Author Topic: liquor store possibility  (Read 2969 times)

nedwin

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liquor store possibility
« on: June 22, 2020, 05:06:52 PM »
Are there any liquor store owners that would share their experiences with me?  Or anyone else that could comment on this?  I searched the forum but could not find anything on point.

I am considering opening a store in a fast-growing, high income town in a location on a high traffic road.  The median home price is over $500k, median household income between $101k and $128k depending on the source, and population growth since the last census is over 500%.  A large club store is the only other liquor retailer in the town, and the state laws work out such that there could not be another liquor store within 3000 feet of a new store (my desired location is more than 3000 feet from the club store).  This means that there could not be a competing store in this town for several years.  My desired location is on a major road with significant commuter traffic and is near an interstate.  There is new and planned residential development nearby.  I have looked at similar stores in the area, and they range from 3500 to 5500 sf and they are typically open 9 am-9pm Sunday-Thursday and 9 am-10pm Friday and Saturday.  I know this would require a significant investment for build out, inventory and other start-up costs.  With those hours I would also need a few employees so I could see my family at least a little.  What are your thoughts?

YttriumNitrate

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Re: liquor store possibility
« Reply #1 on: June 23, 2020, 08:11:58 AM »
Your previous posts mentioned Colorado, is that were the liquor store is planned? If so, be aware that the floor may drop out from the business in 2037 when grocery stores start selling everything.

https://www.usatoday.com/story/money/2019/12/06/fort-collins-colorado-liquor-stores/2606899001/

HPstache

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Re: liquor store possibility
« Reply #2 on: June 23, 2020, 08:15:38 AM »
Your previous posts mentioned Colorado, is that were the liquor store is planned? If so, be aware that the floor may drop out from the business in 2037 when grocery stores start selling everything.

https://www.usatoday.com/story/money/2019/12/06/fort-collins-colorado-liquor-stores/2606899001/

That happened in my county about 10 years ago and the liquor store is still in business.

FINate

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Re: liquor store possibility
« Reply #3 on: June 23, 2020, 09:19:47 AM »
Putting on my MBA hat that I don't get to use much in FIRE, pardon the rustiness...

It sounds like an interesting idea that may have potential, but ideas are a dime a dozen. And, as others here have implied, basing success on assumed on-going government protection is risky. There's no guarantee that liquor stores will maintain a monopoly on certain beverages or the 3000' distancing. Any whiff of change in the air and it's already too late, the value of the business drops overnight. 

More importantly, you've outlined a *very* preliminary idea that's impossible to evaluate with a lot more detail. Detail that you need to flesh out as part of your due diligence.

Let's get one thing out up front: Liquor stores are a commodity retail business, margins are razor thin.

Start by doing a detailed Break Even Analysis (search online for resources about this): What are the fixed costs, variable costs, and average price per unit sold. This is a framework for organizing all the data you can get your hands on: taxes, licensing fees, payroll (incl. taxes), insurance, legal fees, accounting fees, COGS, advertising, initial build, and so on. How many units do you have to sell to break even (e.g. cover your costs). Important: YOUR pay should be included in this analysis. Don't make the mistake of thinking you can go without a paycheck to help get the business bootstrapped. This is the fast track to burnout and wrecking your personal finances.

Next, you need to do market analysis. This is a lot more subjective than the break even analysis. People tend to be attached to their idea in this analysis, and so they see what they want to see to support their bias. Don't do this! Guard against diluting yourself as this will only hurt you down the road. You want a brutally honest assessment of the viability of the business, not a rah-rah pep talk divorced from reality. With that said, what is the market for liquor store products in this location? Realistically, how much of the market would navigate to this location vs. existing retailers. I'm talking customer base right now, not in the future. If the customers aren't already there you won't last past the first year... you will build out a store, struggle, go out of business, and then the next guy will come along and buy your business for pennies on the dollar and then be successful because by then the customer base is there.

If you have ample demand to push you pass your break even point then it's probably a good business. If not, it's a hard stop. No excuses, no justifications, no magical thinking. Just no.

Even if you get to this point, there are other wildcards you need consider, things like how long (and how much does it cost) to get a license. And what is the permitting process like. And will neighbors be able to block your permit application (many folks don't like having liquor stores in/near their residential neighborhoods). And so on. Write these down, try to put numbers/estimates/probabilities around these.

At the end of the day, business is brutal and unforgiving. It's entirely up to you to do your homework and do everything you can to improve the odds. Most businesses don't survive 5 years, and many that do "survive" are killing their owner(s) behind the scene. It's far better for a business to fail on paper before you dump a lot of money into it. But if you do find a business that pencils out it can be very rewarding... still difficult, yet rewarding.
« Last Edit: June 23, 2020, 10:19:24 AM by FINate »

KarefulKactus15

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Re: liquor store possibility
« Reply #4 on: June 26, 2020, 12:18:27 PM »
Your previous posts mentioned Colorado, is that were the liquor store is planned? If so, be aware that the floor may drop out from the business in 2037 when grocery stores start selling everything.

https://www.usatoday.com/story/money/2019/12/06/fort-collins-colorado-liquor-stores/2606899001/

That happened in my county about 10 years ago and the liquor store is still in business.

