How to Start a Liquor Store

Part 1 - How to start a Liquor Store business - Background

Whether for a special event, or just to wind down after a long week, Americans have always enjoyed their wine and spirits. While there are a lot of details that go into owning a liquor store, many find it to be a very rewarding career. You have an opportunity to interact with customers and sales representatives regularly and ensure you’ve made their day a little brighter.

Our guide is in 3 parts:

• Part 1 - How to start a Liquor Store business - Background
• Part 2 - Our planner tool to see if this idea is the right fit for you
• Part 3 - Action plan to get started

What are the costs involved in opening a liquor store?

The capital required for start-up costs vary depending upon a number of factors. Location, staffing costs, beginning inventory, and licensing fees are all defining factors in how much you’ll need for your initial investment. BevMax requires that their investors have a minimum of $150,000 in liquid capital to open a franchise location properly. Entrepreneurs have reported start-up costs as high as $1 million for opening larger establishments.

What are the ongoing expenses for a liquor store?

A majority of your earnings will go back into re-stocking the store’s shelves. Investing in accounting software from the get-go will assist you in developing an efficient system for keeping up with your inventory.

Your second largest ongoing expense is payroll costs. You’ll also have annual licenses to renew, as well as insurance costs, which can be high in this line of work. A good portion of your monthly budget should go towards ongoing marketing campaigns, hopefully ensuring a steady flow of patrons.

Who is the target market?

As a rule, your preferred customer is anyone, over the age of 21, who enjoys a tasty beverage and prefers to do business with smaller, local establishments over the large retailer. Before investing in your retail space, conduct research to determine the competition in the areas you’re considering. What types of products do they sell and how successful is their business? What are the likes and dislikes of consumers in the area? This will help you determine if there’s a specific niche you should be targeting and what to stock the shelves with.

How does a liquor store make money?

Liquor stores make money through the sale of each beverage. Some are sold by the bottle, while others are sold in greater quantity, as determined by the distributors.

How much can you charge customers?

Pricing varies from product to product and is defined by the size, type of alcohol, and distributor prices.

How much profit can a liquor store make?

According to a recent Forbes study, liquor stores are among the top five least profitable businesses, taking home a profit of 1.7%. Owners who are able to run their own business take home an average salary of $21,000 – $51,000, depending upon size, location, and sales. At 1.7%, a store that has total sales of $500,000 realizes an annual profit of $8,500.

How can you make your business more profitable?

The following are a few strategies you can implement to ensure a more profitable liquor store business:

• Offer classes, where you teach customers about specific products. Mixology classes are also a great way to pass your knowledge on to your customers.

• Weekend cocktail samples give customers an opportunity to try something they might not otherwise consider. By offering these tastings on a weekend, you increase your chances of selling the product you’re promoting. Speak with the liquor distributors about these events. They can offer drink recipe suggestions and many will send out a representative to help with the tasting.

• Start a wine or beer club.

• Sell additional items that pair well with the products you sell. If wine is a speciality item, offer various cheese, crackers, wine glasses, etc.

• Smaller liquor stores who have an attached bar and/or restaurant have also realized greater profits.

Day-to-Day and Growth

What happens during a typical day at a liquor store?

As the owner, you’ll want to be a visible part of the establishment at all times. Patrons will look to you for advice on a specific beverage, based on their personal preferences and/or event needs. In addition, you will be creating ongoing relationships with your various vendors and sales reps.

As the face of the business, there are a number of behind-the-scenes tasks you’ll need to accomplish daily. Maintaining accurate inventory, protecting your cash flow, and predicting SKU level/product demand requires careful and constant attention. Privately owned liquor stores typically realize a greater profit when structured as an owner-operator establishment. y

What are some skills and experiences that will help you build a successful liquor store?

Strong business acumen is absolutely critical for starting and running a liquor store. Attention to detail, a knowledge of marketing and sales, accounting, operations, customer service, and human resources are all a requirement to ensure your business is even able to open its doors, much less realize long-term success. Since you’ll likely own and operate the establishment yourself, strong interpersonal skills will also prove beneficial.

What is the growth potential for a liquor store?

There is very little ability to negotiate with distributors over pricing, as they have the monopoly on their alcohol brand. This makes competitive pricing between retailers difficult and results in a fairly low profit margin. The only way to secure significant price cuts is by investing in the purchase of large bulk orders, which presents its own set of challenges. It requires deeper pockets and additional space for storage. It’s also important that you understand consumer demand for bulk items, ensuring a timely return on investment.

To combat some of these issues, owners with a significant amount of cash flow find success by either opening a large, warehouse store, or by investing in more than one location. Franchising opportunities such as Wine & Spirits or BevMax offer entrepreneurs inside knowledge and assistance in helping an owner’s vision become a reality.

What are some insider tips for jump starting a liquor store?

The following are some insider tips from individuals who have found success in this highly competitive industry:

• Hire a knowledgeable attorney. The laws governing the handling and sale of alcohol can be quite complex. A lawyer can assist you in deciphering the language and ensuring no detail is missed.

• Location, location, location. Your goal should be to open your market in an area that isn’t already saturated with competition. But, the location’s importance goes beyond that. Depending upon where you live, there could be local laws restricting the sale of liquor near churches, schools, libraries, and hospitals.

• Open your liquor store near a grocery store that doesn’t sell liquor. Consumers like the efficiency of running multiple errands at once. If your shop is near the grocery store, they’re more likely to stop in.

• Set your business up as an owner-operator establishment. Due to high payroll and inventory costs, this is the most effective way to ensure a profit.

• Before signing on the dotted line on a building, consider contacting your local chamber of commerce. They can offer valuable insight into the demographic you’ll be serving and, in turn, how your business should be structured.

• Maintain a balanced inventory at all times.

How and when to build a team

Per our insider tips, you’ll likely want to manage your liquor store yourself. The hours are long and the work is hard, however, so you will want to build a quality staff to assist you during the busy times. Due to the nature of the business, your team should consist of individuals over the age of 21. The more knowledgeable staff you have, the better customer service your store will provide. Many liquor store owners hire employees who have been of legal age for some time and had the opportunity to build knowledge on your store’s various offerings.

Part 2 - Is a Liquor Store business the right fit for you?

Part 3 - Action plan to launch your Liquor Store business in 90 days