When is loads of booze a bad thing?
An impossible thought, I know. The more the merrier, many people would say. Bartenders are, after all, competitive creatures, and one such measure on the mixology-o-meter is the number of rare and obscure liqueur and spirits on one’s back bar.
A fully loaded bar certainly does have its advantages. First off, it is an impressive sight; both inviting and daunting, a well lit wall of bottles gives a bar a certain charisma. And few bartenders can deny it feels good to thoughtfully twirl his (or even perhaps her) mustache and coyly ask a guest if he’s ever had such-and-such amaro when in all probability they have not, and then mix it into their next drink. Finally, there is the advantage of versatility; tastes and preferences vary wildly from person to person, and having access to a large arsenal of spirits and liqueurs allows you to cater to even the most finicky of individuals, or even perhaps update your menu at the drop of a hat.
But what is the cost of setting up a bar this way?
Obviously there is the cost of the bottles themselves, but that’s a straightforward calculation that doesn’t warrant much detail. Clearly, the more bottles you have, the more money you have to shell out when you first open a bar.
I can tell you that for a decently stocked bar the face value of your inventory can run up very quickly. For example, I have in my bar at The Ocean:
- 7 vodkas
- 8 gins
- 15 rum and sugarcane spirits
- 6 tequilas
- 11 american whiskies
- 2 Irish whiskies
- 4 Japanese whiskies
- 10 blended scotch
- 14 amaros and vermouths
- 14 single malt scotch
- 22 cognacs, brandies and eau de vies
- 6 absinthe and pastis
- 26 liqueurs and assorted modifiers
and that value of all that adds up to over HKD300,000, including back up bottles in my store room and things like beer, fruit and soft drinks, Now, most civilians would say that i already have plenty to offer in my bar, but believe me when I say the bartender in me would honestly love to increase the number of spirits by a good 20-30 labels or so. The only thing stopping me doing so is a lack of space and good business sense.
Because at the end of the day, what is a bar?
It’s a business.
And in a business, any money that is spent to acquire something must be treated as an investment. As any investment banker (of which there are plenty here in Hong Kong) will tell you, it’s not enough to say “If I spend X amount of money on this label, and sell it for $Y per glass, I can make $Z in return”, you also have to ask; “How soon can I make that Z dollars?”
Let’s say for example we’re comparing the investment in your basic house pour gin and a luxury cognac. As is fairly standard in the industry, house pours tend to have a generous percentage margin, while premium products tend to be sold on thinner percentage margins, but even so these premium spirits usually earn more dollar profit for each glass sold. But to return to our previous point, in what kind of time frame will you see that profit? In a busy bar, I could be going through anywhere from three to seven bottles of gin a week, while I would be lucky to sell 3-4 glasses of cognac a month. At that kind of rate, even though I earn more money in total from the bottle of coganc on my shelf, It would take me close to a year to see the entirety of that profit, whereas I can make several times that amount with my gin in 30 days.
This brings me to my next point, which is buying on credit. If you’ve spent any time purchasing for your bar, you may have heard that the accountants always prefer to buy on credit. Just in case you’re not familiar with that term, what it means is that you can purchase something, receive the goods immediately, and then settle all your bills with the vendor at the end of a certain time frame, usually 30 days after purchase, in our industry. (90 days in my last job in fashion and textiles, and several years when you start talking about heavy machinery and aircraft)
Credit accounts, for the most part are a safety net, but also a means to multiply your money. What do I mean by that? Let’s run through two hypothetical scenarios; one where I only handle cash, and one where I purchase through credit accounts. In either situation, the initial cash on hand, the investment in the bar, and the sales and purchasing quantities are the same, the only difference is the way payments are handled.
- I have 50,000 cash in the bank.
- I purchase 10,000 worth of inventory, of assorted spirits to start my bar. Bank Balance: 40,000
- Of my inventory, the basic items sell well, while a lot sit on the back bar. 3,000 dollars worth of inventory is sold, and I get 12,000 revenue. Bank Balance: 52,000
- I reorder my inventory, 3000 dollars. Bank Balance 49,000
- Again 3000 dollars of inventory is sold, netting 12,000 revenue. Bank Balance 61,000
- At the end of the month, I pay my bills and reorder inventory. Rent and Salary: 20,000, inventory 3000. Bank Balance: 38,000
- I have 50,000 cash in the bank.
