Most restaurateurs know that theft is a problem in the hospitality industry, but very few know how much is going on in their own establishments. According to the U.S. National Restaurant Association, approximately 4% of all revenue is lost to in-house theft. The latest figures from Statistics Canada, NPD Group and the CRFA, indicate that the average profit margin for Canadian restaurants was only 4.4% of operating revenue! Based on these figures, approximately one-half of your profit is lost to employee theft.
As if that isn’t bad enough, the cost of missing alcohol is only half of the story. Increasingly, restaurants and bars are learning that they have substantial tax liabilities resulting from stolen alcohol. I urge you to learn more about this insidious practice, here. It’s no wonder that 35% of restaurants fail because of employee theft!
With the help of Robert J. Quintero’s Masters thesis, The Theft of Alcohol in the Restaurant and Bar Industry, let’s take a closer look at employee theft in restaurants. The author’s findings are based on a survey of 153 employees at 38 establishments in Lubbock, Texas. While it is a bit dated (2001) and U.S-based, the major findings are likely to be reasonably similar in Canada.
Top 5 Types of Alcohol Theft
Based on an exploratory survey, employees admitted to the following types of theft at some point during their employment.
- 69.7% provided free drinks to friends
- 56.6% took part in unauthorized drinking
- 52.4% over-poured drinks to increase their tips
- 41.4% failed to ring in all items ordered
- 40.7% took alcoholic drinks for their personal use.
The study analysed the effects of various scenarios on three major categories of theft.
- “Giving Alcohol” included giving free drinks to friends and customers.
- “Reciprocity” was the term given to theft by servers providing free drinks to other establishment servers in return for free drinks at their establishments. Unauthorized drinks for the server and others at the employer establishment were also included.
- “Taking Cash” included cash theft, over-charging customers and short-changing customers.
Is Theft Reduced by an Automated Pouring System?
No. Even I was a bit surprised by this finding! The study found no significant reduction of Giving Alcohol (52.3%) with an automated liquor or beer pouring system. Similarly, there was no reduction in Reciprocity theft (79.1%). It appears that management is not properly monitoring the automated pouring systems, and employees are still able to provide free drinks to themselves, co-workers, friends and servers at other establishments.
Do More Satisfied Employees Steal Less?
This has to be true, doesn’t it? I mean, a happy employee wouldn’t want to steal, right? Wrong! The study found that Giving Alcohol and Reciprocity theft were not related to job satisfaction (although happy employees were less likely to Take Cash). As hard as it is to accept, your happiest employees are likely to be more loyal to their co-workers, their friends, and those that can give them free drinks elsewhere than they are to you, the owner.
The Effect on Theft of Allowing After-hours Staff Drinking
This finding didn’t surprise me at all. Allowing staff to consume alcohol after-hours substantially increases the incidence of theft. Giving Alcohol was much higher at 64.8% (vs. 45.5%). Reciprocity theft was higher, too, 88.9% vs. 73.7%. Even Taking Cash more than twice as high (16.7% vs. 7.1%). If it isn’t obvious, allowing staff to consume alcohol after-hours costs much more than the cost of the alcohol consumed!
The Effect of Allowing Staff to Give Away Alcohol (Comps)
Allowing servers/bartenders to give away alcoholic drinks (without authorization) is a recipe for disaster. No big surprise, here. The incidence of Giving Alcohol was 71.4% vs. 49.2% where this was not allowed, and for Reciprocity theft the figures were 95.2% vs. 76.5%. The moral of this story is to carefully monitor all customer comps.
While this paper doesn’t cover all aspects of bar theft, it does provide us with a few interesting, even surprising, insights. Even your happiest employees are probably stealing from you. The vast majority of your employees take part in “Reciprocity” theft – they’re more loyal to other establishment bartenders than they are to you. Installing an automated pouring system will not reduce employee alcohol theft.
So, what can you do. Supervise, supervise, supervise. Do not let staff drink after-hours, at all. Require every customer comp (free drink) is authorized by a manager, entered in the POS and recorded in a log or ledger. Of course there are many more things you can do to reduce employee theft. These are the ones that follow from this study’s findings.