors are willing, for instance, to organize winerytours for buyers and key staff members, even to other states or countries.)* Is the distributor’s staff willing to participate in sales-boosting activities, such asarranging wine tastings and dinners? Is the company willing to donate productsfor charitable events?* What other services does the supplier offer: e.g., blank order forms, promotionalmaterials, 24-hour telephone service?The number of suppliers that a bar deals with usually depends on the varietyof products it wishes to carry. You should consider more than one supplier for eachcategory (beer, wine, spirits) because brands play such a strong role in your needsand because one vendor may be out of stock on one of your critical items. Not allsuppliers carry all brands, by any means. If more than one supplier carries thesame brand, go with the one that offers the best service and seems by all accountsto be running a profitable business. Avoid doing business with suppliers—at least,for the moment—if there are any signs of financial trouble.

The explosion of e-commerce has opened some new doors for purchase and, asyou learned in the discussion of the 2005 U.S. Supreme Court decision, has createdsome new controversy. Alcoholic beverages no longer have to move within thetraditional three-tier system, from producer, to distributor, to retailer. Thebusiness-to-business movement is still in its infancy with alcohol because it is morestrictly regulated than most other types of products and because every state seemsto have a tangle of different laws about selling it. But in the future these restrictionsmay be further weakened in court challenges.Distributors stand to lose an estimated $25 billion in product markups if retailerscould purchase every type of alcohol directly from producers: distilleries, wineries,brewers, and importers. But some forward-thinking merchants say that the cybermarketplaceactually makes it easier to do business with distributors. When pricelists and orders can be e-mailed, instant or short-term specials can be offered viacomputer, and catalogs of items can be viewed and updated online, the bar manageror purchasing agent is the ultimate beneficiary.One more point should be made, and it is about your own professionalism indealing with beverage suppliers. These are generally hard-working salespeople whocare deeply about their product lines and can bring a great deal of knowledge andenthusiasm to your beverage program. When you make an appointment with abeverage supplier, be sure to keep it. In fact it is a good idea to set regular meetingtimes specifically for them to present anything new that they have to offer. Youcertainly don’t have to buy it all, but don’t close your mind to interesting newitems; be willing to try them in small quantities as your budget allows. Distributorsalso have events to which customers are regularly invited, such as open houses,trade tastings, and wine dinners. Attend them if you can. They are good networkingevents, where you will have a chance to learn more about your competitors, aswell as the products that are being showcased.How Much to BuyThis is a central question for the beverage buyer. The answer is enough but nottoo much: enough to serve your customers what they want but not so much thatnumbers of bottles stand idle on shelves for long periods, thereby tying up moneyyou could put to better use. If you overorder the bottles will sit around too long;if you underorder you might find yourself running out of popular brands andunable to get more on short notice. Your goal is to never run out of your wellbrands, your house wines, your draft beers, the popular bottled beers, and callbrands of spirits. But you might not reorder a slow-moving item until your lastbottle is half gone.Establish a par stock for each bar in your facility, using a form similar to theone in Figure 13.2. You can determine par stock needs from your detailed salesrecords. (If you are still in the planning stage you can "guesstimate" your rate ofsale.) A general rule is to have enough of each type and brand to meet 11/2 timesthe needs of your busiest day of the week. For a small restaurant bar averaging$500 in daily sales, this might work out to be the open bottle plus two full onesfor each fast-moving brand, and the open bottle plus one extra for each slowermovingbrand.From par-stock needs for each bar, you can determine what you should have in
the storeroom to back them up. This then becomes your par stock for the storeroom,
or your normal storeroom inventory (that is, merchandise on hand). You can
also use par stock to measure your daily consumption. The bottles it takes to bring
the bar stock to par represent roughly the consumption of the day before. Over a
week’s time these bottles will yield an accurate figure of average daily consumption.
This can guide your rate of purchase. Par stock is also a way of keeping up with
customer tastes. You know which brands are moving quickly because you have par
stock as a measure of their popularity. As such par stock tells you what to buy, as
well as how much you are using. Whatever your buying interval, it is a good idea
to set minimum and maximum stock levels for each item, to maintain your storeroom
inventory. The minimum level may be supplemented by a reorder point that
gives you lead time so that the stock does not drop below the minimum level
before you receive delivery. Your maximum level represents the dividing line between
enough and too much. Like the par-stock level at the bar, it should represent
11/2 times what you expect to need before you replenish your supply.

The prices might be better since theliquor dealer may get better quantity discounts on bar items, such as maraschinocherries and cocktail onions, than the grocery dealer does. Service might be better,too. The food wholesaler may pay little attention to your small order, whereas theliquor purveyor wants to keep your beverage business. The liquor dealer may alsosell in smaller quantities than the grocery wholesaler, and if you have a smallenterprise it may take forever to use a case of olives or a gross of napkins.Keep in mind that liquor purveyors do not handle such items as lemons, limes,oranges, celery, eggs, milk, cream, and ice cream. You will buy your produce froma produce dealer and your dairy supplies and ice cream from a wholesale dairy.Such items must be refrigerated in the storeroom or go straight to the bar, icecream must go straight into the freezer.When working out your orders you will have a choice of can or bottle sizes formany items. The cost per olive or per ounce is nearly always cheaper in the largercontainer sizes. However, consider deterioration once the container is opened. Ifyou use only half a can of something and have to throw out the rest, you have notsaved any money.Receiving, storing, and issuing bar supplies follow the same procedures used foralcoholic beverages. Like items must be stored together and the stock must berotated at each delivery. All types of bar supplies are counted on the regular physicalinventory. However, once a container is opened it is considered used and is notcounted.SUMMING UPA good purchasing manager provides an adequate supply of beverages at all timeswithout overinvesting in idle inventory. Purchasing involves both the selection andthe procurement of everything needed to run the bar. The modern bar manageruses a category management system, tracking what sells well and what does not(most often by computer) and using the information to adapt the drink menu todeliver a beverage program that meets customers’ needs and is profitable for thebusiness.It is important to maintain good relationships with suppliers and to understandtheir pricing systems so that you can evaluate the true values (to your operation)of the sales and discounts they may offer. The Internet has made it easy to checkprices and obtain product information from a variety of sources; suppliers may offerproduct catalogs on CD-ROM, and your computer system may be linked to theirsto facilitate online ordering. But it is still important to maintain human contactwith the distributor’s salespeople and to build solid working relationships withthem. Schedule regular appointments to taste new items, utilize the sales and trainingmaterials they can provide, and attend the events they host or sponsor. If youoperate in a control state you must purchase your liquor from state-run stores orwarehouses; good working relationships are just as important in these cases.A careful system of records is maintained at all phases of the purchasing cycle.Start by determining the par stock necessary to outfit your bar to be ready for abusiness day, and be able to track the path of every bottle and its contents, fromthe time it is received to the time the empty is turned in. Through such recordsmanagement can keep up with usage trends, as well as pinpoint possible problems(from thefts to slow sellers) and the responsibility for them at any stage along theway from purchase to sale.Physical inventory at regular intervals provides the basis for figuring needs, costs,and losses. Written or computerized perpetual-inventory records provide standardsagainst which the physical inventory can be measured. Storeroom areas shouldinclude strict security precautions and limited access. The system should include aseries of forms for recording sales, discrepancies, par stock, and other standards.A well-organized, well-managed purchasing system can contribute to profits bykeeping costs down, efficiency up, and supplies flowing.

FIGURE 13.2 This all-important form is also shown as Figure 9.3.IMAGE(https://hotelmule.com/hmattachments/26_200910240639382vIha.jpg)There are several arguments for keeping a small inventory geared closely to yoursales volume. The major point is that beverages are expensive, even at discountrates, and they tie up money that is not earning anything and may be neededelsewhere. When you finally do use a bottle of liquor that you bought months agoat a discount, it may have cost you far more in lost use of the money you paidthan the money you saved in buying it.Large inventories cause other problems, too. One is security: The more liquoryou have, the more tempting it is to steal, the easier it is to steal, and the harderit is to keep track of. The larger the inventory, the more space and staff are neededand the greater the burden of record-keeping and taking physical inventory. Perishableitems, such as beers, should never be overstocked; some wines also deterioratequickly. Customer tastes may change suddenly, leaving you with items youwill never use.

