The Purpose of Beverage-Cost Control Is Not Lower Cost

The purpose of controlling beverage cost is to increase your sales. I’ll explain.

First, let’s digress. You are an F&B Director, or perhaps Beverage Manager or Bar Manager. You work hard to keep your beverage costs in line. If your cost margin is over budget you are “challenged” by your boss. If the cost is better than budget you are praised in the short term (but sometimes “punished” by future budgets that will now set this lower number as the new expectation).

Here is the typical scenario: 

But if the current economic environment teaches us anything it’s this: the model above isn’t sustainable. And here’s why – eventually the never-ending demand for lower cost will create pressure to raise prices, and this could threaten your business. 

 

So, what should your bar cost be – what is a “good” bar cost? I’ve seen everything from 14% to 35%. BTW both numbers might be “good”, because a “good” cost is any cost within acceptable variance to the theoretical (or “potential”) cost. That’s right: 14% might be good, and 35% might be good.

Then what should your theoretical cost be? That’s a strategic decision, and the tactics that will fulfill your cost strategy begin with your target market and include pricing, purchasing, promoting, merchandising, inventory and accounting practices, recipes, menu engineering, equipment selection and more. Controlling costs is about meeting your cost strategy targets – 14%, or 35%, or somewhere in between – and is success measured by the variance between your theoretical and actual costs. Ideally your budget is based upon this “cost strategy”.

Your cost strategy should allow for “targeted pricing”, i.e. pricing (supported by promotions and merchandising) that will promote sales. I’m not saying lower prices across the board, rather consider the category of products favored by the primary customer target, and then find ways to add value to select offerings in that category. Incorporate this into your cost strategy, factor it into your theoretical cost analysis, support it with a special program or promotion with merchandising and marketing: and now you have a sustainable process. You are controlling your costs strategically so that you can increase sales.

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Catering: When is a Menu not a Menu?

Riddle me this, Batman: when is a menu not a menu? I know, it’s not likely that the Riddler ever said that. Nonetheless, it’s a legitimate question. Merriam-Webster Online says that a menu is “a list of the dishes that may be ordered (as in a restaurant) or that are to be served (as at a banquet)”.

Other sources also define menu along the same lines, “list of dishes”, “list of options for the diner”, etc.

It seems to me that the authors of many banquet-catering menus (Chefs? Catering Directors? F&B Directors?) are doing a great job of keeping up with Merriam and friends, because that’s what their catering menus are: a list of dishes that can be ordered.

So, let’s riddle again, using the definition: when is a menu not a “list of dishes”? The answer: when it’s a marketing tool.

We often “get” this in our restaurants, though not always. Then when it comes to catering, everything we learned about menu merchandising is forgotten. Someone smarter than I pointed out that advertising/marketing people in general would “kill” to get their marketing message in front of a customer immediately before they make the “buy” decision. Yet in food and beverage, we are able to do that, and often do not.

One important distinction between restaurant menus and catering menus: the restaurant guest usually looks at the menu after they sit down – they have already decided to “buy”. For the banquet-catering customer this is not always the case. Sure, if there is already a group room block committed to the hotel then it is likely that the customer’s F&B business will be with you – as in a restaurant situation. But with a local event, whether business or social, it is likely the customer is shopping multiple venues. (This is why different occasion-based menus should be developed – see my earlier blog, “Catering Menus – What’s the Occasion?”)

If the customer is shopping multiple venues, which of these do you prefer they have in their hands:

a)     A “list of dishes”
b)    A compelling marketing piece

If you selected “b”, but you’re still offering “a”, here are some ideas for enhancing your current offering: 

