Have you been thinking about buying your own business? Chances are, you have never owned a liquor store, but you have heard that it can be a good investment and a good business to own. To help you to make up your mind, we decided to devote this blog to discussing different aspects of owning a liquor store and to answering common questions we get from potential buyers.
DO I HAVE TO HAVE PRIOR EXPERIENCE IN THE INDUSTRY?
Many first-time liquor store buyers are very successful. Comments we’ve heard from store owners in the past include: “it’s easy to learn,” “it’s low risk compared to a lot of other businesses,” “it’s pretty resistant to economy ups and downs,” and “it’s easy to sell when you’re ready to retire”. Of course, as with any other business, it requires hard work, attention, and the ability to make intelligent decisions, but if you are ready to commit, you can earn a nice living and enjoy all of the benefits that you expect from small business ownership.
CAN I OPEN MY OWN STORE OR SHOULD I BUY ONE?
It is very difficult to start a store from scratch in a new location, mostly because of state limits on the number of stores (one per 2,500 people in a town in CT and no specific population restriction in Westchester County, NY) and applicable local zoning regulations. Starting a new store also requires the owner to develop and retain patrons for the store – also from scratch. An existing store already has a clientele and an established reputation, and a new purchaser can focus on expanding the clientele and burnishing the reputation. An existing store also already has all of its licensing in place, already has distributor relationships, and already has processes developed. This makes for a much faster learning curve, particularly with training from an existing owner. Therefore, in our opinion, the easiest way to get into the liquor store business is to buy an existing store. There is process to obtaining a license, but in our experience, an applicant with good credit, available capital to run the store and no criminal record should have no problem being approved.
Lottery can be a nice way to add a little something to your top-line revenue. If a store you are looking at has lottery ticket sales, you can almost always take it over by filing an application with Connecticut Lotto.
SHOULD I BE AFRAID OF BIG GUYS SUCH AS TOTAL WINE OR LQR MKT?
Our founder actually lives in an area that has several big guys around, and yet smaller stores do very well. The big secret here is that people generally are not willing to travel great distances for alcohol, all other things being equal. If they want to buy a bottle of wine on their way home, they will generally stop at the closest store as long as the store has a decent selection, knows its customers, and provides good service. There are lots of ways you can differentiate yourself from the big guys. Customer service is the first thing you will need to concentrate on – know your regular customers by name, adjust your selection to your customers’ tastes, and generally be nice and personal. Secondly, you can introduce conveniences such as on-line ordering and delivery services. Thirdly, be pro-active by participating in local community events, run regular tasting events, issue a newsletter to stay in touch with your clientele, and run targeted advertising. Community members, who will be your patrons, tend to like it when stores act like they are part of the community.
NUMBERS, NUMBERS, NUMBERS…
Financial review will be a big part of your investigation; however, here are a few important industry standards you should be aware of. Overall gross profit margins in liquor stores generally are between 21%-24%, the exceptions being large discount stores which operate on 18-20% margins, and wine specialty stores, which may run between 27-30% margins. Many stores have Lotto machines which may generate $6,000-$20,000 per year in commission income (net), which is based on 5% of lottery sales. The biggest operating expenses are the rent, utilities, and outside payroll. Smaller expenses are insurance, professional fees, supplies, and advertising. This will generally leave 11-14% of gross sales as available cash flow to a full-time working owner, somewhat higher perhaps for stores with low leases, or higher wine sales.
COMER BUSINESS BROKERS is here to assist you with the exiting process of buying a liquor store. We can help you to locate a store, assist in structuring a deal that makes sense, and help you through the entire process leading up to the day you take over as the new owner. You can expect maximum service from us when we have a clear picture of your interests, experience, and financial position. We keep all such information confidential. We hope that this adds to your understanding of the liquor store business, and that it helps you to take the plunge towards ownership of a store. Best of luck!