Why Is My Bar GP Lower Than Expected?

First, understand what GP is telling you.

Gross profit (GP) measures the difference between your net sales and the cost of the products you've sold. It's usually expressed as a percentage of net sales.

For a typical stocktake, cost of sales is calculated using your opening stock, purchases and closing stock. Transfers, supplier credits and other relevant adjustments also need to be accounted for.

Your overall GP tells you how the business is performing, but working out why it's dropped is another matter. There are plenty of things that can affect the result, and the problem isn't necessarily happening behind the bar.

Check the figures before investigating the team.

The first thing I'd look at is whether the stocktake result itself is accurate. Even small mistakes in how stock or sales are recorded can make a noticeable difference to the final percentage.

Opening and closing stock.

Make sure both counts cover the same stock locations and use consistent valuations.

Check whether products have been missed, counted twice or entered in the wrong unit. Recording a case as a single bottle, or entering a part-used bottle as full, can change the closing stock value without any stock actually going missing.

Purchases and supplier credits.

Check that invoices and credits have been allocated to the correct trading period.

Deliveries around the stocktake cut-off are particularly worth checking. You might have received and counted a delivery without its invoice being recorded, or included the invoice without the stock being counted.

Duplicate invoices, missing credits and incorrect product costs can also affect the result.

Stock transfers and adjustments.

If you're moving stock between bars, departments or venues, make sure those movements have been recorded properly.

An unrecorded transfer could leave one bar showing a poor result while another looks better than it should, even though the stock has simply moved between the two.

Legitimate stock adjustments also need to be accounted for correctly.

Sales and VAT.

Make sure you're comparing the same trading periods and using the correct VAT basis.

Stock costs are normally recorded excluding recoverable VAT, so your sales figures also need to exclude VAT when calculating GP.

If you're pulling information from different reports, check that refunds, discounts and other deductions are being treated consistently.

Before making any decisions about what might be going wrong during service, I'd want to know that the opening stock, purchases, closing stock and sales figures are all correct.

Stop using today to try and change what happened last week.

One thing I've seen time and time again is a stock count coming back with a poor GP and the immediate reaction being that it needs to be higher.

Well, of course it does. But standing there staring at a stock count isn't going to change what happened last week.

Your GP is a reflection of what has already happened. The stock has been bought, the drinks have been sold and whatever wastage or losses occurred have already happened. The purpose of the stock count is to tell you what that performance actually looked like.

There's absolutely nothing wrong with double-checking your figures. In fact, you should. But there's a difference between finding a genuine counting mistake and spending hours searching for stock that probably isn't there because you don't like the result.

The danger is that people start adjusting figures to get closer to their target GP. Suddenly the result looks better on paper, but you haven't actually fixed anything. You've just made the information less reliable.

I'd much rather have an accurate stock count showing a poor GP than an inaccurate one showing a great result.

The problem is when you stop looking for genuine mistakes and start trying to improve a historical result instead of using it to improve future performance.

Once you've checked the count and you're happy the numbers are correct, believe what they're telling you. Use that information to find out where things went wrong and make the changes that will improve your GP next week.

Your product mix might have changed.

Not every product generates the same margin. Draught beer, spirits, cocktails, wine and soft drinks can all perform differently depending on their selling prices and purchase costs.

You could have exactly the same stock controls in place as last week, but if everyone's suddenly drinking your lowest-margin products, your GP is going to take a hit.

This is particularly important when comparing a busy event weekend with a quieter trading week, or when you've recently changed your drinks menu.

Have a look at which products and categories have generated the most sales and compare them with previous periods. You might find that the change in GP has more to do with what your customers are buying than anything happening during service.

Review your pricing and discounts.

Product costs don't stand still. Supplier increases, recipe changes and new ingredients can gradually eat into your margins if your menu prices stay the same.

When did you last review your recipe costs?

A cocktail that achieved its target GP when you first put it on the menu might be falling short now, particularly if you've had several supplier price increases since then.

Discounting can have a similar effect.

Happy hours, promotional offers, complimentary drinks and staff discounts all affect the revenue you're generating from the products you're selling.

That doesn't mean you should get rid of your promotions. A happy hour that brings customers into an otherwise empty bar might be doing exactly what you want it to do. You just need to understand what it's costing you and whether it's worthwhile.

Look at what happens during service.

Once you're confident that the records are accurate, it's time to look at how products are actually being prepared, served and recorded.

Inconsistent measures, drinks being made incorrectly, unrecorded wastage and recipes that aren't followed can all affect your stock performance.

Sometimes you need to put the spreadsheet down and actually watch a service to understand what's happening.

Example: an extra 10ml in a cocktail.

Imagine a cocktail is regularly being made with 10ml more of one ingredient than the recipe requires.

That's £100 of additional stock cost from just one ingredient in one drink.

If your net sales for the period were £10,000, that extra £100 would reduce your overall GP by one percentage point, assuming everything else remained the same.

Now imagine similar inconsistencies happening across several drinks throughout the week.

This is why consistent recipes, suitable measuring equipment and proper team training matter. You also need a straightforward way for staff to record mistakes and wastage rather than letting those losses disappear into the stock result.

Find out which products are causing the difference.

Your overall GP gives you the headline figure. Individual product variances can tell you a lot more about where you need to look.

If you've got accurate sales information and recipe specifications, you can compare how much stock you should have used with how much you've actually used.

For example, if you're consistently showing a shortage on one particular spirit, I'd start looking at the recipes it's used in, how it's measured and whether all sales are being recorded correctly.

If you're seeing unexplained variances across several products, there might be a wider problem with counting procedures, deliveries or the way sales information is being recorded.

The important thing is to look for patterns rather than immediately assuming something has gone missing.

What I'd do next.

If I was reviewing a bar with a GP below target, this is the order I'd work through things.

1. Confirm the numbers.Reconcile your stocktake, purchases, transfers, credits, VAT treatment and sales period.
2. Compare the result.Look at previous periods, your GP target and any changes in the products your customers have been buying.
3. Review commercial changes.Check supplier prices, recipe costs, selling prices and discount activity.
4. Investigate product variances.Identify the products with the biggest unexplained differences and check whether the same problems keep appearing.
5. Review the operation.Look at portion control, recipes, wastage recording and how the team actually works during service.
6. Make changes and measure again.Put specific improvements in place and see whether they make a difference over the following stocktake periods.

There's no point spending weeks trying to fix portion control if the real issue is that your purchase costs have increased and nobody has updated the menu pricing.

Find out what's actually causing the problem before deciding how to fix it.

A low GP is a reason to investigate.

Your GP tells you how the business performed over the trading period. It doesn't tell you everything that happened to produce that result.

Sometimes the problem is a missing invoice or an incorrect stock count. Other times, you need to look more closely at pricing, sales mix or what's happening behind the bar.

Either way, you're going to get a lot more value from an accurate GP that you can investigate than a better-looking figure that doesn't reflect reality.

Get the count right, believe what it's telling you and use that information to make next week's result better.