  1. Tell the story. What is your story, what makes you special? Is it immediately apparent when I pick up (or download) your menu?
  2. Speaking of “immediately apparent”, I have actually seen menu PDF files whose first 1-3 pages is “rules” or “requirements”. What would happen if a car salesman told you “before I show you our remarkable, beautiful shiny new x-car, please read these required monthly maintenance instructions”.
  3. Speaking of PDF files: do you have any idea how many banquet-catering files are named “banquet menu”? Set yourself apart right at the start with a memorable name, even if its just the name of your hotel. Imagine a bride-to-be with seven files on her computer, all labeled “banquet menu”.
  4. Brag about your Chef and/or your catering team – inject personality and soul into the menu.
  5. Make it easy for the customer to get – or at least see – the menu. It’s 2010 and many properties have yet to post their menus on line. Often their competitors already do.  Why would you have an electronic marketing tool – and then hide it from the public?
  6. What is your culinary signature? Your specialty? The dish (or cooking style or cuisine) that sets you apart?
  7. Are your descriptions descriptive, or are they mini-lists? Does your menu read like a contract, or do the descriptions tickle my salivary glands, make me want to try the food? Now.
  8. In 2010 the customer wants ease and flexibility in ordering – are your lunch and dinner options listed in an à la carte format?

 Those are my thoughts, let me know yours.

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Inventory: the First Six Letters

F&B Directors, you love to “invent”, don’t you? Invent as I use it here is synonymous with create or originate. Like promotions, menus, specials, events, even service. Of course you do. The great F&B Directors I know and have known love to invent. They are passionate about it. They (these are synonyms) conceive. Devise. Discover. And create and originate, as previously mentioned.

In fact, you may very well consider this trait to be your finest or most dominant trait. Great. Really.

But, if you love to invent, I’m betting that you hate to inventory. Oh, you do inventories – or instruct your team to do them – as required by accounting. For some companies its monthly, and for others quarterly or even annually. After all, you’re a team player and by the way, who wants to get yelled at. I know I don’t. But it’s too late for me. If you read my last blog, about managing weekly, you’re already yelling at me. Who has time to create and manage a weekly P&L, anyway? (For the answer to that, and more reasons to yell at me, see the blog, OK?)

So now I’m going to tell you to disregard accounting’s requirements and conduct weekly inventories. This is a management practice, not an accounting practice. Oops. Less time to invent. On the other hand, won’t you have more license to invent if your P&L is solid? I think “yes”.

If you don’t insist on weekly inventories for food and beverage now, beginning this practice will deliver unanticipated success stories in just a few weeks. My promise to you.

Your job, as F&B Director, is to ensure that the inventories are reasonably accurate. This means that you must review the preliminary extended count (“Sam, are you sure it’s 10 cases of sardines – maybe it’s 10 cans?”) – this will take you ten minutes. And you must conduct a random spot-count of a few items with whoever actually recorded the count. Make sure they’re looking behind things, beneath things, etc. Good opportunity to spot-check receiving’s data procedures and execution of FIFO, at the same time.

OK. Simple, huh? It should be. Here are a few tips:

  1. Count on the same day each week. If you’re on a calendar year instead of 4-4-5 or 13 months, ignore it. Count every Friday. Or every Sunday. Doesn’t matter so long as it’s the same day. Now you can compare one inventory to the next in – I’m not making this up – less than 60 seconds, and get a meaningful result. (“Sam, we had $4,326 in seafood last week, this week it’s $14,112 – check it again.”) BTW, Sam thinks you’re pretty smart.
  2. Don’t count food-in-process every week. Count it a couple of times a year. Or quarterly. I’m talking about everything from sugar packets in open containers (or on tables) to opened partial containers of…(you name it).
  3. Use common sense. If you prepped a large event, and they’re eating filet mignon, and it’s pre-cooked and plated – you may have to count the steaks, at least.
  4. Remember that this is a management information control, not an accounting practice.

Combine this practice with a sophisticated software purchasing-receiving-costing software program like Adaco (www.Adaco.com) or Compeat (www.Compeat.com) for optimum COGS management. Those are my thoughts, what are yours?

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F&B Directors: the End of the Month is Too Late

You’re not going to like this. Not at all.

Why should you? After all, you’re executing every required procedure, submitting every required report, even meeting deadlines most of the time. A week or two after the month ends, you get a P&L and find out how you did. Sure, you already have an idea. Certainly you know the revenues for the month. Maybe even your purchases.

Then when you get your P&L you analyze the results, and plan how to make improvements. Good. Except – it’s too late.

The January P&L arrives February 10, you spend a week reviewing it, attending meetings, making plans, writing explanations, submitting reports. By March 1 you implement appropriate tweaks, changes.