FIGURE 13.2 This all-important form is also shown as Figure 9.3.IMAGE(https://hotelmule.com/hmattachments/26_200910240639382vIha.jpg)There are several arguments for keeping a small inventory geared closely to yoursales volume. The major point is that beverages are expensive, even at discountrates, and they tie up money that is not earning anything and may be neededelsewhere. When you finally do use a bottle of liquor that you bought months agoat a discount, it may have cost you far more in lost use of the money you paidthan the money you saved in buying it.Large inventories cause other problems, too. One is security: The more liquoryou have, the more tempting it is to steal, the easier it is to steal, and the harderit is to keep track of. The larger the inventory, the more space and staff are neededand the greater the burden of record-keeping and taking physical inventory. Perishableitems, such as beers, should never be overstocked; some wines also deterioratequickly. Customer tastes may change suddenly, leaving you with items youwill never use.

On the other hand some wines should be bought in quantity because they arescarce and will quickly disappear from the market. You will want to buy enoughof them to last as long as your printed wine list does. Beverage wholesalers sellmostly in case lots, sometimes offering discounts for a certain number of cases. Youcan buy cases of spirits and wines in the bottle sizesshown in Figure 13.3. The size bottles you buy willdepend on the type and size of your establishmentand even more on the way you serve your beverages.Some suppliers will sell a broken case or mixedcase, which is a case of 12 bottles made up of severalbrands or items of your specification, and some willsell certain items by the single bottle or, for wines, aminimum of three bottles. The cost per bottle ishigher for items in a broken case or by the bottle;the cost per bottle is lowest when purchased by thecase or in multiple-case lots.FIGURE 13.3 BOTTLE AND CASE SIZES_________________________________________________________________Bottle Size^a             Fluid Ounces            Units per Case_________________________________________________________________Distilled spirits50 milliliters                1.7                       120100 milliliters               3.4                        60200 milliliters               6.8                        48375 milliliters              12.7                        24750 milliliters              25.4                        121 liter                      33.8                        121.75 liters                  59.2                         6Wine50 milliliters                1.7                       120100 milliliters               3.4                        60187 milliliters               6.3                        48375 milliliters              12.7                        24750 milliliters              25.4                        121 liter                      33.8                        121.5 liters                   50.7                         63 liters                    101                           4Beer ^b6 ounces                      67 ounces                      7                          248 ounces                      8                          or10 ounces                    10                          3212 ounces                    12_________________________________________________________________^a Not all sized legal in all states.^b For draft-beer container sizes see Figure 13.6_________________________________________________________________

On the other hand some wines should be bought in quantity because they arescarce and will quickly disappear from the market. You will want to buy enoughof them to last as long as your printed wine list does. Beverage wholesalers sellmostly in case lots, sometimes offering discounts for a certain number of cases. Youcan buy cases of spirits and wines in the bottle sizesshown in Figure 13.3. The size bottles you buy willdepend on the type and size of your establishmentand even more on the way you serve your beverages.Some suppliers will sell a broken case or mixedcase, which is a case of 12 bottles made up of severalbrands or items of your specification, and some willsell certain items by the single bottle or, for wines, aminimum of three bottles. The cost per bottle ishigher for items in a broken case or by the bottle;the cost per bottle is lowest when purchased by thecase or in multiple-case lots.FIGURE 13.3 BOTTLE AND CASE SIZES_________________________________________________________________Bottle Size^a             Fluid Ounces            Units per Case_________________________________________________________________Distilled spirits50 milliliters                1.7                       120100 milliliters               3.4                        60200 milliliters               6.8                        48375 milliliters              12.7                        24750 milliliters              25.4                        121 liter                      33.8                        121.75 liters                  59.2                         6Wine50 milliliters                1.7                       120100 milliliters               3.4                        60187 milliliters               6.3                        48375 milliliters              12.7                        24750 milliliters              25.4                        121 liter                      33.8                        121.5 liters                   50.7                         63 liters                    101                           4Beer ^b6 ounces                      67 ounces                      7                          248 ounces                      8                          or10 ounces                    10                          3212 ounces                    12_________________________________________________________________^a Not all sized legal in all states.^b For draft-beer container sizes see Figure 13.6_________________________________________________________________

You should certainly buy by the case anything thatyou use a lot of—your well brands, house wines,domestic beers, and popular brands—to take advantageof cost savings and to ensure an adequate supply.From this point on, it becomes a matter ofcalculating your rate of use for each item and matchingit with your purchasing intervals. As you decidewhat and how much to stock, you need to considertwo more factors: carrying costs and capital risk.Your carrying costs are the total combined dollarvalue of the liquor, wine, beer, mixes, and suppliesat the bar. This figure should not vary widely monthto month. Capital risk is the risk you take when abottle of liquor leaves the storeroom and goes to thebar, where it can be wasted, spilled, given away, consumedby employees, or otherwise not sold forprofit. The way to control capital risks is to maintaina tight inventory, store as little as possible, and consistentlyenforce your inventory policies.When to BuyWhen and how often you place an order will depend on the volume of yourbusiness, the size inventory that you are willing to stock, the requirements andschedules of the suppliers, the scheduling of your receiving people, the specialsyou want to take advantage of, and such variables as holidays, conventions, specialevents, or even a run of bad weather. Some enterprises order daily, others once peraccounting period, and still others somewhere in between. Some might buy wineonce a year, spirits weekly, and beer every day. The more frequently you buy, theless inventory you have to cope with. On the other hand every order initiates thepurchasing-receiving-storing routine, which may not always be labor-efficient.Other factors affecting the timing of purchases are your cash position and thepayment or credit requirements imposed by state regulations or by the purveyor.Some states allow no credit at all; all sales must be cash. Other states requirepayment monthly or semimonthly or within some other interval, such as 10 daysafter the week of sale or the second Monday after delivery. Fines and publicity mayaccompany late payments or nonpayment. These requirements make it very importantto integrate your purchasing times with your cash flow so that you are notcaught short on the due date.What to PayIn control states price markups are typically fixed by law and prices will be thesame in all state stores. The only price decision the buyer must make is whetherto take advantage of an occasional special or quantity discount. In license states itis often worth shopping around to find the best deal on the brands you want tobuy. There are seldom large price differences because state laws are typically designedto avoid price wars. Manufacturers and distributors must give the same dealsto everyone they sell to so the price structure is fairly homogeneous. Neverthelessin some areas suppliers are free to set their own markups, grant their own discounts,and run their own specials—and they do. So it is worthwhile to studyprice lists, talk to sales contacts, and look at the advertisements in the trade journals.

You should certainly buy by the case anything thatyou use a lot of—your well brands, house wines,domestic beers, and popular brands—to take advantageof cost savings and to ensure an adequate supply.From this point on, it becomes a matter ofcalculating your rate of use for each item and matchingit with your purchasing intervals. As you decidewhat and how much to stock, you need to considertwo more factors: carrying costs and capital risk.Your carrying costs are the total combined dollarvalue of the liquor, wine, beer, mixes, and suppliesat the bar. This figure should not vary widely monthto month. Capital risk is the risk you take when abottle of liquor leaves the storeroom and goes to thebar, where it can be wasted, spilled, given away, consumedby employees, or otherwise not sold forprofit. The way to control capital risks is to maintaina tight inventory, store as little as possible, and consistentlyenforce your inventory policies.When to BuyWhen and how often you place an order will depend on the volume of yourbusiness, the size inventory that you are willing to stock, the requirements andschedules of the suppliers, the scheduling of your receiving people, the specialsyou want to take advantage of, and such variables as holidays, conventions, specialevents, or even a run of bad weather. Some enterprises order daily, others once peraccounting period, and still others somewhere in between. Some might buy wineonce a year, spirits weekly, and beer every day. The more frequently you buy, theless inventory you have to cope with. On the other hand every order initiates thepurchasing-receiving-storing routine, which may not always be labor-efficient.Other factors affecting the timing of purchases are your cash position and thepayment or credit requirements imposed by state regulations or by the purveyor.Some states allow no credit at all; all sales must be cash. Other states requirepayment monthly or semimonthly or within some other interval, such as 10 daysafter the week of sale or the second Monday after delivery. Fines and publicity mayaccompany late payments or nonpayment. These requirements make it very importantto integrate your purchasing times with your cash flow so that you are notcaught short on the due date.What to PayIn control states price markups are typically fixed by law and prices will be thesame in all state stores. The only price decision the buyer must make is whetherto take advantage of an occasional special or quantity discount. In license states itis often worth shopping around to find the best deal on the brands you want tobuy. There are seldom large price differences because state laws are typically designedto avoid price wars. Manufacturers and distributors must give the same dealsto everyone they sell to so the price structure is fairly homogeneous. Neverthelessin some areas suppliers are free to set their own markups, grant their own discounts,and run their own specials—and they do. So it is worthwhile to studyprice lists, talk to sales contacts, and look at the advertisements in the trade journals.

