Beverage programs have always been integral to the financial success of restaurants. While food sales might typically account for 60 to 70 percent of gross revenue, the beverage category often accounts for 80 percent or more of gross profit dollars. There are myriad reasons for this—for example, beverage generally has less loss, lower labor costs, and less prep variation. Plus, it’s not nearly as perishable as food. Simply put, it costs far less to put a bottle of wine or a cocktail on a table than it does an entrée or dessert.
Though the restaurant industry is inching its way back to operational normalcy, the way beverage programs are run has irrevocably changed. Now more than ever, profitable beverage programs are hyper-important to a restaurant’s success, due to factors like increased operating costs (such as outdoor dining construction and single-use items), wage and benefit increases necessary to retain staff, and diminished capacity for some restaurants.
On top of all this, budgets have been slashed and inventories have been reduced, forcing beverage directors to do more with less. Bobbie Burgess, the wine director of Restaurant Tyler in Starkville, Mississippi, was asked to downsize her list, reduce carrying inventory, and dramatically lower her beverage cost of goods sold (COGS). “Our COGS margin pre-COVID was at about 33 percent,” she says. “Since COVID, that number has changed to about 22 to 30 percent—while we’ve simultaneously been asked to push sales.”
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This seems to be an industry-wide phenomenon. “Beverage programs are always a hustle,” says Andy Myers, MS, the former corporate wine director for José Andrés’s Think Food Group and current wine director for Kohanaiki resort in Kona, Hawaii. “Times are good? You’re expected to triple revenues and cut costs by a third. Times are lean? You’re expected to double revenues and cut costs in half … Beverage programs are looked at like golden-egg-laying geese, but too many people have no idea how expensive it is to feed a goose!”
So how does one achieve this? In interviewing a number of beverage professionals from programs large and small, varying from upscale casual to Michelin star fine dining, a number of common themes were revealed. Welcome to the brave new world of on-premise beverage financial management.
Blend Your BTG Costs
A well-curated BTG program can be a lifesaver for most restaurants. This extends far deeper than simply having an interesting selection; a BTG program is the true workhorse of beverage program profitability. The right selections at strategic prices can pave (and pay) the way for revenue-driving options that might bring in more dollars even if they carry higher COGS percentages.
For example, a $10 glass of sparkling that costs $6 to $8 per bottle can accommodate a by-the-glass Champagne that should be $40 per glass but can be sold for a compelling $25. The increased COGS percentage of the Champagne is offset by the higher margin of the less expensive sparkling, while the high-end pour simultaneously generates more gross profit dollars with each sale.
Get Creative to Bring Value to BTG
With rising costs, many beverage managers are being pressured to increase prices across the board. “We are being asked to charge more for certain items [than we would like],” says Raquel Ortega-Torres, the wine director of Imperfecto in Washington, D.C. “We need to be conscious of the underlying cost of items we are carrying.”
Rather than categorically raising prices—a tactic that is often noticed and typically not well received—one strategy is to switch out existing placements for similar wines with higher margins. For instance, instead of increasing a BTG Malbec by $2, source a new one with lower COGS that can be sold at the same price.
Another creative solution to this problem is to change up BTG offerings more frequently. This allows an operation to continually serve wines at higher price points or with more appealing margins without guests feeling gouged. “Pricing follows our passion and palates, but of course you want to find those gems that help you remain stable and supported at the same [cost], or lower,” says Kat Thomas, the wine director of Ada’s Wine Bar in Las Vegas.
Effective application of this strategy includes seeking wines outside of the local market’s competitive set (rather than offering the same BTG that half a dozen restaurants nearby are pouring). Embrace unique regions, varieties, and cuvées, but don’t venture so far into the obscure that the list alienates would-be wine drinkers. A healthy program must still be approachable—not woefully esoteric.
Think About Beverage Beyond Wine
Outside of wine, many restaurants are seeing a surge of interest in cocktails and non-alcoholic beverage offerings, both of which can be financial boons for an operation. When Yannick Benjamin opened Contento in New York City, it was known for many things, chief amongst them having a thoughtful and adventurous wine list. However, post-pandemic drinking habits have shifted some of his focus into cocktails. “Our bar has expanded exponentially as we have a very strong demand for cocktails,” notes Benjamin. “Of all the changes that have happened, the biggest one has been the cocktail program.”