But the time to react to January trends isn’t March. And it isn’t February.

It’s January.

Your controller shouldn’t have to tell you your results – you should tell your controller. Your GM should hear your results for the first time from you, not your controller.

 THE PATH TO F&B STARDOM

While I can’t describe the path exactly, I can assure you that the it has weekly milestones. That’s right: the path to success is guided by the dreaded weekly P&L.

In an earlier blog, “Are You Tracking That?” I talked about the plethora of data managers are bombarded with today, about how it’s overwhelming, how the best managers keep their own spreadsheet “on the side”, and how the best companies track a specific but limited number of items. So, here’s what your “spreadsheet on the side” should look like: weekly revenue, COGS, labor cost, other expenses, compared to budget. If your week ended Sunday, you should know the results by noon on Monday.

WALKING THE PATH TO STARDOM

Make no mistake about this. Initially you (or someone in your department) will have more work to do. Soon, however, the process will become systemic. You will not want to give it up.

There will be multiple data sources in a larger hotel, fewer in a smaller hotel. You may wish to split up the accountability.

Here’s how to track:

  • Start a spreadsheet – you may wish to have one tab for each week
  • Enter the budget once a month by first calculating a pro-rata weekly budget
  • Track by week with the week ending the same day the payroll week ends
  • If you’re on a calendar month (an unfortunate burden) you will have weeks that span two accounting periods – always use the new month’s budget figures, as most of the results will end up in the “next” P&L
  • Track the numbers DAILY for sales, covers, purchases, labor cost, labor hours, etc.
  • Conduct a weekly inventory of both food and beverage (a blog dedicated to this procedure – and how to make it easy – coming soon)

Here’s what to track

  • Sales – by outlet, by meal period; also for each, covers
  • COGS – food cost, beverage cost, A/V & Other costs
  • Labor costs – hourly wages, salaried wages, benefits costs
  • “Bonus” labor tracking: if possible, track labor hours. This results will allow two simple and revealing calculations: labor minutes per cover and sales per labor hour
  • Purchases of food and beverage
  • Ending inventory (yes, again, you should take weekly inventories – pay no attention to whether accounting wants or needs these figures)
  • Other expenses, supplies, etc.
  • You can – and should – enhance the weekly report with auto-calculated percentages, and a running total for the week (and for the month, if you wish)

Finally, remember above all else: this is not an accounting document, but a management information tool. Do this – your management effectiveness will increase exponentially.

Those are my thoughts, let me know yours.

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F&B Directors – Are You Keeping Up?

Are you keeping up with your industry, “hotel F&B”? Are you reading all of the right magazines?

Great. Now STOP. Stop reading hotel industry publications. Just for a while. Look for some ideas from sources not connected with the industry.

I know. Who’s got time to read, and anyway, who reads magazines anymore? Can you spell “webzine”? Maybe the Internet, per se, hasn’t killed magazines, but when you factor in recent mobile technology advances, including e-readers like Kindle, the print world certainly seems even more challenging.

No matter. Web site or print. You likely already subscribe to several excellent publications such as Hotels (www.hotelsmag.com), Hotel F&B (www.hotelfandb.com), Lodging (www.lodgingmagazine.com), Lodging Hospitality (www.lhonline.com), Hotel & Motel Management (www.nxtbook.com/nxtbooks/questex/hmm_20091123/index.php), and Hotel Design (www.hdmag.com/hospitalitydesign/index.shtml), to name a few.

No doubt you subscribe also to some of the many excellent restaurant industry magazines, including Nation’s Restaurant News (www.nrn.com), Restaurants & Institutions (www.rimag.com), Restaurant Hospitality (www.restaurant-hospitality.com), and Restaurant Business (www.restaurantbiz.com).

Of course there are the specialty magazines, often with cuisine or beverage-alcohol based content. Sante’ is among these excellent magazines (www.santemagazine.com), and many culinarians like Chef (www.chefmagazine.com).

OK, so now let’s go “off the industry path” just a little bit. Let’s see what’s going on in other parts of the world, even related parts.

If you run a fine dining establishment, read QSR Magazine (www.qsrmagazine.com). If you work for a large company, read a publication designed for independents, like Restaurant Startup & Growth (www.restaurantowner.com).