Several types of discounts are found in the wholesale liquor industry. In generalthey are: basic discounts, post-off discounts, size variations, and assorted discountstructures.A basic discount is usually volume-related, to entice buyers to purchase largerquantities. Suppose, for instance, that the list price of Brand Z Vodka is $100 percase (there are 12 bottles in a case). With a minimum 5-case order the price dropsto $92 per case; for 10 cases, it drops to $88 per case; and for 15 cases, it mightdrop to $84. When you analyze this by cost per bottle, you will see that in a smallorder (4 cases or less), you are paying $8.30 per bottle; while in the largest order(15 or more cases) the price per bottle drops to $7.There are no ‘‘standards’’ for basic discounts; they vary tremendously amongbrands. But often the liquors with the highest prices will also have the deepestdiscounts.A post-off discount occurs when the distributor reduces the price of a particularbrand to stimulate demand for it, either by the bottle or by the case. For example,Brand A Scotch has a $175-per-case list price. When a $9 post-off is announcedfor purchases of five or more, this drops the price to $166 per case.Size variations also affect liquor’s all-important cost-per-ounce numbers. Youwant to be familiar with this, particularly for spirits, because you pour and pricethem by the ounce. The cost per ounce is highest when the bottle size is smallestand decreases as the bottle size increases. The cost per ounce is higher for itemspurchased by the bottle or in a broken case than when purchased by the case.Figure 13.4 provides a price comparison of different bottle sizes.FIGURE 13.4 PRICE COMPARISON OF DIFFERENT BOTTLE SIZES____________________________________________________________________________Bottles/Case    Bottle Size    Fluid Ounces    Cost/Bottle    Cost/Ounce12                750 ml.          25.4          $16.90         $0.66512                1 liter          33.8           20.40          0.6036                  1.75            59.2           27.90          0.471____________________________________________________________________________Just by changing your purchasing from 750-millileter bottles to liter bottles, thesavings per ounce ($0.665 minus $0.608) equals $0.057, or a little more than halfa cent. The savings per liter ($0.057 multiplied by 33.8 ounces) is $1.92. This isalmost $2 per bottle. This works out ($1.92 multiplied by 12 bottles) to a fewpennies over $23 for the same ‘‘Brand A’’ Scotch.When you consider the larger, 1.75-liter bottle prices, remember that the numberof ounces in a case of liters is greater than the number of ounces in a case of1.75 liters; this is the difference between 12 bottles and 6 bottles, respectively. Thecase of liters contains 405.6 ounces; the case of 1.75 liters contains 355.2 ounces.In addition to cost another very important consideration is convenience of pouring.What are your pouring station and backbar set up to handle? With an automaticdispensing system, the use of the largest possible bottle is no problem; inother situations, these bottles may be unwieldy.The fourth popular discount option is a simple variation of the basic discountstructure, called the multiple brands or assorted discount. An importer or distilleroffers this discount to encourage the bar owner to buy a wider range of its products.The total number of cases purchased is what the discount is based on. It is a ‘‘buyfive cases of anything, and get 10 percent off’’ kind of deal, but it varies greatly.

Since some of the cases are already discounted when you buy five or more of them,this additional discount can offer the conscientious buyer substantial savings, especiallywhen buying in large quantities.Consider how a typical, assorted discount purchase might work. Suppose thata bar receives this price list from ABC Importers, its wholesale distributor:____________________________________________________________________________                   List Price      5-Case        10-Case       15-CaseItem      Size     per Case        Discount      Discount      Discount____________________________________________________________________________Vodka    liter       $144          $9.00          $16.00        $20.00Scotch   liter       $235          $14.00         $22.00        $30.00Gin      liter       $165          $9.00          $17.00        $21.00____________________________________________________________________________The bar places an order for two cases of vodka, one case of Scotch, and onecase of gin. The total ($288 for vodka + $235 for Scotch + $165 for gin) comesto $688. However, if the bar would order one or more cases, bringing the total toat least five, the discount really kicks in. Let’s order one more case of vodka, andsee what happens:For vodka: List price $144 per case, minus $9 per case discount = $135 per caseFor Scotch: List price $235 per case, minus $14 discount = $221 per caseFor gin: List price $165 per case, minus $9 discount = $156 per caseWhen you total these individual costs, the price for the five cases is:Vodka (3 cases)   $405Scotch (1 case)    221Gin (1 case)       166______________________TOTAL             $792Of course, this sale would have cost $688 with only four cases purchased. The‘‘extra’’ case of vodka ended up costing only $104. When you do find good buys,you must weigh the money that you save against your inventory size, rate of use,and other items that you could spend the money on. Sometimes the best price isnot the best buy. Be wary, too, of the motives behind supplier specials. Sometimesthese are intended to get rid of wines or beers approaching their freshness limits.Fortunately you do not have to worry about this when buying spirits, which donot deteriorate.PLACING THE LIQUOR ORDEREarlier in this article we discussed the idea of developing par-stock levels. Onceyou know what you will need you can use the periodic order method. This involvesselecting a fixed calendar of ordering dates, then calculate what your barwill use (and therefore, what will be needed) for each time period between orderdates. A person in charge of the bar, such as the manager or bartender, then selectsthe best time of day for the beverages to be delivered, and the supplier should beable to comply.An alternative system is the perpetual-inventory method. In this system theorder dates are variable and the amounts are preset. Inventory cards list purchasesand issues, along with other information, such as par stock, and the lowest amountto which the item must drop in inventory before it is reordered. Someone checksthe cards regularly, notes what is ‘‘running low,’’ and orders it accordinglyYou must also develop a standard procedure for placing your orders.

Several types of discounts are found in the wholesale liquor industry. In generalthey are: basic discounts, post-off discounts, size variations, and assorted discountstructures.A basic discount is usually volume-related, to entice buyers to purchase largerquantities. Suppose, for instance, that the list price of Brand Z Vodka is $100 percase (there are 12 bottles in a case). With a minimum 5-case order the price dropsto $92 per case; for 10 cases, it drops to $88 per case; and for 15 cases, it mightdrop to $84. When you analyze this by cost per bottle, you will see that in a smallorder (4 cases or less), you are paying $8.30 per bottle; while in the largest order(15 or more cases) the price per bottle drops to $7.There are no ‘‘standards’’ for basic discounts; they vary tremendously amongbrands. But often the liquors with the highest prices will also have the deepestdiscounts.A post-off discount occurs when the distributor reduces the price of a particularbrand to stimulate demand for it, either by the bottle or by the case. For example,Brand A Scotch has a $175-per-case list price. When a $9 post-off is announcedfor purchases of five or more, this drops the price to $166 per case.Size variations also affect liquor’s all-important cost-per-ounce numbers. Youwant to be familiar with this, particularly for spirits, because you pour and pricethem by the ounce. The cost per ounce is highest when the bottle size is smallestand decreases as the bottle size increases. The cost per ounce is higher for itemspurchased by the bottle or in a broken case than when purchased by the case.Figure 13.4 provides a price comparison of different bottle sizes.FIGURE 13.4 PRICE COMPARISON OF DIFFERENT BOTTLE SIZES____________________________________________________________________________Bottles/Case    Bottle Size    Fluid Ounces    Cost/Bottle    Cost/Ounce12                750 ml.          25.4          $16.90         $0.66512                1 liter          33.8           20.40          0.6036                  1.75            59.2           27.90          0.471____________________________________________________________________________Just by changing your purchasing from 750-millileter bottles to liter bottles, thesavings per ounce ($0.665 minus $0.608) equals $0.057, or a little more than halfa cent. The savings per liter ($0.057 multiplied by 33.8 ounces) is $1.92. This isalmost $2 per bottle. This works out ($1.92 multiplied by 12 bottles) to a fewpennies over $23 for the same ‘‘Brand A’’ Scotch.When you consider the larger, 1.75-liter bottle prices, remember that the numberof ounces in a case of liters is greater than the number of ounces in a case of1.75 liters; this is the difference between 12 bottles and 6 bottles, respectively. Thecase of liters contains 405.6 ounces; the case of 1.75 liters contains 355.2 ounces.In addition to cost another very important consideration is convenience of pouring.What are your pouring station and backbar set up to handle? With an automaticdispensing system, the use of the largest possible bottle is no problem; inother situations, these bottles may be unwieldy.The fourth popular discount option is a simple variation of the basic discountstructure, called the multiple brands or assorted discount. An importer or distilleroffers this discount to encourage the bar owner to buy a wider range of its products.The total number of cases purchased is what the discount is based on. It is a ‘‘buyfive cases of anything, and get 10 percent off’’ kind of deal, but it varies greatly.