Same way a convenient store or dollar general  stay in business with a Walmart just a few blocks further I spose.

MustachioedPistachio

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Re: liquor store possibility
« Reply #5 on: June 26, 2020, 12:49:58 PM »
FINate summed it up nicely.

My question for you is simple - does booze excite you? Do you love talking about it and trying it?

Here are some of my thoughts from when I worked "undercover" for a liquor store to gauge the actual work and business viability. As FINate mentioned, it is a commodity, and margins are indeed razor thin. The best mark-ups were on the "flight" bottles. Holidays (where legal) are the biggest selling days. Being retail, good help can be tough to find and keep. Theft is a real issue. You'll need to budget a huge chunk to fully stock on inventory...even more so if you are planning on selling wine. Serving a high-income demographic likely will mean higher carrying costs in the form of more expensive bottles/wide variety and higher overhead in the form of more specialized staff, more space, and higher-end decor. You'll need at least the same amount of square footage to store the product as to sell the product. Will need to consider how to procure the product and how that affects your offering capability versus the competition (is it distributors? Independent vendors?).

You can improve margins by bundling the goods with a service, such as tastings or highly knowledgeable staff, or providing a superior selection versus the big box store.

While not a liquor store owner myself, I do own a couple of restaurant franchises and personally know liquor store owners.

EXLIer

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Re: liquor store possibility
« Reply #6 on: July 02, 2020, 08:10:18 AM »
I owned a liquor store for 5 years in South Florida.  I've owned 4 different types of businesses and I felt the liquor store was one of the easier ones to manage. 

The highest profit margins are in small bottles - 475ml, 200ml and 50ml ( ~50-100%) followed by wine ( ~35%).  Some common items I made nothing or even lost on.  My market was challenging since we were competing with the likes of HUGE chains not only with the buying power, but they also got deals that just weren't offered to independent shops.  I always wanted to start a class action lawsuit for price discrimination.

I know Colorado keeps altering the liquor laws allowing more and more establishments to sell beer and/or liquor.  This would be concerning as the playing field keeps changing. 

EXLIer

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Re: liquor store possibility
« Reply #7 on: July 02, 2020, 08:13:45 AM »
Your previous posts mentioned Colorado, is that were the liquor store is planned? If so, be aware that the floor may drop out from the business in 2037 when grocery stores start selling everything.

https://www.usatoday.com/story/money/2019/12/06/fort-collins-colorado-liquor-stores/2606899001/

That happened in my county about 10 years ago and the liquor store is still in business.

Same way a convenient store or dollar general  stay in business with a Walmart just a few blocks further I spose.

Like comparing apples to hand grenades.

One small mom and pop store has a conglomerate move in close by, it could be devastating.

Dollar General competing with Walmart at a few locations ..... they have 16,000+ other stores to make those loses seemingly disappear.

Michael in ABQ

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Re: liquor store possibility
« Reply #8 on: July 04, 2020, 02:22:16 PM »
There was a small chain of liquor stores here in Albuquerque but several years ago Total Wine built two stores and that local chain is down to just one store. Liquor licenses here are around $350,000 for a restaurant/bar. For a package liquor license I think it's around $700,000. That's what an artificially constrained supply will do for you. At some point if the government regulations change a bunch of liquor licenses owners are going to see a huge loss. Of course they'll lobby long and hard to make sure that doesn't happen. I came from the Northwest where all the liquor stores are state-run. Here you can buy liquor in some convenience stores (if they've got deep enough pockets to have purchased a liquor license) plus a lot of grocery stores like Walmart and Costco. There are some independent liquor stores as well, but they focus on a more local niche. For selection (and usually price) you can't beat Total Wine. But they only have two locations in the city. So for me, I'm not going to drive 20 minutes each way to save a few dollars - though I will stop by on my commute home as one is only a few minutes off the freeway.

It sounds like you could capitalize on the convenience factor, but if you have limited selection or significantly higher prices you're not going to get a loyal customer base - just the people who forgot to buy it more cheaply elsewhere or who are fine with a limited selection. You can't be everything to everyone and carrying costs/shelf space to stock 12 different types of tequila probably don't make sense. If you're going to target a higher-end clientele with a larger wine selection or local beer/wine/liquor, that could provide an edge.

Zamboni

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Re: liquor store possibility
« Reply #9 on: July 04, 2020, 02:34:47 PM »
My uncle worked for several years at a liquor store in a nice suburb and they were robbed (at gunpoint) several times. If you are on the main drag with easy in-and-out for parking, this will probably happen. For whatever reason, probably the combination of a small location with cash and booze, thieves like liquor stores. The state owned stores near me are all set up to prevent and deter both shop lifting and armed robbery, with multiple alert employees at all times, raised high security register areas, etc.

nedwin

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Re: liquor store possibility
« Reply #10 on: October 15, 2020, 12:34:19 PM »
Thank you all for your replies, all very helpful. Sorry for the long delay in responding.