Who are your customers and what are they interested in?

Are you getting more requests for vegetarian items? Read Vegetarian Times (www.vegetariantimes.com), or even – if you want some ideas for vegan dishes, or to better understand the vegan point of view, Veg News (www.vegnews.com/web/home.do). Are they coffee aficionados? Try Fresh Cup for industry trends in specialty coffees (www.freshcup.com).

Let’s really get off the path now. Are they concerned about fitness? Read Fitness (www.fitnessmagazine.com), or Men’s Fitness (www.mensfitness.com). Are your customers boomers? Read AARP Magazine (www.aarpmagazine.org) – maybe you’ll have to borrow your parents copy?

And don’t forget to look at what’s going on in retail. Some may have publications available at the store only, but all have web sites. Look at Whole Foods (www.wholefoodsmarket.com), Dean & Deluca (www.deandeluca.com), Wegmans (www.wegmans.com) and Trader Joe’s (www.traderjoes.com).

Those are my thoughts, let me know yours.

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“In Room Dining” or “Room Service”?

What a dilemma! What should we call this special function, one which the hotel industry clearly “owns”. Upscale hotels seem to prefer In Room Dining, but I don’t know that anyone has ever asked the guest.

 Does it matter?       

 “In Room Dining” describes this from the guest experience point of view: dining. “Room Service” describes this from the hotel (and guest) points of view: service. “Dining” sounds just a touch expensive and formal (aren’t these elements many of us are removing from our hotel dining rooms?) and frankly, I’m not dining – I’m trying to get something to eat and drink, while I…

  • Work on my laptop
  • Watch TV
  • Shower & shave
  • Get dressed for an event / etc.

Note: this is often a convenience buy.

So, what does matter? How about capitalizing on one or more of these opportunities:

Opportunity 1: Room service is your ‘leg up’ on local restaurants. It’s the one game at which “they” can’t beat you. Go after them. By providing product and experiences equal to or better than what they have (+ “delivered to the room”). If your guests frequent a steak house 2 blocks away, what memorable steak experience can you provide? If they go to the sports down at the corner, make sure tonight’s sports channels and offerings are in the room when they check in, or are handed to them at the desk.

Opportunity 2: Room service provides a way for you to make an impact, create a point of difference. (If you’re thinking about this from a corporate point of view, it’s a great way for your company/chain/brand to communicate and execute a point of difference.) You can “brand” it. You can create signature “Room Service Only” signatures (Please, not personal pizza. Please.) A “Room Service Selected Wine List” (half bottles?).

Opportunity 3: Room service gives you the chance to create or extend your relationship with the guest, through a thoughtful promotion or service feature. Give them something they didn’t order (a chocolate? TV Guide? A cordial mini?). Interact with them in an unexpected but nonintrusive (and value add) way – squeeze the grapefruit juice at their table, or make the coffee with a French Press at their table, or decant the wine.

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Catering Menus – What’s the Occasion?

Hotel Banquet & Catering departments are experts and leaders when it comes to capitalizing on the benefits of occasion-based marketing. Well, maybe. If we’re talking about just one occasion: weddings.

Other occasions? It seems that “one size fits all” is pervasive. And by the way, that size is XXXL.

Let’s begin with the obvious. There are two primary banquet categories. Each is very broad. Group business driven by guestroom bookings, and social events driven by the event itself (wedding, fundraiser, recognition dinner, etc.).

So, is your banquet menu “one size fits all”? Do groups and social bookers (other than prospective brides) get the same menu? Makes sense – IF their needs are the same.

But are they?   

What does a group’s representative want in a menu? When it comes time for selection, the guestrooms and meetings have long since booked. Now it’s time to select the menu. Your meeting planner is looking for ease of ordering, selections within their budget, and confidence in your ability to deliver. Their job may depend on it. In short, this menu must first be functional and appeal to the intellect. Menu selection is a business decision.

Social bookers typically don’t represent the banquet client – they are the banquet client. Social clients vary widely but the events often involve the celebration of an event, an organization, specific person(s) or specific achievement. In short, the menu must satisfy the client’s emotional needs. It should help you develop a relationship with the client.