Since some of the cases are already discounted when you buy five or more of them,this additional discount can offer the conscientious buyer substantial savings, especiallywhen buying in large quantities.Consider how a typical, assorted discount purchase might work. Suppose thata bar receives this price list from ABC Importers, its wholesale distributor:____________________________________________________________________________                   List Price      5-Case        10-Case       15-CaseItem      Size     per Case        Discount      Discount      Discount____________________________________________________________________________Vodka    liter       $144          $9.00          $16.00        $20.00Scotch   liter       $235          $14.00         $22.00        $30.00Gin      liter       $165          $9.00          $17.00        $21.00____________________________________________________________________________The bar places an order for two cases of vodka, one case of Scotch, and onecase of gin. The total ($288 for vodka + $235 for Scotch + $165 for gin) comesto $688. However, if the bar would order one or more cases, bringing the total toat least five, the discount really kicks in. Let’s order one more case of vodka, andsee what happens:For vodka: List price $144 per case, minus $9 per case discount = $135 per caseFor Scotch: List price $235 per case, minus $14 discount = $221 per caseFor gin: List price $165 per case, minus $9 discount = $156 per caseWhen you total these individual costs, the price for the five cases is:Vodka (3 cases)   $405Scotch (1 case)    221Gin (1 case)       166______________________TOTAL             $792Of course, this sale would have cost $688 with only four cases purchased. The‘‘extra’’ case of vodka ended up costing only $104. When you do find good buys,you must weigh the money that you save against your inventory size, rate of use,and other items that you could spend the money on. Sometimes the best price isnot the best buy. Be wary, too, of the motives behind supplier specials. Sometimesthese are intended to get rid of wines or beers approaching their freshness limits.Fortunately you do not have to worry about this when buying spirits, which donot deteriorate.PLACING THE LIQUOR ORDEREarlier in this article we discussed the idea of developing par-stock levels. Onceyou know what you will need you can use the periodic order method. This involvesselecting a fixed calendar of ordering dates, then calculate what your barwill use (and therefore, what will be needed) for each time period between orderdates. A person in charge of the bar, such as the manager or bartender, then selectsthe best time of day for the beverages to be delivered, and the supplier should beable to comply.An alternative system is the perpetual-inventory method. In this system theorder dates are variable and the amounts are preset. Inventory cards list purchasesand issues, along with other information, such as par stock, and the lowest amountto which the item must drop in inventory before it is reordered. Someone checksthe cards regularly, notes what is ‘‘running low,’’ and orders it accordinglyYou must also develop a standard procedure for placing your orders.

These procedures will be influenced by size and sales volume. At one extreme is themulticopy purchase order typically used by the large organization. At the otherextreme is the informal verbal (oral) order given over the telephone or in personto a visiting sales representative. But even the verbal order should have a completepaper record to back it up. Every record, formal or informal, should contain thefollowing information:* Date of the order* Name of the purveyor (seller)* Name of the salesperson* Purveyor’s phone number* Anticipated date and time of delivery* Items, brands, and vintages ordered* Sizes of containers (bottle and case)* Numbers of bottles or cases* Unit prices (price per bottle for each item)* Name of person placing orderThere are four good reasons for keeping a written record of each order:* It gives the person receiving the delivery the data needed to check it.* It gives the person paying the bills the data needed for checking the bill.* It gives everyone concerned with the order—whether buyer, receiving agent,storeroom staff, accountant, bar manager, banquet manager, or bartender—access to exact data.* It minimizes uncertainty, misunderstanding, and argument.In a small operation this record may simply be a memo of a telephone orderwritten on a form devised by the house, or it may be an order handwritten by avisiting salesperson. The only one concerned may be the owner/manager who buys,receives, and stores the merchandise; stocks and tends the bar; and pays the bills.In a large organization, where responsibilities are divided among many departments,a formal, multicopy purchase order (P.O.) may be used (see Figure 13.5),with the original going to the purveyor and copies sent to all concerned. Everypurchase order has an order number (P.O. number), which is a key element in anetwork of paper records. It will be referenced on the purveyor’s invoice and thusbecoming the link between the two.The invoice is the purveyor’s response to the buyer’s order. It reflects the informationon the buyer’s order sheet from the seller’s point of view. It accompaniesthe delivery and must be signed by the buyer or the buyer’s agent when deliveryis received—which brings us to the second phase of the purchasing cycle.FIGURE 13.5 PURCHASE ORDERIMAGE(https://hotelmule.com/hmattachments/26_200910240639388tdxq.jpg)

These procedures will be influenced by size and sales volume. At one extreme is themulticopy purchase order typically used by the large organization. At the otherextreme is the informal verbal (oral) order given over the telephone or in personto a visiting sales representative. But even the verbal order should have a completepaper record to back it up. Every record, formal or informal, should contain thefollowing information:* Date of the order* Name of the purveyor (seller)* Name of the salesperson* Purveyor’s phone number* Anticipated date and time of delivery* Items, brands, and vintages ordered* Sizes of containers (bottle and case)* Numbers of bottles or cases* Unit prices (price per bottle for each item)* Name of person placing orderThere are four good reasons for keeping a written record of each order:* It gives the person receiving the delivery the data needed to check it.* It gives the person paying the bills the data needed for checking the bill.* It gives everyone concerned with the order—whether buyer, receiving agent,storeroom staff, accountant, bar manager, banquet manager, or bartender—access to exact data.* It minimizes uncertainty, misunderstanding, and argument.In a small operation this record may simply be a memo of a telephone orderwritten on a form devised by the house, or it may be an order handwritten by avisiting salesperson. The only one concerned may be the owner/manager who buys,receives, and stores the merchandise; stocks and tends the bar; and pays the bills.In a large organization, where responsibilities are divided among many departments,a formal, multicopy purchase order (P.O.) may be used (see Figure 13.5),with the original going to the purveyor and copies sent to all concerned. Everypurchase order has an order number (P.O. number), which is a key element in anetwork of paper records. It will be referenced on the purveyor’s invoice and thusbecoming the link between the two.The invoice is the purveyor’s response to the buyer’s order. It reflects the informationon the buyer’s order sheet from the seller’s point of view. It accompaniesthe delivery and must be signed by the buyer or the buyer’s agent when deliveryis received—which brings us to the second phase of the purchasing cycle.FIGURE 13.5 PURCHASE ORDERIMAGE(https://hotelmule.com/hmattachments/26_200910240639388tdxq.jpg)

RECEIVING THE LIQUOR ORDERTechnology is transforming today’s wine wholesaler by automating transactions toan amazing degree. Cases of product may be tagged with radio-frequency identification(RFID) tags, making them easy for workers using handheld computers tofind. These workers, known as pickers, can round up enough product to fill severalorders at a time. Delivery trucks are outfitted with global positioning systems (GPS).The goals are to speed up large warehouse operations, minimize the margins forerror, and eliminate breakage.Despite all of the impressive technological safeguards the primary goal of thereceiving process for the bar has not changed: to be sure that the delivery conformsexactly to what was ordered. The signing of the invoice by the purchaser has legalsignificance: It is the point at which the buyer, at least technically, becomes the‘‘owner’’ of the merchandise. Therefore the delivery must be carefully checked beforethe invoice is signed. The person you give this responsibility to must be someoneyou trust, who has a good head for detail, and has been trained well for thisassignment. There is no substitute for knowledgeable receiving personnel.The first step is to check the invoice against the purchase order or memo. Thismust be an item-for-item check to see that the quantities, unit and case sizes,brands, vintages, and so on are listed as ordered and that the unit and case pricesare quoted correctly. Then the math must be checked: the total costs per item,which are called extensions (the number of units multiplied by the unit cost) andthe invoice total.The second step is to check the delivery itself to see that it matches what islisted on the invoice. Each item must be checked as to quantity, unit, brand, vintage,and any other specification. Open cases should be verified bottle by bottle andexamined for breakage, missing or broken tax stamps, and loose corks. Sealed casesshould be examined for evidence of leaking bottles or weighed. The weight shouldagree with the weight printed on the case; a broken bottle will give a short weight.Beer should be checked for freshness by reading the pull dates on the containers,and for temperature by feeling the bottle or the keg. Kegs should be examined forsigns of leakage. Their contents can be checked by weighing the keg, writing theweight on the invoice, and subtracting the tare weight, which is the weight of theempty keg, later. Figure 13.6 gives the correct net weights for draft beer. Thisprocess might seem like a hassle but you need to know if a beer keg is full orempty and you cannot do this simply by looking at it.FIGURE 13.6 BARREL AND KEG SIZES____________________________________________________________________________Container    Gallons    Liters    Net wt/lb    Net wt/kg    Fluid Ounces____________________________________________________________________________Barrel         31       111.33       248        112.48          39681/2 barrel    (keg)     15.5       58.67       124         56.24          19681/4 barrel(1/2 keg)     7.75       29.33        62         25.12           9921/8 barrel(1/4 keg)     3.88       14.67        31         14.06           496____________________________________________________________________________

