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Memo from American Somm: Analyzing Your Inventory

Posted on  | December 3, 2013   Bookmark and Share
Written by |

Andrew Bell, co-founder and President of American Sommelier

It’s that time of year again—time to look back at the year that has passed and make plans for the one to come. Part of this should include taking a close look at inventory performance and valuation.

Generating and analyzing reports is a time consuming yet important practice in order to avoid surprises and confirm that your costing numbers are where they need to be. In simple terms: you need to make sure that you are selling each wine at an appropriate price relative to what you paid for it. Any number of things can affect the cost of a product (a vintage change for example) and without vigilance the change may go unnoticed and your list price unchanged, thus throwing your margin out of whack.

In most markets, surprises in the form of a change in cost can only happen once a month. Most states require distributors to “post” the pricing (including discounts) on all products monthly. Once posted, these prices cannot change until the following month. This is the state’s attempt to give equal and fair access to all buyers. Even so, your distributor may fail to mention price changes (you cannot trust that someone else is going to pay as close attention as you are to your program!). Annual reviews will help catch any of these errors.

Put Safeguards in Place

The absolute best way to avoid errors in the first place is to centralize data entry responsibilities to a single person (you). When entering an invoice, double-check all details against your purchase order and the pricing on your wine list. While certainly not the most fun part of our jobs, this dedication to precision in the back office is essential for a profitable program.

Every program runs differently, but one thing they all share is the need to run financially lean, keeping as much cash as possible. An annual review can clarify stock depletion rates and help you project more accurately what your needs are. This data allows you to order with appropriate frequency, focusing on need rather than excess.

Stepping back and looking at your program at regular intervals is important to identify the items that are not working or generating an appropriate profit. Consider moving an underperformer from BTB to BTG in order to deplete it. In this situation, you may not earn the desired margin and as such your numbers may not show well during this period, but you will have liberated space in the cellar and turned a dead asset liquid. In doing so you can replace the poorly moving item with one you think will perform better. This is easy to do when you have limited volume (it is always better to test an item before committing to larger volumes). For small scale operations, a large purchase can be a case per item; for large scale operations, a pallet or more. The theory remains the same.

Great programs are dynamic, not static. A percentage of your list should remain constant, with a varying amount of movement to keep regular customers interested. Reviewing inventory performance at the end of each year will help you see big picture trends and thus make smart choices about what to keep, what to replace, how much to buy and even what to buy on close-out when available. These smart buying practices set you up for a great start to the New Year.


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