For example: Tell a story: about the Chef, about the ingredients, about the history of the hotel, about the staff, special local touches and support the story with photos. Personalize the menu if you can. Create for the client your 5-page menu, your packages, your pricing as opposed to “our generic 30-page menu with price sheet”. This may require changes in your current processes, asking and assessing different types of question than you do now.

How are hotels handling the multi-occasion markets? A cursory look at five major hotels (each a different brand) in the Atlanta market shows that only one clearly delineates between Group/Meetings and Social by offering separate menus for each. Another hotel is transitioning in this direction – they show the categories but the menus are “coming soon”. Two other hotels offer a single menu for all occasions (except weddings). And one hotel – I’m not making this up – asks you to call them if you would like to see their menus. Hmmnnn.

Once you have separate menus – and selling strategies – for the two main categories (three, including weddings), you may wish to “drill down”, identify occasions within the occasion, and create additional menus accordingly. Sub-occasion? What?

Well, suppose the occasion is “weddings”. Perhaps you are a resort. Would “second weddings” be a “sub-occasion”? Are there enough elements unique to “second weddings” that a targeted menu could – and should – differentiate its content?

Those are my thoughts, please share yours…

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Are You Tracking That?

Tracking what, exactly? Well, everything, apparently.

Just what are the trends in F&B number analysis? We have so many tools today – it’s great. At the risk of dating myself, I remember the day our regional F&B Director rushed into my office and announced that he had this new “miracle” tool, VisiCalc, and “wait until you see what can be done with it”. That was 25 years ago. Here’s how things have evolved, for some hotel and restaurant chains:

  • We have more information then ever before. It’s a digital world. We have Business Intelligence Systems. We have Dashboards. We have Enterprise Programs to look at POS in real time. We have labor systems and can view labor in real time. Purchasing systems – need to know how many bottles of tobacco you bought last week? Yesterday? No problem. And of course, we have spreadsheets.
  • What is the job today? Reports. To corporate. Now. “More information than ever before” has led to “more reporting than ever before”. And, thanks to Excel, Adobe, Power Point and others, we can make some pretty spiffy reports.
  • Since we have all of this incredible information there are some silly practices from “long ago” that are really not needed any more – and for many, basic practices such as taking inventories and forecasting covers by meal period are among the data casualties.
  • And how helpful are the reports? Maybe this is a hint: I have yet to meet a unit manager, hotel or restaurant, who didn’t keep his or her own spreadsheet with their own collection of goals and trends, and use that spreadsheet to manage.

“To manage”? That’s right. They find they can’t manage with 100 data points to look at, but they can do a hell of a job looking at the ten most critical data points, especially if they look at them every day.

Let’s digress: how many restaurant companies have won the coveted Malcolm Baldridge National Quality Award (www.baldrige.nist.gov)? The answer is one: Pal’s Sudden Service (www.palsweb.com), a small drive-through hot dog chain with no indoor seating, but with business practices and results beyond what most of us have imagined possible. And Pal’s shares its methodologies through its Pal’s Business Excellence Institute (www.palsbei.com) – I’ve taken 3 courses there, and recommend it to anyone pursuing excellence in business practice.

Why I mention this – Pal’s tracks 10 pieces of information. Not 11. Not 100. Just 10. Pal’s managers and corporate track the same thing.

In fact, the fourth (of seven) category of criteria for Baldridge is: Measurement, Analysis, and Knowledge Management. A paper about the Award and about Pal’s published for the International Journal of Quality and Productivity Management (Vol.5, No.1, December 15, 2005) explains:

It is difficult, if not impossible, to manage an activity that cannot be measured in some way. Often, managers want to obtain as much data and information as possible regardless of its usefulness. Many incorrectly believe that more data lead to a more informed decision. This is usually not the case. Only relevant data should be kept and measured, and key performance measures should be acted upon.

The successful managers I’ve observed, at the unit level, get this.

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Another Way to Structure Corporate F&B?

First, let’s get real about hotel F&B.

If you’ve been in hotel F&B most of your career, you may be surprised to learn that all F&B at all hotels (USA) accounts for about 4% of “food away from home”. The remaining 96% of the $400-billion+ industry, which includes restaurants, institutional feeding, caterers and kiosks, is generally profitable. Those that are not profitable go out of business. Hotel F&B is generally unprofitable unless there is a lot of banquets/catering space. And hotel restaurants are never profitable, unless they are operated by an independent operator.