You can also use the values for ending inventory and purchases for the periodto determine your inventory turnover rate. This rate will help you to decidewhether you are keeping too much or too little in inventory. To calculate this rateyou must first determine the average inventory. To do this add the beginning andending inventories for the period, then divide that sum by 2:   Beginning Inventory + Ending Inventory / 2 = Average InventoryThen you divide costs for the accounting period by the average inventory number:     Costs for the Period / Average Inventory = Turnover RateFor example if costs for the period were $1,500 and the closing inventory was$1,500, the turnover rate would be 1; i.e., you have turned over your inventoryonce during the period. If costs for the period were $1,500 and the closing inventorywas $2,000, your turnover rate would be 0.75, while if the costs for the periodwere $1,500 and the closing inventory was $1,000, the turnover rate would be 1.5.What is the significance of the turnover rate? Generally if your turnover rate isconsistently below 1 you are probably stocking more than you need. If it runsabove 2 you probably often run out of items that you need and you might increaseyour sales if you increased your rate of purchase. However, each type of businesshas its own optimum purchase rate, which may vary from industry norms. Youreally should calculate the turnover rates for beer, wine, and liquor separately becausethey are not necessarily the same. There are several other ways to calculateinventory turnover, but this is the simplest, though not the most precise.You can apply the inventory turnover rate to help you buy beverages and remainprofitable in several ways, which is the obvious goal of any good bar owner! We’lluse wine in the following example but the methodology is identical for spirits andbeer.How much wine should I buy?1. Project wine sales for the month. For this example let’s say you expect to achieve$70,000 in wine sales.2. Now consider your cost of sales on wine (that is, your wine cost percentage).Let’s say it’s 25 percent.3. To determine how much wine to have on hand, multiply the projected salestimes the cost percentage: $70,000 X .25 = $17,500.4. Therefore, your wine purchases for the month should not exceed $17,500. Ifyou want to include a margin of error—for example, to include 1.5 times yourbudget—the calculation would be: $17,500 X 1.5 = $26,500.Remember to subtract the cost of the wine inventory that you already have onhand from either of these figures.Next you need to know how much you should spend on wine purchases on aweekly basis. In this case take both the $17,500 and the $26,500 and divide themby 4. The results will be $4,375 (your weekly purchases) and $6,562.50 (yourhigher, margin-of-error figure), respectively. These two figures become your targetpoint for weekly purchases. If you spend between $4,375 and $6,562.50 on winefor the week, you will stay within your budget.PURCHASING BAR SUPPLIESPurchasing supplies for the bar follows the same cycle as beverage buying: purchasing,receiving, storing, and issuing. However, buying supplies is much simplerbecause these are products not regulated by state or federal laws.You can buy grocery items from grocery wholesalers and cocktail napkins fromwholesalers of paper goods. But if you find beverage wholesalers who carry drinkrelateditems, check their products and prices. (Some state codes do not allowliquor dealers to sell anything but liquor.)

Never leave a case half empty; flatten empty cases and remove them promptly.It could be easy to steal hidden bottles along with the trash. Shelving should bemade of wire, heavy, and well braced because liquor is heavy. Select shelf units thatare easy to assemble and add to, and that can be fitted with casters so they canroll. Technology now allows so-called ‘‘smart shelves’’ that sense when a bottle orcase has been removed and can be programmed to reorder from the distributor ofthe product. Sealed cases can be stacked on low platforms until you need theircontents.Wine storage takes special care since wines are perishable and must be protectedfrom temperatures that are too high, too low, or fluctuating; vibration; sunlight;and excessive humidity, which causes mold to form around the foil cap. Winessurvive best in a cool, dark environment between 50*F and 70*F (0*C to 21*C),with the ideal temperature being a constant 55*F to 60*F, which is known as cellartemperature. Wines that get too warm can leak through their corks and the seepagecan stain or ruin the label. While high humidity is a problem low humidity (below55 percent) can dry the cork and allow air in.Move wines as little as possible and when you do handle them gently. Agitatinga wine may upset both its chemistry and its sediment, making it unservable untilthe sediment settles again. For this reason newly imported wines should rest for30 to 45 days before being served. However, since wines have limited life spans,rotating the stock becomes particularly important. Wine racks are the best placesto store wine but not everyone has the room or money to purchase them. You canstore wines on their sides or upside down in their sealed cases, but be careful notto stack them too high. More than five cases stacked on top of each other causestoo much pressure on the necks of the upside-down bottles and can cause themto break. Also, the sediment collects inside the bottle’s neck, sticking to the corkand making it difficult to extract when the wine is finally opened. Places not tostore wine? Near loading docks, the dishroom, the kitchen, air-conditioning andheating-exhaust ducts, and never under stairways.Beer has the most limited shelf life of all. Canned and bottled beers should bestored below 70*F (21*C) in a dark place and their pull dates should be checkedperiodically. Draft beers and some nonpasteurizedcanned or bottled beers should be kept refrigerated;ask your supplier about optimum storage conditionsfor these. Draft beer must be kept at an even 36*Fto 38*F (2.2*C to 3.3*C) and should be used within30 to 45 days. The best system of rotation has ahandy acronym, FIFO, which means first in, first out.For beer storage consider keg racks or dunnage racksas shown in Figure 13.9. Most breweries haveadopted pull-date systems, much like other perishablegoods, with a cutesy new name: the ‘‘born-ondate’’ (BOD). Anheuser-Busch uses the date that thebeer was packaged and states that its shelf life is ‘‘110days’’ after that. Other megabrewers list an expirationdate.

FIGURE 13.9 A keg-and-dunnage rack for beer storage.IMAGE(https://hotelmule.com/hmattachments/26_200910240639381ei27.jpg)As custodian of the storeroom contents the storeroommanager is responsibile for keeping track of thestock of each item at all times. This is an importantpart of any system because it helps to minimize pilferage.Some storerooms use a system of individualbin cards to log stock in and out. A card for each item is attached to the shelf wherethe item is stored. A typical bin card shows the brand name, bottle size, quantityon hand, and sometimes a bin number or code number. The amount of stockdelivered is immediately added to the quantity on hand, and the amount of stockissued for use is immediately subtracted from the quantity on hand. The numberof bottles shown on the bin card should always agree with the actual number ofbottles of that item. Spot-checking stock against bin cards helps to keep track ofinventory. The minimum and maximum stock levels may also be recorded on thebin cards, making it easy to be aware of purchasing needs. The cards are also aquick index to rate of use.ISSUING LIQUORWhen you consider that the inventory levels at a bar change every time a bartendermixes a drink, you understand how difficult it is to keep track of what you have,where it is, and when you sold it. Like the other key points in the purchasing cyclethe issue of stock as it passes from storeroom to bar must be correctly carried outand duly recorded, with a series of overlapping internal-tracking systems. The ideaitself is not complicated and neither are the systems. What is hard is getting everyoneto use them correctly, fill out the necessary paperwork, and turn it inpromptly.The document used to record the transfer of inventory from the storeroom to aspecific bar or outlet is a requisition form or issue slip (see Figure 13.10).

