Steven Brown: The calculations needed to work out how profitable your F&B stock is

As you read this article a number of you may be wondering why, given your current daily tasks, you need to understand the stock-taking document that arrives on your desk periodically showing only a slight surplus or deficit.

While I fully understand the demands made upon your time, this document, if interpreted and acted upon immediately, can, and will, save you and your organisation many lost hours and compounded anxiety in wondering why your F&B operation consistently only breaks even and provides little or no positive contribution to your outlet.

To help you I am going to explain how this wonderful document can help you.

In order to simplify matters I have illustrated a copy of a stock results showing the detail of a summary stock result. Each relevant section carries a number and in the following text I will explain the relevance of each column relating to its number.

Let me make one assumption. Your job role requires you to undertake on a monthly basis a full blown stock result analysis! The result is now prepared for you to review and pass comment upon. The problem is that while you understand the overall gross profit, gross margin and variances, you have not quite mastered the intricacies of the mass of figures staring up at you. I am here to help.

My experience tells me that the following may occur too regularly. Does the following sound familiar in your stock taking process?

1. The stock taker arrives and, after a coffee, counts the stock;

2. The paperwork, once rounded up from all the individuals that have it, is checked, collated and recorded;

3. The stock taker has another coffee, quickly whisks you verbally through the result and departs for the next job;

4. One week later you receive the result, and the bill, with little or no detailed analysis;

5. You review it and as the gross profit and margin are within two per cent of last month’s results and the variance is within one per cent either way, you file it, because the other demands on your time are more pressing!

Forgive me if I have offended anyone, it was not my intention. It is however human nature to not ask questions when faced with technical data given that we are supposed to understand the information anyway as we are after all responsible for the profitability of the F&B.

Let me reassure you. If you’re reading this thinking that the above description sounds like you, then you are not alone. The good news is that if you carefully read this article, keep applying the recommendations made and keep re-visiting it, you will become an expert in the field of stock control and will be able to use the full potential of the document instead of simply filing it!

Let me first of all illustrate how stock results should be carried out:

1. ALL documentation relating to this stock period should be dated and number filed and on hand for the stock taker;

2. ALL saleable (and return) stock, including bottles and cases that attract deposits, must be clearly identified to be counted. Records must be kept of any transfers to other units or areas of the business;

3. Full access must be given to the stock taker to download all relevant sales, refunds and discounts, from your till technology that will affect the result;

4. Your steward, bars’ supervisors or you should accompany the stock taker on the journey;

5. Your ‘switched on’ stock taker will have organised the reporting system in the same pattern that your stock is laid out, to save time;

6. Results will be calculated on site – NOT SEVEN DAYS LATER when more abuse and inefficiency has been allowed to occur;

7. A hard copy will be printed off for you on site and a full and detailed explanation of what has, or may have occurred, will be given, together with a range of options on how to reduce inefficiency and waste plus recommendations on how to better control your stocks (security, bar staff working practices and so on);

8. An added extra would be a flow chart, on a single A4 piece of paper showing you this month’s results against the last five, in order for comparisons to be quickly made highlighting any significant changes.

Now if the first scenario sounds like your personal experience then I strongly urge you to sit down with your current providers and tell them how you expect them to provide the level of service you require in the future, for example, as above! These are non-negotiable in my view.

How much does your stock taker charge you? Current rates suggest that charges range between £80 to £150 dependant upon the complexity of the job. I would normally expect a visit to range from three (£80) to up to five (£150) hours.

So are you getting value for money? If you receive a visit, stock count and an off site explanation then review your arrangement. You should be receiving a detailed analysis and recommendations for efficiency controls at the very least.

So what precisely can your stock taker be advising you about?

We are now going to take a journey through a stock result. This powerful document will help to reassure you and your staff that you are operating in a very professional manner – if you use it properly!

Let’s look at your illustration in more detail:

1. Duration. I strongly urge you for at least the next 12 months to have a regular monthly stock take. This will have the benefit of enabling you to monitor any changes of personnel and the introduction of new control systems for the ineffectiveness (or not) on your outlet.

2. Section. Simply identifies this as wet as opposed to dry or food stock. You will note that tobacco, snacks and containers are included. This is normal as these sales and container deposits relate to the bar. On the subject of food stocks it would not be usual to undertake an extended stock result such as this due to its complexity. It is fairly usual to undertake an external food stock every two months but this does not stop you organising a food stock count every week – and you should!

3. Days stock. A great indicator that shows you by product category how well products are, or are not, selling. The higher the number the worse in theory the problem. High numbers can be caused by a series of events:

• Stock delivered the day before the stock take

• Seasonal variations

• A special event (a wedding)

• Taking advantage of stocking up due to discounts from suppliers or being aware of impending price rises. If your figures are high and the above are not the reason then you have a lot of dead stock in the cellar. An industry norm and good target for days stock is an overall 10 to 12 days but always query any big jumps. If you hold lots of functions this figure could easily jump from 20 to 25 days.

4. Ratio cost. Simply an indication in percentage terms of the amount of money spent on purchases by product line. Ratio selling is your product mix. An important guide to you, as it reflects changing patterns of trading and therefore where stocks need to be increased or decreased. It is also a great indicator if anyone is bringing in their own stocks and selling them leaving your own stocks unsold. This would also be reflected by your days stock figures rising due to lack of sale.

5. Gross profit. More correctly this is a gross margin or percentage. This illustrates how well you have performed in the period against your own gross margin targets and the norms for the industry. These should be checked for major variations, as again it is an indicator for issues such as incorrect retail pricing and failure to increase retail prices following a wholesale price rise. Typically this is an issue the stock taker should pick up on.

6. Sales at cost price. The value of the goods supposedly sold at cost price.

7. Sales at retail price. This figure is a calculation by the stock taker of how much money each section should have generated in retail terms.

8. Closing stock. The value of stock still left in the cellar. Make sure your insurance is sufficient to cover the value.

9. Value of purchases. Simply a record of how much you spent on goods for each product category.

10. Value of credits. Similarly a record of credits received. (This column is not always included on stock result sheets).

So, just to recap, we have established, through tried and tested stock taking procedures (1-10), what the stock taker says occurred to money and margins during your trading period. In my next report I will illustrate how figures can be manipulated, money mismanaged and stock misused as the stock taker now turns to you and says: “I’ve calculated my figures – now you show me yours!”