Unlike freestanding restaurants, hotel restaurants that are not profitable (and this would be nearly all of them – see previous sentence), do not go out of business. Nor should they, as their purpose is to support the hotel. This isn’t wrong, and it isn’t stupid. It is, well…tradition. So we accept it. And build structure and infrastructure around it.

In the last decade or two, some hotel chains have started to lease to or partner with restaurant brands (including celebrity chef “brands”). If you’re willing to relinquish control of some of your services and maybe even a portion of your image, and especially if you can retain the most profitable end of the business, banquets/catering, this can be a rewarding strategy.

But there may be another approach. It’s a paradigm shift, really. “Spin off” your corporate F&B into a separate (wholly owned) corporation. Next, lease all of your restaurants and F&B to the new corporation. F&B employees will work for the new company, and F&B Directors (they will now be restaurant “General Managers”) will report to the new corporation. And surely you will have to “beef up” the corporate F&B infrastructure.

What a mess, huh? Hotel GM’s – or whomever is responsible for the lease – will have to negotiate services and payment for services as well as lease rates and terms. All of those free meals, discounts and other bargains passed on to sell rooms will have a real cost attached to them.

And what about F&B? Well, they’ve got to make a payroll don’t they? And pay their vendors. They may have to pay for administrative and accounting services and maintenance services, and utilities – all of which can and should be negotiated and included in the lease.

Wait a minute – this is a lot of hassle! Why bother? Well, unlike a standard lease to a third party, your company is still “in control”. And this new perspective may go a long way toward making both businesses – hotel and F&B – more profitable than ever before. Oh, and now you own a restaurant company. I wonder if that makes you part of the “remaining 96%”?

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How to Sell Less Wine

You’ve managed wine sales and service in restaurants and/or hotels for much of your career. You’ve been training servers, attending wine tastings, meeting with wine purveyors and wine makers, visiting vineyards and reading Wine Spectator for years. Decades, maybe.

And you’ve been writing, designing wine lists.  Creating lists for menus. Only now do you realize, wine list elements you’ve relied upon for years are, well, ineffective. Thanks to Sybil S. Yang and Michael Lynn, Ph.D., and The Center for Hospitality Research at Cornell University we now understand which wine list attributes correlate to increases in wine sales. In their breakthrough finding, “Wine List Characteristics Associated with Greater Wine Sales”  [Cornell Hospitality Report, Vol. 9, No. 11, July 2009], Yang & Lynn detail how they meticulously studied the wine lists and wine sales of 270 restaurants spanning several major markets.

Reading this is easily an “Everything You Know is Wrong” moment (thank you, Firesign Theatre). Here are some examples.

  • There is no correlation between wine sales and the number of wines on a wine list, in fine dining.
  • There is no correlation between greater wine sales and the presence of Champagnes or sparkling wines, dessert wines, wines by the glass, or tasting flights on the wine list
  •  One may reasonably infer from the data that casual theme restaurants benefit from a greater selection of lower priced wines, however this is not so in fine dining, where increasing the selection of lower priced wines does not result in additional sales.
  • There is evidence that a wider range of prices on a wine list (or a more narrow range), whether casual or fine dining, has no effect on sales.
  • Wine list design: only two attributes were found to correlate to higher wine sales: placing the list on the menu (instead of a separate book), and not using the dollar sign ($).
  • Fan of “progressive” categorization? Think again: “In addition (and counter to conventional wisdom), wine lists that used wine style as an organizational heading were associated with lower wine sales.” (Hedge: the authors suggest, well maybe it’s just about the type of restaurants that use this list…)
  • Do recognizable wine brands matter? Maybe. This tactic can’t hurt, the authors data shows, and “more frequent mentions of some brands were associated with greater wine sales”. You have to experiment.
  • Finally, you don’t have to offload those special selections: there is a positive correlation between sales and having a “reserve” section on the wine list.

The report can be downloaded on line – register and get it. Or send me a note, I’ll happily forward the PDF to you.

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