Practical Ways to Decrease Shrinkage

Practical Ways to Decrease Shrinkage

Bar and restaurant managers might have different tactics for running their businesses, but they all have a common enemy – shrinkage. Shrinkage, or product loss, greatly affects almost every establishment’s profits. In fact, the beverage auditing company Stock-Taker concluded that an average bar misses more than 25 percent of their liquor profits. The main causes of these shortages are theft, spillage, unauthorized free drinks, and overpouring. While focusing on inventory control management is likely the first thing you’ll do as a manager, it’s also best to improve your purchasing habits.

So how can you make sure that your purchases are helping reduce shrinkage?

First, avoid quantity discounts.

Discounts are hard to resist. On the surface, quantity discounts seem awesome because they give you a chance to earn more, right?
Well, that’s not really the case.
In reality, quantity discounts can cause shrinkage.
Let’s say a case of wine costs $200 and the distributor is offering a 2+ cases quantity discount. This means you’ll get 10% off each case when you buy two or more.
If you’re going to buy the promo, you’ll buy two cases for $360 (2 x $200 per case – 2 x $20 discount per case).
Rather than only spending $200, you will spend an additional $160 and get twice as much product. If there’s a 25% shrinkage, $40 (25%x160) of the additional products will be lost.
And because the $40 loss is equal to the discount you got, shrinkage takes away the cost benefits of the purchase. Not to mention the extra space and effort the additional product need.

Another easy way to decrease shrinkage is to prioritize reducing your sitting inventory.

Assume that you have $40,000 inventory and sell $10,000 worth of products every week. This means you have 4 weeks worth of sitting inventory. When you reduce it to $30,000 you’ll gain $10,00 and reduce shrinkage by $2,500 (25% x $10,000).

Spending too much money on excess inventory can affect your bar’s overall profitability. It will reduce your funds for other important expenses, such as rent and payroll. Also, a crowded storage room is difficult to track; you need to spend more time in monitoring your usage.
Remember that having too much product will only increase the risks of theft and breakage, both of which can drive up your shrinkage.
To sum up, you have to form the habit of buying the products your bar needs. By doing this, you will reduce your sitting inventory levels, increase your profits, and lower your product loss.