7 Wasteful Sins: How You're Losing Profit on Draft Beer Sales
If you've ever been to a block party with a few kegs of beer, you've seen the party host "shake the keg" to determine when it's time to tap another. This measurement process is good enough for the neighborhood, but no way to run a business in the age of technology and analytics. Yet, this is how many bar managers still manage their inventory; as if it is 1995.
Draft beer is often the highest-margin menu item and the situation results in pouring significant profit down the drain. Let's examine average waste at 20 percent per keg. On a 20-tap bar, this translates to 26,000 wasted pints per year. At $5 per pint, you're potentially looking at $130,000 in missed revenue annually.
Draft beer waste is impossible to manage when you don't know where or when it's occurring or the solutions available to help you better identify what's left in each keg - providing the data needed to make informed purchasing decisions on what to stock, what to serve, and how to price it.
The waste problem boils down to seven primary offenders:
Sin #1 - Free beer: (intentional) Giveaways and (unintentional) overpours
Free beer makes a customer feel good, special, and may indeed keep them coming back…for more free beer. Giveaways to friends and regulars can be intentional, but overpours are more of a sloppy oversight. Either way, your staff is pouring beer that is not being sold to customers, and it adds up - quickly - and this is a cost you are bearing Make sure bartenders know that you have a process for tracking draft beer, and that "poor pours" are being monitored. To provide incentive for accuracy, create shared goals among the bar staff for reducing waste - perhaps providing a bonus when numbers are reduced.
Sin #2 - Inventory Guesswork
Unless you know how much draft beer is leaving your kegs in real time, ounces poured versus ounces sold can vary widely from the reality. New technology innovations are helping bar and restaurant managers calculate draft beer profit with a high degree of accuracy in real time, but tips for keeping inventory waste at a minimum include:
Keep it Fresh. There is low-hanging fruit when it comes to reducing inventory waste: the most common mistake you can make is to assume the beer you have in stock is fresh. Once a keg is tapped, depending on the style, you have about five days before it goes bad. Bad beer is wasted beer, and the best way to prevent this is to track the delivery date and the date the keg was tapped.
Keep it Moving. Rotation, too, plays a key role in maximizing the inventory you have on hand. Your goal should be to move through all of the beer as quickly as possible, instead of replacing the fast movers with new kegs. After about five days, replace slower-moving beer as well, always rotating in a First In, First Out process.
Sin #3 - Unappealing tap lineups
A tremendous amount of research and evaluation goes into choosing the food menu selections, layout and presentation, yet many bar managers choose their beer selection at random or based on the recommendation of their various beer reps. Rather than guessing, you should take time to analyze the market, make decisions based on what is actually selling and understand that the right variety is vital.
Do you have the right variety? The ideal number of taps is somewhat up for debate; your patron demographics, the bar size, sales volume, season and local availability of styles play a role in how many you choose to offer. Depending on cooler space and bar layout, all draft programs can be optimized with the right amount of data to guide a retailer. As a general rule, having the right variety of between 12-18 taps provides enough selection for the different customer preferences.
Variety, though, is something you must get right: IPAs, for example, represent roughly 20 percent of craft sales and capitalizing on its popularity is a smart move. But that doesn't mean that 15 IPAs on draft is a good idea, as over representing a style erodes its value and confuses the customer, so a diverse list is best.
Sin #4 - Foam waste
We all know that too much foam is a bad thing - it's easy for the customer to recognize and it also contributes to waste. What causes foam?
Pressure. It's a balancing act, maintaining the proper temperature and right level of pressure once the keg has been tapped. The safest bet is to work with an experienced draught technician to determine the right gas blend and pressure.
Temperature. When kegs get too warm, excess carbon dioxide is released, causing foam to erupt and the beer to go sour and become cloudy. About 25 percent of foam is beer, so allowing foam to accumulate in the keg cheats you out of sellable product. Store beer at constant 38 degrees Fahrenheit. To prevent foaming once the beer leaves the keg, make sure the lines can maintain the same ideal 38-degree temperature.
Sin #5 - Non-competitive market pricing
With so many variables and new products on the market, pricing beer properly represents a big challenge for operators. Both ends of the extreme are to blame - from charging too much for premium crafts to charging too little for low-cost domestics.
Like every consumer product, each pint has an optimum price point - that price in which the most people are going to buy it at the highest profit value for the bar or restaurant owner. Charge too little for a beer and you might sell a lot of beer, but undercut your own profit. Or, in some cases, you might actually lose sales among consumers who perceive low price as low quality. Charge too much, and nobody will buy the beer.
Think about selling your beer by the ounce, not the glass. In doing so, you'll better maximize your profit per ounce. As an example, did you know the perfect price for a 16 oz. Blue Moon White Ale is $5.15? At that exact price point, a retailer will sell the most of that beer, on average, than when priced at $6 or even at $4.25. Surprised? Getting your pricing right is key to success…don't guess!
Sin #6 - Stale beer
Your bar is busy and beer is selling. What you don't notice are the two reject styles that are selling every now and then, but the bar is busy so you leave the rejects on tap to keep the variety. Instead of moving through all beers as quickly as possible - including the slow movers - you only replace the fastest movers with new kegs.
The problem? Beer is like milk - it has a finite shelf life. Once tapped, the beer begins to lose its freshness and, once it's stale, it becomes unsellable. Seasoned beer drinkers will be able to tell right away, sending beer back and contributing to waste.
Knowing what is selling in the first place will reduce the overall problem of stocking beer that no one wants - so invest in technology that helps you track real-time consumption and provides the ability to track consumption trends over time; you'll end up with an optimized cooler of beer that you know will move quickly and consistently.
Sin #7 - Untapping kegs that contain sellable beer
As with sin #6, untapping a keg too early occurs because bartenders don't know if-or how much--beer is left in the keg.
Traditionally, bartenders "shake the keg" to gauge how much beer is left - the same method used at fraternity parties. If you had 20 filet mignon cuts in a cooler, you would never pick up the covered tray without looking inside and assume that all the meat had hit the grill, potentially throwing away one or two steaks? Why, then, is this method accepted when it comes to draft beer?
The answer is that there has not been a better way to "look inside" a keg - and on busy nights, it's easier to simply give it a shake and move on.
How can you make sure the keg is empty before untapping? Today's technology innovations can track real-time keg levels and provides actionable insights, eliminating guesswork and helping you sell every last drop.
As with many things in life, you don't know what you don't know - and how to maximize you draft profit is no exception. In the next five years, the draft beer industry is poised for a fundamental shift in how beer is brewed, distributed and sold. You can either accept the inevitability of the forthcoming new standard of technology, or get left at the bottom of the barrel. Either way, a change is coming to make draft beer sales more efficient, and we can all toast to that.
Steve Hershberger is the co-founder and CEO of SteadyServ Technologies, a data-as-a-service company that delivers real-time performance intelligence on draft beer consumption and inventory. Prior SteadyServ, Hershberger co-founded and ran marketing agency Comblu, where he used his data analytics skills to build solutions that gave clients accurate metrics regarding word of mouth and ROI. An avid craft beer enthusiast, Hershberger also co-founded Indianapolis-based Flat12 Bierwerks in 2009.