You might think of this as a sort of in-house purchase order, with the bar as the ‘‘buyer’’and the storeroom as the ‘‘supplier.’’ The bar lists the brand, size, and number ofbottles for each item required, with the date and the signature of the person requestingthe issue. The storeroom adds the cost and value information to completethe record, and the person issuing also signs. The person receiving the stock at thebar adds his or her signature to complete the transfer of responsibility. This meansat least two or three signatures must appear on the requisition form, and is animportant way of tracking who is handling the stock. Many bars require that thebottles emptied the previous day to be turned in with the requisition form. This isknown as the one-empty-for-one-full system. The empties are collected and therequisition form is made out at closing time, as noted in before. The managerdouble-checks the requisition form and the bartender’s bottle count to be sure thatthey agree. Both are turned in to the storeroom the following day by the openingbartender and replacement stock is issued. In this way the supply is automaticallymaintained at par-stock level. As an additional benefit the empty-bottle systemenables management to check the par stock at any time against the par-stock listto see if anything has disappeared. There should be a bottle for every bottle on thelist, whether that bottle is empty or full.FIGURE 13.10 REQUISITION FORMIMAGE(https://hotelmule.com/hmattachments/26_200910240639389Bwqg.jpg)

Some enterprises mark each bottle with an identifying stamp when it is issued.Then if an empty bottle comes back without a stamp you know that somebody isup to something.In multiple-bar operations each bar has its own par stock, which is requisitionedand issued separately. For public bars and service bars the one-empty-for-one-fullsystem works well, but a different system must be used in supplying liquor forone-time events, such as banquets and conventions. This is a common situation inhotels. In this case there are no empty bottles to replace and there is no specificpar stock. The brands and amounts are estimated in advance for each event basedon anticipated consumption, past experience, and a safety allowance, and are issuedto the person in charge of the event using a special requisition form. The personin charge has the responsibility for returning all bottles, empty or full, to the storeroomwhen the event is over. The liquor used, which is represented by the empties,is charged to the cost of the event and the remaining stock is integrated into thestoreroom inventory.Sometimes the supply system breaks down during an unexpected rush or anemergency. If the storeroom is closed liquor is likely to be borrowed by one barfrom another to prevent lost sales, and no one thinks to keep track. Eventuallyempties end up in the wrong place, the records are scrambled, and sooner or latersomething disappears. It is the manager’s responsibility to avoid such emergenciesand to keep the supply and record system on track.INVENTORYThe beverage inventory, which is the amount on hand at any given time, is ofcentral importance to the purchasing function. The buyer must be able to determineexactly what is immediately available and the rate at which it is being used in orderto make intelligent purchasing decisions. In addition to storeroom records othermeans of keeping track of total inventory are needed. There are two reasons forkeeping a constant check on inventory. One is to pinpoint losses quickly in orderto put a stop to them. This has to do with controls, a subject discussed more fullyin next article. The other reason has to do with purchasing. If you have lost stockdue to theft, breakage, or error, you must buy stock to replace it so that you canserve your customers. Therefore you need to know what you really have on handin order to plan each purchase.Physical InventoryThe only accurate way to know what you have on hand is to take a completephysical inventory, which means counting each bottle and keg on a regular basis.Ideally you will perform a physical inventory weekly and again at the end of theaccounting period. If possible the inventory should be taken by persons who donot buy liquor or handle it on the job. As a double-check it is best to have twopeople working together, one counting and the other writing down the count. Withthe growing popularity of RFID technology at least some of this process can beautomated and computerized. No matter which system is used both people mustinitial or approve the results as they are completed. The inventory record shouldfollow the arrangement of the storeroom, grouping items by category, within categories by brand, and within brand by size. Figure 13.12 shows a sample inventoryform.

FIGURE 13.11 A storeroom or wine cellar should have everything well labeled and neatly organized.IMAGE(https://hotelmule.com/hmattachments/26_20091024063938103dzE.jpg)FIGURE 13.12 PHYSICAL INVENTORY FORMIMAGE(https://hotelmule.com/hmattachments/26_200910240639387Y229.jpg)

The liquor at the bar is also part of inventory until it is sold, and it too iscounted in an end-of-the-month physical inventory. It is inventoried in the samemanner as the storeroom inventory except that there are opened bottles to becounted.The simplest way to measure the contents of opened bottles is to estimate eachbottle by sight and count the contents in tenths. Thus, a full bottle is 10/10, a halfbottle is 5/10, and an empty bottle is 0/10. This gives you an approximate amount,of course, but it is close enough. If you have a metered pouring system you havea very accurate way of counting. The system counts the drinks that it pours. Youmultiply the count by the size of the drink and compare this with what is left inthe partly used bottle. You have to count the liquor in each line from bottle todispensing head as part of the inventory. The manufacturer’s representative shouldgive you this capacity at the time that the equipment is installed.A bar owner or manager should conduct frequent audits of the actual inventoryat the bar (excluding the storeroom) at different times during the week or ondifferent shifts. The frequency depends on sales volume: the higher the volume,the shorter time periods between audits. As you’ll learn in next article, there aremany ways for employees to be tempted, and security is a very real concern. Themost powerful control tool you have is effective supervision.One tool to speed the inventory process is the bar-code scanner. Since practicallyevery item is labeled today with a Universal Product Code (UPC), a handheldmodel scanner can be used to scan each UPC label and instantly downloadits identity to a computer. A compatible scale can be used that is also able to readthe UPC label, compute the bottle’s total weight, subtract the tare weight (the weightof the identical bottle when empty), and the weight of the pourer if one is usedon this particular bottle. Automatically the scale calculates the net weight and convertsit to ounces. This method is precise enough to provide real cost controls fora manager. It is a computerized way to compare the volume of beverages the POSsystem says should have been used (based on sales) to actual usage (based on thebar-code scanner’s readings). No matter which method is used the inventory mustbe taken all at once, from start to finish, and it must be done when the bar isclosed so that nothing changes while the count is being taken. Weekly inventoriesof individual bars or the storeroom may supplement the overall end-of-the-monthcount.A depletion-allowance form (see Figure 13.13) should also be kept handy atthe bar each day to record any of the inventory that has been broken, spilled,transferred from one location to another (in large facilities), or given away as complementary beverages. Every bottle must be accounted for on a daily basis.FIGURE 13.13 DEPLETION ALLOWANCE FORMIMAGE(https://hotelmule.com/hmattachments/26_200910240639384leXb.jpg)

Perpetual Inventory. Another way of providing inventory information is to compileongoing daily records from invoices and requisitions, adding each day’s purchasesand subtracting each day’s issues for every item in stock. This task is typicallyperformed by the accounting department and the results are known as a perpetualinventory. It is recorded by hand on a form (see Figure 13.14), a bin card (aseparate card for each item), or by computer, which can report the stock record atany given moment with pushbutton ease. At any point in time the perpetual inventoryis a paper record that should indicate exact quantities of every item thatyou have on hand. It does not tell you what you really have; only a physicalinventory can do that. A perpetual inventory’s primary function is to provide astandard against which a physical count can be measured item for item at any giventime. If everything is in order the two inventories should agree. If separate recordsare kept on bin cards they should also agree: They, too, are a form of perpetualinventory.Figure 13.14 PERPETUAL INVENTORY FORMIMAGE(https://hotelmule.com/hmattachments/26_200910240639386dAYX.jpg)

The more inventory you have the more important it is that a perpetual inventorybe kept. Since it should also clearly reveal a product’s depletion rate it has theadded benefit of making the ordering process more accurate. It also greatly assistsin detecting employee theft. Finally it assists you in meeting your state’s licensingrequirements to maintain accurate records of the bar’s alcohol purchases.If the actual count and the perpetual inventory record do not agree, you arefaced with determining whether there are errors in the records or the count, or theitems themselves have disappeared. You can trace errors in the record by goingback to the invoices and requisitions, and you can trace errors in the count byrecounting. If you cannot find any mistakes you may as well assume theft andadjust your perpetual-inventory record accordingly. (Other ways of measuring discrepanciesthat are accurate enough for everyday use will be examined in next article)Overall the most critical reason for a good inventory management system isthis: If you do not have a way of knowing where you ought to be you cannotmeasure where you are now.Determining Inventory Value, Bar Cost, and Inventory Turnover Rate. When youhave completed a physical inventory for an accounting period you must determinethe dollar value of the total stock. To do this begin by entering the unit cost ofeach item on the physical inventory form on which you have recorded the count(refer to Figure 13.12).The next step is to multiply the unit cost by the number of units to find thedollar value of the stock for each item. Enter each total on the form in the lastcolumn. Totaling the values of all the items then gives you the value of your entireinventory. This number is known as the ending (closing) inventory for the accountingperiod. The same number becomes the beginning (opening) inventoryfor the next accounting period. Now you can use this figure to determine the valueof all of the liquor used to produce your sales for the period, which is your beveragecost. Here is the way to do it:To: Value of beginning inventory (BI)Add: Value of all purchases made during period (P)Equals: Value of total liquor available during periodSubtract: Value of ending inventory (El)Equals: Value of total liquor used during period, or cost (C)This calculation in equation form is as follows:                    BI + P - EI = CFor example:                    BI   $1,245.16                    +P   $5,015.16                     =   $6,260.32                    -EI  $1,010.00                    =C   $5,250.32The dollar cost for liquor used in a given period is usually expressed as a percentageof the sales for the same period. To determine this percentage, you dividecost by sales:                     C / S = C%For example:    Cost (C) $5,250.32 / Sales (S) $28,720.50 = .1829 or 18.3%This percentage is often referred to simply as bar cost. (We will discuss someuses of this figure in next article.)

