One thing you should know about me: I love Panda Express. So much so that they should probably sponsor my website and give me a free Panda t-shirt, because I’m there all the time, to the point that it’s a bit embarrassing really. As I was standing in line yesterday waiting to order, the lady behind the glass yelled out, “Hi, Dave. Orange chicken again today?”
The people in front of me turned around and looked at me as if to say, “Seriously? The Panda Express lady knows you by name?”
“You know it,” I yelled back awkwardly to the lady, whose name I shamefully did not know. Two of the people in line gave disbelieving head shakes, but they can F-off. I stand by my obsession, which had just been oddly intensified by the lunch-line lady who made me feel important and special.
At this point my ADD brain started thinking about regulars. The word itself belongs to the bar industry for the most part, but really regulars are nothing more than repeat customers and they exist in all industries. Yet, our regulars are the only ones getting shit for free. When did that all start? Why is it ok to give away products in the bar industry when nobody would ever expect the Panda Express lady to hook them up with free fried rice or honey-glazed shrimp? Perhaps if we started tipping them things might change, as this introduces an entirely contrasting dynamic in the business of customer relations. That’s another topic though. I get distracted easily.
REPEAT BUSINESS IS THE CORNERSTONE OF SUCCESS
Back to this idea of repeat business. It’s important. No, it’s essential. Building repeat business is what mega-successful businesses do. However, in the bar industry bartenders, and even bar managers and owners, have abused their power in order to receive special benefits (tips) for the purpose of bolstering their income. Many owners are convinced that in order to survive and compete in the industry that they must not only have their regulars patronize their bar often, but that they need to provide them with free drinks to get them to come back again.
The problem with this business model is that once this precedence is established, there’s no going back, and worse than that, where does it end? In order to make your regulars happy, the amount of free drinks they receive has no boundaries. And without an inventory management system to monitor what’s going on, bartenders will run wild with this. However, because free drinks is an industry standard, perhaps you feel like in order to compete with the bar down the street that you can’t rescind this precedence or you’ll lose your regulars.
So the question that we must ask then, is how much should you be rewarding your regulars, if at all, for their loyalty? Is what you’re giving away worth repeating in order to keep them coming in? Do they really help your business be profitable? Why is it that our industry standard makes it OK to be missing 20-25% of its products month after month while the retail industry is only missing 1-2%? And what happened to gaining repeat customers through relationships and giving them an experience they can’t get anywhere else?
Sorry, I’m like a cat in a room full of strings dangling from the ceiling. I’ll address those questions in another post. In the meantime, let’s analyze the math and find out what a regular is really costing your business.
THE CASE STUDY
To perform this experiment, I asked 15 bar owners three questions. After each question is an answer, averaged out among the 15. These are of course guesstimations from the owners, but it’s far more accurate than shooting an arrow at a zig-zagging rabbit. Running through a thicket. In the dark. You get the point.
It’s important to note that I only went to bar owners who admitted to comping drinks for their regulars. I have clients who do not give drinks away, so their data is not included. I only wanted to analyze the bars who use this method to bring in business.
- How many days per week does a regular have to come in for you to consider them an extremely valuable regular? Avg. Answer: 3.34 days
- Of these extremely valuable regulars, how many drinks do they order per visit? Avg. Answer: 4.12
- How many drinks do you and/or your bartenders “comp” them? HONESTLY. Avg. Answer: 1 for every 3.89 drinks or 25.7%
So using this data, however loose it may be in its accuracy, let’s hypothesize and contemplate and infer, like Harvard and Columbia do when they perform highly scientific case studies. So we know that the average customer comes in 3.34 days per week, orders 4.12 drinks and are given 1 free drink for every 3.89 they order. Here we go. Are you excited? Me too!
In walks Jimmy, a regular, coming in to knock a few back at his favorite watering hole. Jimmy is a brand loyal Grey Goose man, so during his visit, he orders 4.12 Grey Goose and tonics at $9 apiece. He is a good tipper too, so the bartender gives him one of those drinks “on the house”. We also know that throughout the weeks and months that Jimmy will wander in 3.34 times per week to have his 4.12 Grey Goose and tonics which totals 13.36 drinks per week.
Based on this ratio, Jimmy will receive 3.43 free drinks per 13.36 he orders. To understand how much is being lost, we need a little bit more math and data. Bare with me, we’re almost done with the foreplay and getting to the part where we take off our clothes and get dirty.
At 1.5 oz. per drink, and at $36 wholesale cost per bottle of Grey Goose, each drink costs the bar $1.60 wholesale. So 13.36 drinks ordered should cost the bar $21.38 total and should bring in $120.24 retail ($9 x 13.36) for a liquor cost of 17.78%. However, 3.43 of those drinks are being given away, and here’s the most critical question an owner needs to ask him/herself: Does that mean the bar lost $5.49 wholesale (3.34 x $1.60)? Hell no! Those 3.43 drinks were not accidentally spilled or wasted. They were given away by choice and could have been sold, so the money lost here is money lost at retail for a total of $30.06 (3.34 x $9).
This is a significant component to consider. Bar owners need to consider what is being lost at wholesale (drink spilled, made wrong, guest didn’t like, etc) versus what is being lost at retail, which is anything that could have been sold but was given away by choice. Without factoring in these factors, owners are fooling themselves into thinking they have a better pour cost percentage than they do.
Revelation time: Jimmy orders 13.36 drinks each week which costs the bar $21.38 wholesale. The potential retail sales are $120.24, but instead he gives your bar $90.18 for the 10.02 drinks he actually pays for (13.36 ordered – 3.43 given away = 10.02). So now the bar has lost $21.38 + $30.06 potential retail income. So those 13.36 drinks ordered each week have actually cost the bar a total of $51.44.
Translation: It cost you $51.44 for Jimmy to give you $90.18 for a profit of $38.74 and a pour cost percentage of 57%!!! And don’t even get me started on how heavy-handed the pours are for regulars. If Jimmy receives 2 oz. pours (or more) instead of 1.5 oz. pours, the cost keeps rising and rising.
Hmmmm…doesn’t exactly seem like a model for success does it? No wonder 85% of bars fail within 5 years. So what’s the answer?
Conclusion: Lead a revolution in your business with a foundation that is built upon relationships and customer experience instead of marketing to your customers the lazy way: Giving free shit away. It’s simply a recipe for disaster. If you want to reward customer loyalty, fine. But make it 1 in 10 drinks instead of 1 in 4, and make sure that you are setting the standards and not your bartenders. As we all know, there are no honest bartenders.
That concludes our experiment. I don’t know about you, but Harvard and Columbia can suck it! That was one AWESOME case study. And to think I went to Chico State.
Cheers, until next time.
Dave, The RB