Above the Bar – The Profit Hangover

This column will focus on the downturn in revenues over the last few years and answer questions regarding how did it happen and what can we all do now.

With the crash of the Mid 2000’s the US economy seemed like it was the end of the beginning or the beginning of the end for many businesses out there. for many operators like myself the mantra “When there is Blood on the Streets…Buy”. This rang true for me as the low hanging fruit of low entry points and available locations that had been devised in the booming economy flush with cash. these venues where bloated monsters or unlimited credit, where everyone could build there dream but that dream for the inexperienced operators quickly turned into a nightmare.

The bad news for good operators like myself with a short term goals of build and flip for big dollars also dried up, our path and plan needed to transform to a find, build and hold for the long haul reality.

Looking back at the downturn, the reality was that in the beginning the consumer had been living an extravagant lifestyle that they became easily accustomed to. Money was free and the sky was the limit on credit cards. expendable income was at unprecedented levels and the consumer had no fear because the boom was going to last forever. As the clouds rolled in and the bottom fell out, the ripple effect felt thru out the industry was devastating. lets look at how specifically revenues where affected.

First of the bloated cow of high priced bottle service began drying up, the $500 to $1500 regular customers ran dry. The impact that we have seen in many markets was a substantial drop in minimums, such as three bottle minimums at $300 a bottle, to now have dropped to two for one’s as low as $100 a bottle in many markets. this was a massive revenue killer and the devaluation of VIP real estate has been slow to recover in many markets. in another article I will go over the tactics I now use for bottles service and how to generate and increase revenue. but to also use bottle service as a tool for driving traffic and anchoring customers for longer stay times.

Next the real blow to revenues was the consumer stepping down from Premium and Call spirits to Well. lets look at this in mathematical terms, if a premium vodka and tonic is $12 and a well vodka tonic is $8 that is a $4 swing to the top line, this might not seem like a lot but serve one thousand of these wells per night and the numbers begin to show that is $4000 a night, $8000 a weekend, $40,000 a month, $480,000 a year to the top line.
To truly understand what is going on here you need to understand that the consumer is “Changing or adjusting” his or her lifestyle. The reality is that once you combine a spirit and a mixer the consumer the majority of the time cannot taste the difference as the mixer overpowers the flavor profile of the Premium spirit.

Now let me explain to you the challenge and the strategy in putting the “P” back on the board, Premium = Profits.

Step One: Education lets refer to this as the “Great Hangover” or lack of consumer education, this is where I have a huge issue with existing premium spirit suppliers and their disconnect with the operator and the consumer. We as an industry need to be selling the customer the benefits of the Premium and Call products, the consistency, the quality, the facts of recovery, the fact that what you put in, is what you get out of a spirit, we as an industry are failing to deliver basic information and failing in the delivery of the message to the consumer of the simple and easy to understand benefits of Premium spirits.

This education and training needs to start with the point of contact, Server education fundamentals by explaining how the server is looking out for the good of the customer. friends don’t let friends “Drink Dirty”, start by explaining to the servers the benefits to them personally, for example break down the mathematics for them, on average if a venue does $10,000 in sales then 20% of the gross total should be equal to the total take in “Tips” to the staff or $2000. Looking above do you remember the $480,000 per year drop in sales? take this number and then take 20% of that total. Yes $96,000 in lost tips to the staff, now if that is not a number that gets someone’s attention you need a new staff.

Step Two: Training

First: Conditioning the staff to always up sell. Example; Server “Hello my name is Charity what can I get you?” Customer “I would like a Vodka Tonic” Servers immediate response “Grey Goose, Absolute or Stoli?” you have now placed the consumer in an awkward position you have provided them with quality choices. The social pressures have now been applied on the consumer in a public and social setting in which it is almost impossible for the consumer not to appear “Cheap or Low Class” in front of both friends and strangers.

Second: Call and Response to the consumer as a person of influence, Bartenders and servers underestimate their true sphere of influence that they have on the consumer, in the minds of the consumer the bartender is the leading authority of spirits. Example: Bartender “Hello my name is Michael what can I get you?”  Customer “Vodka Tonic” Bartender “I would recommend a premium product and you will love the smooth finish” both education and up selling occurred.

Third: Expose the weakness of Well spirits and make the connection personal. Example…Bartender “Hello my name is Michael, what can I get you?”  Customer replys “Vodka Tonic” Bartender “How about my favorite Premium Product it is amazing and you will not be paying for it again tomorrow with an ugly hangover”

Fourth: Always compliment or thank the consumer for making to right choice, the smart choice will be reinforcing that follow thru.

Fifth: Follow thru, roll playing, and incentive programs from the suppliers and the operators are key to reinforcing the training and the message. You need to make this a habit in your service staff and a habit does not happen overnight, it takes time.

As operators we need to be aware of the benefits of up selling and the affect it has on our operations. If you are looking to place a value on your business, for a higher sales number mean a higher sales price to a buyer. Next is that the cooperation and support you will get from suppliers which will grow and your sales and then your forecasting grows. Lastly the liability to our business based on consumption levels is also positive. For example, if you have consumers purchasing three premium spirits at $12 per drink with a total of $36 or a consumer purchasing 4 drinks at $8 with a total net of $32 and a higher BAC level and potentially more liability, sign me up for the responsible path to happy customers and happy staff, leave the headaches and hangovers to someone else.