The third step is to request a credit memo for any discrepancies between theorder memo and the invoice or the delivery itself. The credit memo includes itemsinvoiced but not delivered, items invoiced and delivered that were not ordered,wrong merchandise (sizes, brands), items refused (overage beer, broken bottles,missing stamps, swollen beer cans), wrong prices, and math errors. At this pointthe credit memo is usually a notation right on the invoice showing the item, problem,and amount, but it might be a separate credit slip on which the invoice dateand number are written. In either case the credit memo must be initialed or signedby the deliveryperson, and it too must be checked for accuracy. Only when everythinghas been checked, settled, and initialed does the receiving agent acceptdelivery by signing two copies of the invoice, one for you and one for the purveyor.The purveyor will follow up the credit notation or memo with a confirmationthat includes the invoice date and number (see Figure 13.7). A large organizationmay require the storeroom manager to repeat the check of merchandise using anotherinvoice copy. When the storeroom manager signs for the beverages he or sheaccepts responsibility for them from the receiving agent. The beverages remain inthe store room until they are requisitioned for bar use. The careful checking ofdeliveries has a double purpose: It is one-part protection against the purveyor’serrors and one-part security against pilferage. Receiving a verified delivery is thefirst checkpoint along the system of controls that should follow your beveragesfrom the time they enter your doors until they are poured at your bar and paidfor by your customers.FIGURE 13.7 This credit memo form serves as an order confirmation.IMAGE(https://hotelmule.com/hmattachments/26_200910240639383kuwh.jpg)STORAGEThe storeroom is the setting for the third phase of the purchasing cycle. This areaperforms three functions: security from theft, the physical care to maintain quality,and inventory maintenance and record-keeping. Computerized ordering has madeit easier for bars and restaurants to order smaller amounts of goods more frequently,which may minimize the sizes of storage areas—but nothing will ever completelyeliminate the need for storage.

The first essential step to running an effective storeroom is to limit access: Makethe room off limits except for specific, authorized personnel. Anyone withdrawingbeverages does not enter the room; they must request what is needed from thestoreroom staff or whoever has responsibility in a small operation. When open, theroom must never be left unattended. If the person in charge must leave, even briefly,the door must be locked. This should be a substantial door with a deadbolt lockand only two sets of keys, one for the storeroom manager and one for emergencies,which is kept in the safe. Or it might have a combination lock that can be resetfrequently, with only two people knowing the combination. If keys are used thelocks should be changed often in case someone makes duplicate keys. Locks shouldalways be changed when someone who has had keys leaves your employment.Windows should be barred or covered with barbed wire. Alarm systems arefrequently used to protect against off-hour break-ins. Some of these systems dependon light or noise to scare away intruders or summon help; others alert police or aprivate security system directly.An orderly storeroom is both a security measure and a necessity for efficientoperation. It should be divided into areas, each designed to stock a particular typeof liquor. Each of these areas should be subdivided and clearly labeled so that eachbrand has a specially marked place. This also holds true for ancillary items, fromcocktail napkins, to Champagne. A sample layout is pictured in Figure 13.8. Wheneverything is systematically in place, anything amiss is soon noticed. Opened casesshould be emptied immediately, their contents shelved, and the stock should berotated so that the older bottles are in front.FIGURE 13.8 A sample layout of a liquor storeroom.IMAGE(https://hotelmule.com/hmattachments/26_200910240639385aU8Z.gif)

Never leave a case half empty; flatten empty cases and remove them promptly.It could be easy to steal hidden bottles along with the trash. Shelving should bemade of wire, heavy, and well braced because liquor is heavy. Select shelf units thatare easy to assemble and add to, and that can be fitted with casters so they canroll. Technology now allows so-called ‘‘smart shelves’’ that sense when a bottle orcase has been removed and can be programmed to reorder from the distributor ofthe product. Sealed cases can be stacked on low platforms until you need theircontents.Wine storage takes special care since wines are perishable and must be protectedfrom temperatures that are too high, too low, or fluctuating; vibration; sunlight;and excessive humidity, which causes mold to form around the foil cap. Winessurvive best in a cool, dark environment between 50*F and 70*F (0*C to 21*C),with the ideal temperature being a constant 55*F to 60*F, which is known as cellartemperature. Wines that get too warm can leak through their corks and the seepagecan stain or ruin the label. While high humidity is a problem low humidity (below55 percent) can dry the cork and allow air in.Move wines as little as possible and when you do handle them gently. Agitatinga wine may upset both its chemistry and its sediment, making it unservable untilthe sediment settles again. For this reason newly imported wines should rest for30 to 45 days before being served. However, since wines have limited life spans,rotating the stock becomes particularly important. Wine racks are the best placesto store wine but not everyone has the room or money to purchase them. You canstore wines on their sides or upside down in their sealed cases, but be careful notto stack them too high. More than five cases stacked on top of each other causestoo much pressure on the necks of the upside-down bottles and can cause themto break. Also, the sediment collects inside the bottle’s neck, sticking to the corkand making it difficult to extract when the wine is finally opened. Places not tostore wine? Near loading docks, the dishroom, the kitchen, air-conditioning andheating-exhaust ducts, and never under stairways.Beer has the most limited shelf life of all. Canned and bottled beers should bestored below 70*F (21*C) in a dark place and their pull dates should be checkedperiodically. Draft beers and some nonpasteurizedcanned or bottled beers should be kept refrigerated;ask your supplier about optimum storage conditionsfor these. Draft beer must be kept at an even 36*Fto 38*F (2.2*C to 3.3*C) and should be used within30 to 45 days. The best system of rotation has ahandy acronym, FIFO, which means first in, first out.For beer storage consider keg racks or dunnage racksas shown in Figure 13.9. Most breweries haveadopted pull-date systems, much like other perishablegoods, with a cutesy new name: the ‘‘born-ondate’’ (BOD). Anheuser-Busch uses the date that thebeer was packaged and states that its shelf life is ‘‘110days’’ after that. Other megabrewers list an expirationdate.

FIGURE 13.9 A keg-and-dunnage rack for beer storage.IMAGE(https://hotelmule.com/hmattachments/26_200910240639381ei27.jpg)As custodian of the storeroom contents the storeroommanager is responsibile for keeping track of thestock of each item at all times. This is an importantpart of any system because it helps to minimize pilferage.Some storerooms use a system of individualbin cards to log stock in and out. A card for each item is attached to the shelf wherethe item is stored. A typical bin card shows the brand name, bottle size, quantityon hand, and sometimes a bin number or code number. The amount of stockdelivered is immediately added to the quantity on hand, and the amount of stockissued for use is immediately subtracted from the quantity on hand. The numberof bottles shown on the bin card should always agree with the actual number ofbottles of that item. Spot-checking stock against bin cards helps to keep track ofinventory. The minimum and maximum stock levels may also be recorded on thebin cards, making it easy to be aware of purchasing needs. The cards are also aquick index to rate of use.ISSUING LIQUORWhen you consider that the inventory levels at a bar change every time a bartendermixes a drink, you understand how difficult it is to keep track of what you have,where it is, and when you sold it. Like the other key points in the purchasing cyclethe issue of stock as it passes from storeroom to bar must be correctly carried outand duly recorded, with a series of overlapping internal-tracking systems. The ideaitself is not complicated and neither are the systems. What is hard is getting everyoneto use them correctly, fill out the necessary paperwork, and turn it inpromptly.The document used to record the transfer of inventory from the storeroom to aspecific bar or outlet is a requisition form or issue slip (see Figure 13.10).