- I purchase 10,000 worth of inventory, of assorted spirits to start my bar, all on credit. Bank Balance: 50,000
- Of my inventory, the basic items sell well, while a lot sit on the back bar. 3,000 dollars worth of inventory is sold, and I get 12,000 revenue. Bank Balance: 62,000
- I reorder my inventory, 3000 dollars. Bank Balance 62,000
- Again 3000 dollars of inventory is sold, netting 12,000 revenue. Bank Balance 74,000
- At the end of the month, I pay my bills and settle accounts with vendors. Because its the end of the month, my reorder of inventory will be accounted in next month’s statement. Rent and Salary: 20,000, outstanding vendor bills (also known as accounts payable) 13000. Bank Balance: 41,000
If you have a keen eye, you would have noticed three things.
- First, this bar appears to be losing money (hey, it’s only my first month. Give me a break).
- Second, when paying in cash, my bank balance is constantly fluctuating, whereas when I pay with credit accounts, my cash account is consistently increasing until the end of the month.
- Finally, even though I bought and sold the same amount of items in both scenarios, I seem to have ended up with more money at the end of the month when I used a credit account. (of course this isn’t quite true. I just have to pay the difference later)
But what does it all mean? This is a extremely simple scenario, where the business runs like clockwork and all the guests pay by cash. But what happens if in the middle of the month a fridge breaks down and needs to be replaced? What if you were approached with a juicy opportunity to host a giant party and need to buy an unusually large amount of inventory? What if business was slow early in the month but picked up later? What if all of the above happened at the same time? Since you never know what’s going to happen in the future, you always need to keep some cash in the bank for unexpected events, for better or worse. If you relied on cash transactions, you run the risk of having used up all your cash when you need it the most.
That’s not to even begin to consider the headache you would face if you were accepting credit cards at your bar. Like your credit account with vendors, the money you make from credit cards won’t be available to you until the end of the month. Imagine if every single sale you made was by credit card; in the first cash-only scenario, my bank balance would dwindle to as low as 2,000 dollars at the end of the month, which is clearly a dangerous situation.
In real life, of course, the numbers are
a little very different. You initial investment may be bigger, the amount of inventory you go through may be different, and the cost of rent and salary will in all probability be much, much larger. Regardless, the principle is the same, and the credit account means you keep more cash in your bank account, which allows you to do other things like, say, purchase the floor above you to expand your floorspace. The larger the volume of purchases and sales you have, the greater effect a credit account will have on your finances. For a time frame that is shorter than the terms of your credit account, it essentially multiplies your money, or to put it in another way, your vendor is effectively giving you a loan.
That being said, why does having a huge selection of products hurt a bar’s finances? For starters, I refer to the point about making your money back inside a given time frame. If you have a rare and obscure spirit that you can mark up but have a hard time selling, the money you invested in it won’t give you any returns within a reasonable time frame. Second, I mentioned that a credit account is effectively like a loan from your vendor. As with any loan, its best to use the extra money to do something that makes more money, instead of just using it to stay financially afloat. If you purchase something, and can’t sell enough of it to pay back to cost of the bottle before the end of the credit term, you may as well not have used a credit account in the first place; the financial magic of a credit account simply doesn’t happen and it makes no difference if you used cash or credit.
So what would a financially savvy bartender to do? For true financial efficiency, he or she would only stock a handful of items, things that they can guarantee to sell out of every month. To be even more effective, the amount of spirits ordered would be only as much as needed for the week, to avoid the possibility of having unsold stock at the end of the month.
But of course, that would be a terrible way to run a bar. People like bars with choice, and sometimes to be guided to something they’ve never tried before. People have come to expect bars to be able to make pretty much anything under the sun, and that only becomes possible with a healthy selection of spirits and liqueurs. It becomes the responsibility of the bar manager to strike the balance between what is good for the company financially, what is operationally feasible, and reasonably within what is expected of by the customer.