BeverageCapital

Why Selling More Drinks is the Best Way to Offset Rising Restaurant Costs

Every business faces the issue of rising costs. It seems like vendors are constantly raising prices to adjust for economic changes, but rarely drop them back down. Fuel surcharges appear on delivery invoices when gas prices are high, but rarely seem to disappear. Lease renewals almost always come with incremental increases in rent. In fact, a major Catch 22 can be that by adding vibrancy and economic activity to a neighborhood, our businesses can actually contribute to raising property values which then comes back to haunt us as rent balloons.  

Selling more drinks is one of the easiest ways to offset this cost. But first, let’s look at some of the drawbacks and other ways to offset costs.

Increasing prices is a tricky game to play, especially if you are an established venue with a lot of returning guests. People have expectations and will definitely notice when the same meal they ate last week is suddenly more expensive. Even if you rely mostly on new guests, raising prices is tricky, and you have to take into account the other options available to your guests. At the end of the day, figuring out whether the increased revenue per item will outweigh the loss of sales is always a guessing game, and unfortunately, if you are wrong, the damage has already been done, and your image may not recover even if you run specials or even revert to your old pricing.

Increasing traffic sounds great, but again, the cost-benefit analysis is often a guessing game. Is advertising or hiring a PR firm worth it? It may very well be, but the up front cost can be prohibitive and is a risk that is hard to measure against the possible rewards with any certainty.

Decreasing costs is always a great option. As far as prime costs go, there are two sides, labor and cost of goods. Decreasing labor cost is great if you can do so without sacrificing service. But at what point does cutting an extra hour of labor risk you giving bad service, missing sales opportunities, or running out of a product because you weren’t adequately prepped for a busy night? Cutting cost of goods is great but if you rely on repeat business, people will notice if quality starts to suffer to save a few pennies.

So it would seem that increasing sales to your existing guests is the best route to offset increasing cost. So why not increase food sales?

First of all, people tend to eat a finite amount when they go out. Yes, you can upsell appetizers or desserts, but if people fill up on appetizers, you miss losing out on a higher priced entrée or higher margin dessert sale.

Second, the labor and cost of goods involved in selling more food are higher than in selling more drinks. If you dramatically increase your food sales, you not only need an extra line cook (paid a higher base wage than a FOH employee), you may also need another dishwasher and prep cook. Second, food cost is generally already higher than labor cost, and most food items are more perishable than beverage items, both when they enter your restaurant and when they are prepped. More perishable product in house means more risk of waste. On top of that, if you are already a busy restaurant, selling dessert may actually cost you money. A guest eating dessert stays at their table longer, and a new guest ordering appetizers, cocktails, and entrees would likely be spending more money during that time.

On the other hand, selling drinks is a higher reward with a lower risk. If given the opportunity, most people can handle a second and even a third drink during their meal. Also, unless the increase is drastic, your existing bar staff can most likely handle the increased volume, and the same server that is already attending to the table can sell and deliver the drinks. Margins tend to be slightly higher on beverage than food. An extra drink can be sold in between courses, while a person is waiting for food or while they are finishing their entrees or dessert; meaning you’re increasing sales without increasing the time a guest is utilizing your space. Last, but certainly not least, most beer, wine and spirits are fairly shelf stable compared to food products when properly rotated, handled and stored, meaning preparing to sell more carries less of a risk of waste. Even if the volume does become too much for your current bar or service staff to handle, putting an extra server or bartender on the floor for a few hours is far less costly than adding a skilled line cook to your staff.

With the right bar menu and using Tipzyy, a training platform that educates and motivates your staff to sell drinks and other high margin products; you can increase your top line sales to offset the ever increasing rise in costs that restaurants are experiencing. 

 

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