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Restaurateurs: Boost Profitability by Building an Integrated Beverage Program


10/10/14

It would be incongruent to offer wild combinations of ingredients on cocktail lists that do not fit the menu – such as a lychee martini on a menu that consists of Italian dishes like spaghetti and meatballs. Rather, offering Italian wines on an Italian menu better aligns with a complementary food and beverage menu.

Beverages account for 30 – 45% of a restaurant’s total sales on average and generally yield a higher percentage of profit compared to food sales. A smart beverage program is undeniably important to the profitability of a restaurant business. With that in mind, a beverage program should be clearly aligned with the food and concept of the business – that is, beverage options must be consciously integrated into the concept of the restaurant. CohnReznick recommends that restaurateurs harmonize the selection of beverages with the chef’s menu to effectively yield higher profit and success.

Implement a Beverage Program that Aligns with Your Business Concept

How can restaurateurs implement a beverage program that aligns with their business concept? Nick Mautone, a consultant with CohnReznick’s Hospitality Industry Practice, recommends the following strategic steps to create an integrated beverage program:

  1. Address fundamental questions that generate a clear understanding of the concept of the business, analyzes the competition, and develops insight into the needs of the current market.
  2. Establish criteria for selecting beverages to include in the program.
  3. Create a sales program and pricing for the beverage program.
  4. Develop an inventory management program to closely monitor the results of the program.
     

Look Inside: Conduct an Interview of the Business

Developing a beverage program begins by conducting an internal interview. Why? An interview can result in a clearer articulation of the business concept, including how the concept compares to the competition and how responsive it is to the current market. Critical areas to address and questions to ask during the interview include:

Categorizing the business. First and foremost, define the business: is it quick service, pub grub, smart-casual, or fine dining (among others)? There is a different approach to each concept and ensuring that the business and its team fully understand the desired concept is paramount to success. By clearly knowing, articulating, understanding and believing in the concept, restaurateurs can incorporate beers, wines, cocktails, and spirits to complement the food menu.

Knowing the competition. What is the competition selling? Is the competition selling desirable beverages? How do they do what they do? How can the restaurateur do better? Does the restaurateur want to compete on price or selection? Is the restaurateur trying to compare favorably with or contrast against its neighbors? All of these questions are relevant and answering them in advance is advantageous to building a solid beverage program. Doing so provides a solid footing for the program. It creates a baseline philosophy that can be adapted to the tastes of the guests and changes in the menu. At the opening of a restaurant, it is necessary to stand out from the competition. Answering the above questions and following through on the answers will present the opportunity to shine.

“Paying attention to what is happening in the marketplace can greatly influence a beverage program. For example, craft beers are very popular. It is important to ask, ‘Are we doing a good job of rotating them into our program?’ You don’t always need to be a trendsetter, but be aware of what consumers want today and meet those demands.” - Gary Levy, Partner and CohnReznick Hospitality Industry Practice Leader

Understanding the existing market. What does the neighborhood need? Is the restaurateur creating a niche that the community is missing, or fitting in with a current trend that is performing well? In essence, it is important to understand how the restaurateur’s concept connects with the community in which it is focused. For example, does the community need more craft spirits and local beers, or more familiar items? CohnReznick recommends analyzing how to differentiate the menu. “I generally recommend avoiding items sold in big box stores,” says Mautone. “It is difficult to compete item for item against those retail items that are heavily discounted and promoted.” In addition, there is often tension between what a business wants to sell and what the guests think they want to buy, but restaurateurs should not fight the clientele, says Mautone. “What does your audience want? For example, if your clientele is looking for a juicy California chardonnay that they can get anywhere, find a comparable item that you can price for profit and at the same time will create a hook to keep the guest coming back for more,” suggests Mautone.

Create the Beverage List: What Makes the Cut?

After addressing the issues discussed above, how does a business formulate its integrated beverage program? More specifically – how do restaurateurs determine which wines or beers to include on its menu? Mautone outlines three necessary criteria that any bottle of wine or beer should meet in order to be included on the menu:

  • The beverage must be delicious.
  • The beverage must be a condiment for the food being served.
  • The beverage must be a value for the guest.
     