My first post was a spit-ball idea, and my intention was to see if it had any stick.  Shortly after starting this thread I spoke with a RE agent and got pricing on the location I was looking at.  The seller (also the developer, the space is new and in shell condition) is asking $425/sf for a sale or $35/sf for a NNN lease.  For the space I was interested in this amounts to just shy of $1 mil. for a purchase or ~$7,000/mo plus NNN for a lease.  My first reaction was there was no way I could sell enough Coors Light to pay for the real estate, so I let this slip for awhile.  Since then I have thought more about it, developed some financial projections, and worked with another person with significant retail experience.  This other guy is a former area operational manager for Home Depot and is currently a partner in a marijuana dispensary and a few CBD stores.  The numbers we have developed so far work out on paper, but i'm least confident in the sales numbers.

@FINate I hadn't thought of beer/liquor as a commodity, but you are right.  I usually shop for it based on price, selection and convenience.  For beer I shop by convenience over the others, for liquor I drive out of my way for selection.  My own shopping patterns are helpful in thinking about marketing and how this may work out.  For the financial projections I am relatively confident in the costs (have done plenty of research), but not as confident in the sales projections.  I have used publicly available information from the SBDC and library and also have some information on local household spending and similar info on general household spending from other sources.  Generally these show that households in the vicinity spend about $750/year on alcohol based on location and demographics, which is on the higher side compared to other areas/demographics.  Is it possible to translate this information into more firm sales projections for this store?  Do you have any other suggestions for developing sales projections?

@YttriumNitrate I have followed the changes in CO's liquor laws pretty closely and not seen this date before, but I will look again.  The two stores mentioned in the article - Wilbur's and Pringle's - are both the gold standard for liquor stores.  Wilbur's is huge (25,000 sf) and not really what I was envisioning, but Pringle's is the standard I would strive for.  Both owners are very vocal in advocating for independent liquor stores.  The article notes that both saw a drop in beer sales of about 20%, but I suppose the upside of this venture is there is nothing to compare prior sales to and the competition is anticipated from the beginning.

@MustachioedPistachio One of my biggest concerns is storage, especially given the high cost of real estate.  I have considered off-site storage, but need to confirm if that is legal.  For procurement, it would be both distributors and independent vendors.  The independents would be for smaller and craft breweries/wineries, distributors for everything else.  I would also strive for add-ons such as tastings, delivery, selection, so on.

@Michael in ABQ In a previous lifetime I worked in Alaska where the number liquor licenses are also constrained in proportion to the population of a government unit.  At the time licenses for bars/restaurants were all allocated in Anchorage, and sold for between $250k-$350k.  Package store licenses, at least in Anchorage, were not all allocated but were VERY difficult to place due to the local approval process.  We had a client that was able to sneak one through in the summer when the local advisory board was out fishing, he was either lucky or genius.  In CO the constraint based on distance from other licensees and, thankfully, the location I am considering would not require the purchase of a license.  It would "only" be an application and entitlement process with the local government.

@Zamboni Robbery and theft is a top concern.  Would have an alarm and other deterrents.

FINate

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Re: liquor store possibility
« Reply #11 on: October 28, 2020, 09:01:19 PM »
@FINate I hadn't thought of beer/liquor as a commodity, but you are right.  I usually shop for it based on price, selection and convenience.  For beer I shop by convenience over the others, for liquor I drive out of my way for selection.  My own shopping patterns are helpful in thinking about marketing and how this may work out.  For the financial projections I am relatively confident in the costs (have done plenty of research), but not as confident in the sales projections.  I have used publicly available information from the SBDC and library and also have some information on local household spending and similar info on general household spending from other sources.  Generally these show that households in the vicinity spend about $750/year on alcohol based on location and demographics, which is on the higher side compared to other areas/demographics.  Is it possible to translate this information into more firm sales projections for this store?  Do you have any other suggestions for developing sales projections?

Public data is a good start. I would also talk with someone at the SBDC, let them know what you're considering and see if they have leads on other sources for local data. IMO this is one of those instances where it's worth spending some money if necessary. What's $5k (or whatever) compared to the cost of building and operating a business?

As you said, your core product is something people are willing to drive for price and selection. Can you compete in these areas? I would spend some time staking out the competition. Note their prices, selection, foot traffic, and so on. What is your best guess of their profit margins? Can you at least match on price and still turn a profit? My guess is that the margins are thin on the actual liquor, whereas incidentals (snacks, margarita salt, and other do-dads) are the real money makers, hence the reason this kind of stuff is displayed prominently up front.

CowboyAndIndian

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Re: liquor store possibility
« Reply #12 on: November 03, 2020, 09:02:43 AM »
I did not own a liquor store, but I built an online store for wine/liquor while my partner owned the liquor store. I stopped the online part a couple of years ago when my partner did such a shitty job of FedEx'ing our online sales.

You can expand your business a lot by doing online sales. Make sure you add an online store.