You might think of this as a sort of in-house purchase order, with the bar as the ‘‘buyer’’and the storeroom as the ‘‘supplier.’’ The bar lists the brand, size, and number ofbottles for each item required, with the date and the signature of the person requestingthe issue. The storeroom adds the cost and value information to completethe record, and the person issuing also signs. The person receiving the stock at thebar adds his or her signature to complete the transfer of responsibility. This meansat least two or three signatures must appear on the requisition form, and is animportant way of tracking who is handling the stock. Many bars require that thebottles emptied the previous day to be turned in with the requisition form. This isknown as the one-empty-for-one-full system. The empties are collected and therequisition form is made out at closing time, as noted in before. The managerdouble-checks the requisition form and the bartender’s bottle count to be sure thatthey agree. Both are turned in to the storeroom the following day by the openingbartender and replacement stock is issued. In this way the supply is automaticallymaintained at par-stock level. As an additional benefit the empty-bottle systemenables management to check the par stock at any time against the par-stock listto see if anything has disappeared. There should be a bottle for every bottle on thelist, whether that bottle is empty or full.FIGURE 13.10 REQUISITION FORMIMAGE(https://hotelmule.com/hmattachments/26_200910240639389Bwqg.jpg)

Some enterprises mark each bottle with an identifying stamp when it is issued.Then if an empty bottle comes back without a stamp you know that somebody isup to something.In multiple-bar operations each bar has its own par stock, which is requisitionedand issued separately. For public bars and service bars the one-empty-for-one-fullsystem works well, but a different system must be used in supplying liquor forone-time events, such as banquets and conventions. This is a common situation inhotels. In this case there are no empty bottles to replace and there is no specificpar stock. The brands and amounts are estimated in advance for each event basedon anticipated consumption, past experience, and a safety allowance, and are issuedto the person in charge of the event using a special requisition form. The personin charge has the responsibility for returning all bottles, empty or full, to the storeroomwhen the event is over. The liquor used, which is represented by the empties,is charged to the cost of the event and the remaining stock is integrated into thestoreroom inventory.Sometimes the supply system breaks down during an unexpected rush or anemergency. If the storeroom is closed liquor is likely to be borrowed by one barfrom another to prevent lost sales, and no one thinks to keep track. Eventuallyempties end up in the wrong place, the records are scrambled, and sooner or latersomething disappears. It is the manager’s responsibility to avoid such emergenciesand to keep the supply and record system on track.INVENTORYThe beverage inventory, which is the amount on hand at any given time, is ofcentral importance to the purchasing function. The buyer must be able to determineexactly what is immediately available and the rate at which it is being used in orderto make intelligent purchasing decisions. In addition to storeroom records othermeans of keeping track of total inventory are needed. There are two reasons forkeeping a constant check on inventory. One is to pinpoint losses quickly in orderto put a stop to them. This has to do with controls, a subject discussed more fullyin next article. The other reason has to do with purchasing. If you have lost stockdue to theft, breakage, or error, you must buy stock to replace it so that you canserve your customers. Therefore you need to know what you really have on handin order to plan each purchase.Physical InventoryThe only accurate way to know what you have on hand is to take a completephysical inventory, which means counting each bottle and keg on a regular basis.Ideally you will perform a physical inventory weekly and again at the end of theaccounting period. If possible the inventory should be taken by persons who donot buy liquor or handle it on the job. As a double-check it is best to have twopeople working together, one counting and the other writing down the count. Withthe growing popularity of RFID technology at least some of this process can beautomated and computerized. No matter which system is used both people mustinitial or approve the results as they are completed. The inventory record shouldfollow the arrangement of the storeroom, grouping items by category, within categories by brand, and within brand by size. Figure 13.12 shows a sample inventoryform.

FIGURE 13.11 A storeroom or wine cellar should have everything well labeled and neatly organized.IMAGE(https://hotelmule.com/hmattachments/26_20091024063938103dzE.jpg)FIGURE 13.12 PHYSICAL INVENTORY FORMIMAGE(https://hotelmule.com/hmattachments/26_200910240639387Y229.jpg)

The more inventory you have the more important it is that a perpetual inventorybe kept. Since it should also clearly reveal a product’s depletion rate it has theadded benefit of making the ordering process more accurate. It also greatly assistsin detecting employee theft. Finally it assists you in meeting your state’s licensingrequirements to maintain accurate records of the bar’s alcohol purchases.If the actual count and the perpetual inventory record do not agree, you arefaced with determining whether there are errors in the records or the count, or theitems themselves have disappeared. You can trace errors in the record by goingback to the invoices and requisitions, and you can trace errors in the count byrecounting. If you cannot find any mistakes you may as well assume theft andadjust your perpetual-inventory record accordingly. (Other ways of measuring discrepanciesthat are accurate enough for everyday use will be examined in next article)Overall the most critical reason for a good inventory management system isthis: If you do not have a way of knowing where you ought to be you cannotmeasure where you are now.Determining Inventory Value, Bar Cost, and Inventory Turnover Rate. When youhave completed a physical inventory for an accounting period you must determinethe dollar value of the total stock. To do this begin by entering the unit cost ofeach item on the physical inventory form on which you have recorded the count(refer to Figure 13.12).The next step is to multiply the unit cost by the number of units to find thedollar value of the stock for each item. Enter each total on the form in the lastcolumn. Totaling the values of all the items then gives you the value of your entireinventory. This number is known as the ending (closing) inventory for the accountingperiod. The same number becomes the beginning (opening) inventoryfor the next accounting period. Now you can use this figure to determine the valueof all of the liquor used to produce your sales for the period, which is your beveragecost. Here is the way to do it:To: Value of beginning inventory (BI)Add: Value of all purchases made during period (P)Equals: Value of total liquor available during periodSubtract: Value of ending inventory (El)Equals: Value of total liquor used during period, or cost (C)This calculation in equation form is as follows:                    BI + P - EI = CFor example:                    BI   $1,245.16                    +P   $5,015.16                     =   $6,260.32                    -EI  $1,010.00                    =C   $5,250.32The dollar cost for liquor used in a given period is usually expressed as a percentageof the sales for the same period. To determine this percentage, you dividecost by sales:                     C / S = C%For example:    Cost (C) $5,250.32 / Sales (S) $28,720.50 = .1829 or 18.3%This percentage is often referred to simply as bar cost. (We will discuss someuses of this figure in next article.)

The liquor at the bar is also part of inventory until it is sold, and it too iscounted in an end-of-the-month physical inventory. It is inventoried in the samemanner as the storeroom inventory except that there are opened bottles to becounted.The simplest way to measure the contents of opened bottles is to estimate eachbottle by sight and count the contents in tenths. Thus, a full bottle is 10/10, a halfbottle is 5/10, and an empty bottle is 0/10. This gives you an approximate amount,of course, but it is close enough. If you have a metered pouring system you havea very accurate way of counting. The system counts the drinks that it pours. Youmultiply the count by the size of the drink and compare this with what is left inthe partly used bottle. You have to count the liquor in each line from bottle todispensing head as part of the inventory. The manufacturer’s representative shouldgive you this capacity at the time that the equipment is installed.A bar owner or manager should conduct frequent audits of the actual inventoryat the bar (excluding the storeroom) at different times during the week or ondifferent shifts. The frequency depends on sales volume: the higher the volume,the shorter time periods between audits. As you’ll learn in next article, there aremany ways for employees to be tempted, and security is a very real concern. Themost powerful control tool you have is effective supervision.One tool to speed the inventory process is the bar-code scanner. Since practicallyevery item is labeled today with a Universal Product Code (UPC), a handheldmodel scanner can be used to scan each UPC label and instantly downloadits identity to a computer. A compatible scale can be used that is also able to readthe UPC label, compute the bottle’s total weight, subtract the tare weight (the weightof the identical bottle when empty), and the weight of the pourer if one is usedon this particular bottle. Automatically the scale calculates the net weight and convertsit to ounces. This method is precise enough to provide real cost controls fora manager. It is a computerized way to compare the volume of beverages the POSsystem says should have been used (based on sales) to actual usage (based on thebar-code scanner’s readings). No matter which method is used the inventory mustbe taken all at once, from start to finish, and it must be done when the bar isclosed so that nothing changes while the count is being taken. Weekly inventoriesof individual bars or the storeroom may supplement the overall end-of-the-monthcount.A depletion-allowance form (see Figure 13.13) should also be kept handy atthe bar each day to record any of the inventory that has been broken, spilled,transferred from one location to another (in large facilities), or given away as complementary beverages. Every bottle must be accounted for on a daily basis.FIGURE 13.13 DEPLETION ALLOWANCE FORMIMAGE(https://hotelmule.com/hmattachments/26_200910240639384leXb.jpg)

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