Non-alcoholic beverages are another incredible source of revenue and profitability. Many more diners are avoiding alcohol, so a program limited to the soda gun is a massive missed opportunity. The combination of a simple shrub, fresh fruit, soda water, and a garnish not only provides an exciting and interesting option, but can also run at an extremely high profit margin. Typically, these types of non-alcoholic cocktails cost 20 to 30 cents to produce and can be sold for $8 to $15. Plus, it demonstrates mindfulness by providing enjoyable and unique options to those who prefer not to drink alcohol.
Scrutinize Beverage Sales Data
While regular check-ins on the financial health of a beverage program have always been important, now is a vital time to take a deep dive. Assess the program’s product mix and ensure that the highest-selling beverage items are also contributing the most gross profit dollars to the bottom line. Something can sell well at a high price point while also hemorrhaging money or failing to contribute meaningfully to the program’s gross profit.
This isn’t about percentages. While COGS is an important metric, owners don’t deposit percentage points in the bank. A bottle that has a high COGS percentage but contributes $100 of real, gross profit is far more valuable than a low COGS bottle that only contributes $40 of gross profit.
In order to drive sales to these higher gross profit dollar items, it is important to accept a higher COGS percentage in order to make expensive options more compelling. This will increase sales frequency of these more expensive items, providing greater gross revenue and greater gross profit dollars for the operation.
Strategize Bottle Price Points
In order to maximize consumer spend, it’s important to maintain a balanced by-the-bottle list, particularly within popular categories of purchasing. The BTB program should have gradual steps between price points rather than large gaps—for example, an $80 Pinot Noir and a $150 Pinot Noir, without options in between.
These gaps have become more common as restaurants have burned through inventory without replacing it, seeking lower inventory carrying costs, but it’s time to fill them. The goal is to make it as easy as possible for a guest to spend incrementally more without feeling gouged or pigeonholed into a choice. When there aren’t logical steps between price points, guests are more likely to trade down; in the Pinot Noir example, a guest who would have happily purchased a $120 bottle is less likely to increase their budget to $150 and will more often opt for the $80 bottle. Not only could this be a less satisfying experience for them, but it also means $40 of potential gross revenue was left on the table.
Leverage Supplier Relationships to Manage Inventory
Not only are buyers being asked to do more with less money—they’re also being asked to do more with less inventory. In some cases, these inventory reductions are mandated by ownership in an attempt to increase cash flow and liquidity, but supply chain issues have also led to inventory reductions. “When you cannot get product from the state you have to search for it, and unfortunately, sometimes buying everything a liquor store has in a certain SKU still doesn’t equal a full case,” says Burgess, who works in a control state. “Some of our by-the-bottle selections only consist of two to four bottles.” Adds Ortega-Torres, “We are forced to accept a greater chance of 86s on our list.”
Some see an upside in operating with reduced inventories. “We lowered the number of selections from pre-pandemic, leading to less waste and more buying power with a more limited scope,” says Brahm Callahan, MS, the corporate beverage director for Boston’s Himmel Hospitality Group.
Whatever the reason for a program’s inventory reduction, supplier relationships make all the difference in coping. Strong, mutual supplier partnerships can allow buyers to access special deals or take advantage of by-the-glass or quantity discounts, where allowed. “Our reps have helped us to get ahead of cost increases, reserving cases for purchase prior to a jump in price and working with us on bottle cost in exchange for featuring items BTG,” says Ortega-Torres.
Maintaining open communication with sales reps can also help beverage directors plan for delayed orders, which can lead to loss of continuity for BTG products and outages of popular liquor brands. In these conversations, buyers can set realistic usage expectations and ask suppliers to lock down inventory for the restaurant’s needs; they can also seek out alternatives for delayed BTG placements. “You want to find those gems that help you remain stable and supported at the same price, or lower,” says Thomas.
Even when buyers lack the budget or space to take advantage of quantity discounts, strong supplier relationships can come in handy. Suppliers can often provide quantity discounts with a commitment to future quantity, even if a buyer cannot take the product all at once. Many suppliers will also offer a bill and hold option if space, rather than budget, is the issue. As both of these options require multiple layers of approval, it’s essential to have strong, mutual relationships to make this happen.
The world of beverage program management is constantly changing. However, the combination of a global pandemic and the related supply chain issues have dramatically shifted the way beverage programs must operate. In order to stay successful, buyers must recognize and embrace the new financials of running a beverage program.
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Erik Segelbaum is an Advanced Sommelier and the founder of SOMLYAY, a wine consulting firm.