The trend of mixology and the rebirth of the classic and signature cocktail program are also quickly advancing. Similar to inclusion criteria for beer or wine, the same must be determined for cocktails. Mautone proposes a method referred to as “40-30-30.” In this method, the first 40% of cocktails should be built for speed. “If a bartender cannot make it, staff cannot sell it,” says Mautone. These are easy to produce cocktails that offer a back pocket sale for the staff to push during busy times. Beyond that, 30% of the cocktails should be more interesting to attract new clientele. “These cocktails might use more interesting ingredients and techniques and could be slightly more time consuming to produce, however, they offer a fresh hook to keep the guest coming back.” The remaining 30% of cocktails should be for marketing purposes. Mautone elaborates, “These are items that could attract press, positive reviews, and high-end clientele. They are attractive to those guests looking to trade up and experience something new and different.” Often, the final 30% is focused on seasonal ingredients and frequently use more expensive ingredients, such as high-end bourbons or gins. They may include products the chef has prepared, such as roasted tomato chips for a garnish, taking on added dimension that sets them apart.

Develop a Sales Program and Price Beverages for Profit

With a beverage list determined, creating and monitoring an effective sales program is the next step. Of most importance, says Mautone, is the training of staff. “Knowledge is power, and knowledge equals sales,” says Mautone. “If the staff knows the product, they can recommend it with confidence.” In addition, Mautone advises that restaurateurs should train staff by breaking the beverage program into parts and categories. For example, if there is a good wine program, sit with the staff and taste all wines from one region, such as Italy. Guide staff through maps of the regions and country, talk to them about the common tastes and profiles of the wines. In this way, the staff will be able to communicate more effectively. While incentive programs may be employed to motivate staff, CohnReznick recommends a primary focus on education – a training program that is consistent and regular to ensure vibrant sales. Staff should be trained to continuously suggest any and every item of the business. “The guest wants to be sold and wants recommendations from staff in order to experience something special,” Mautone contents. “The power of suggestion should not be underestimated. Train staff to be aggressive with sales without being pushy, not stopping until the guest gives a ‘yes’ or after all possibilities have been exhausted.”

Pricing products should be determined using three criteria:

  • What is fair to the consumer?
  • What is fair to the business?
  • What will the market will bear?
     

Balancing the above questions will result in a greater likelihood of strong sales and turnover of inventory. As there are no profits if a product does not move, Mautone advises focusing on gross margin over percentage when pricing, with an objective being to turn over inventory and build cash flow. The other objective is to price inventory to move while continuing to maintain profitability for the business. A standard rule of thumb is to price a wine bottle at 30% of cost of goods. Therefore, a bottle that costs $10 is sold to the guest at approximately $30. It may even be preferable to price the bottle at approximately $25 so as to bolster the value to the guest and move inventory while providing a fair profit to the business. CohnReznick also recommends evaluating whether it makes sense to employ a sliding scale on wines. This entails making a lower percentage on higher priced wines, while making a higher gross margin than on a lower priced wine. Conversely, for lower priced wines, a greater percentage can be made with less gross margin.

Maintain Momentum: Implement Inventory Management

Once a beverage program has been selected, implemented, and priced to sell, how can the business maintain the program successfully? The answer is simple – inventory management. Taking regular inventories will ensure the integrity of a program. By knowing the restaurant’s inventory levels, what is being held in storage and what is moving more regularly, the business can ensure a tight inventory and more positive cash flow. There are many systems available to assist with inventory management. CohnReznick suggests performing inventory counts regularly, whether monthly or weekly, and taking regular flash inventories of strong sellers. Keeping inventory tight and flexible will ensure positive cash flow while not tying up money in bloated inventory (as bulk discounts have little impact if the product sits on the shelf).

Leave a Lasting Impression: Create Hooks and Raves

By regularly speaking with guests to understand what they are looking to buy, a business will be able to create new hooks and raves that keep guests coming back for more. There are many avenues by which to keep guests intrigued about the business’ concept. For instance, hooks can be created through wine by the glass, cocktails, craft/local beer and by virtue of changes on the menu – namely, refreshing a beverage program at least seasonally to avoid programs from becoming stale when they’ve been stagnant for extended periods of time. Doing so will provide the guest with a fresh experience while still being hooked on the concept; similarly, it will also keep staff motivated and excited about the restaurant concept – a winning formula for enhancing profitability and success.

What Does CohnReznick Think?
Strong beverage programs are a must if a restaurant is going to compete and stay relevant in today’s marketplace. Structured properly, a beverage program should contribute greatly to the restaurant’s brand, and, moreover, profitability.

Contact

For more information, please contact Gary Levy, Partner and Hospitality Industry Practice Leader, at 646-254-7403, or Nick Mautone, Founder, Mautone Enterprises LLC, at 646-429-8552. To learn more about CohnReznick’s Hospitality Industry Practice, visit our webpage.


This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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