How to Open a Liquor Store
Are you always trying new liquors and advising your friends and family about drinks that they’ll love? If so, starting a liquor store might be the right career move for you. If you enjoy learning about different types of alcohols, are highly organized, and know-how to offer great customer service, then you already have many of the skills that you’ll need to open and run a liquor store of your own. Starting a liquor store requires significant initial funding, but it can also be a great way to build a valuable and thriving business.
Liquor stores sell prepackaged alcohol meant to be consumed off-premises. They market to a variety of adults and can offer some specialty liquors that consumers can’t find elsewhere. These retail stores can operate as more general convenience stores, but there are also plenty of specialty liquor stores that offer unique, hard-to-find liquors. Entrepreneurs can start up small convenience liquor stores and eventually expand into larger stores, making this industry accessible to independent stores.
According to IBIS World, from 2014 to 2019, the liquor store industry has grown by 2.7 percent. In 2019, liquor stores were predicted to bring in total revenue of $60 billion. From 2014 to 2019, the number of liquor stores has grown to 46,470 businesses employing 186,694 staff.
The growth in liquor store profits is due to the increased per capita disposable income in the country. As consumers have more disposable income, they’re more likely to purchase non-essential items like alcohol. The per capita disposable income is predicted to increase again in 2019, meaning that liquor stores will likely continue to undergo corresponding growth in sales and profits.
The United States liquor store industry is highly fragmented, making it easier for independent stores to enter the industry. Dun & Bradstreet First Research states that the top 50 companies in the industry bring in just 25 percent of the total sales.
Independent retail liquor stores face competition to sell alcoholic beverages from grocery stores, some big-box retailers, and convenience stores. Some of these larger operations can purchase alcohol in larger volumes than independent stores, meaning those larger businesses can sell the products at lower prices. Liquor stores also compete indirectly with restaurants, where alcohol is consumed on-premises but is sold at a higher price than liquor stores.
According to IBIS World, liquor stores must follow liquor taxes determined at the state and federal level. These excise taxes drive up the price of alcohol, but taxes have slowly declined, and that decline is expected to continue in 2019.
Liquor stores target consumers who are age 21 and over and who can legally purchase alcohol. The typical liquor store serves the general population, while a more specialized store may be designed to appeal to a particular sector of the population, such as wine connoisseurs or people who seek out specialty alcohols.
Checklist for Starting a Liquor Store
If you’re thinking about starting a liquor store, it’s important to do your research first. Here is a checklist to help you get started.
Step 1: Write a Business Plan
After coming up with an idea, the next step in starting any business should be to write a business plan. Not only will a bank require you to have one, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.
Related: How to write a business plan
Step 2: Form a Business Entity
A business entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.
When deciding on which business entity is best for a liquor store, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.
The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is that the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: Guide to forming your LLC
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Step 3: Name the Business
Finding the perfect business name can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.
Step 4: Select your Location
Leasing a building for a liquor store offers a number of advantages over buying or building. A lease allows you to access a location in a prime retail area without the significant upfront costs that come with buying or building.
Lease costs are affected by the size of the store and its location. While a store in a popular retail area may cost more, it offers the benefits of existing foot traffic and the potential for walk-in customers.
Related: Choosing a business location
Step 5: Register for Business Licenses and Permits
Because liquor is a highly regulated industry, be prepared for plenty of paperwork in starting a liquor store. Policies for liquor store owners are different from state to state. They may even be different at local levels, so staying organized and paying close attention to detail is necessary when starting a store. Your state’s Alcohol Beverage Control Board can help you to understand the nuances of regulations and policies in your location. Changing laws and regulations can also affect the requirements for owners of established liquor stores.
To operate a liquor store, you’re required to have a liquor permit at the federal, state, and local level. At the federal level, stores will register with the Alcohol and Tobacco Tax and Trade Bureau (TTB) to legally sell or distribute alcohol and tobacco. According to Restaurant Insider, each state has its own regulations for getting a liquor permit, and some states’ requirements can be extensive. Making the startup more challenging, some local areas limit the total number of liquor licenses that are available.
In most cases, you will need to present business licenses and permits, a certificate of incorporation for your business, an employee identification number, and more. The price for a full liquor license can vary from $12,000 to $400,000, depending on your state and intended use of the license. It can take up to six months for a liquor license to be approved.
Related: Common business licenses, permits, and registrations by state
Step 6: Find Financing
Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a liquor store is another. One of the issues in getting a small business loan to start a liquor store is that a significant amount of money will go towards inventory, which can be an issue to use as collateral for some lenders. Banks are typically going to want the borrower to have good credit and personally invest 15-25% towards the total start-up costs.
Step 7: Open a Business Bank Account
Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.
Step 8: Get your Marketing Ready
Marketing is essential to liquor stores, and it’s particularly important when launching a new store. Marketing costs fluctuate depending on the type of marketing and the overall reach. When liquor store owners can do some of the marketing themselves, they can save some money, but many business owners opt to hire professional marketers or agencies to help.
Common marketing strategies for liquor stores include print marketing, direct mail flyers, targeted online ads, social media marketing, and more.
Related: Low-cost ideas to market a new business
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Step 9: Get Business Insurance
There are several types of insurance to consider when starting a liquor store. A few of these include:
– General liability insurance protects the store in case a customer is ever injured on the premises. This type of insurance covers resulting in expenses such as medical bills or legal fees.
– Commercial property insurance protects the store in case of a fire, storm, or other damaging events. The insurance covers losses in inventory, damaged equipment, and even damage to the building itself.
– Worker’s compensation insurance is required when stores employ staff. It covers expenses like medical bills or lost wages if an employee is injured while on the job.
Many factors affect insurance policy costs, including desired coverage amounts, the value of a store’s inventory, and its location. To get a better understanding of how much insurance may cost, request quotes from multiple providers and compare the coverage of each policy.
Step 10: Hire Employees
Most liquor stores require at least a few employees to keep them running well. According to PayScale, liquor store clerks average $9.99 per hour, while liquor store managers average $13.53 per hour. Hiring employees brings additional expenses such as healthcare contributions, paid time off, and workman’s comp insurance.
Related: Hiring your first employee
Step 11: Set up an Accounting System
Setting up an accounting system is critical to the long-term success of your business.
Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.
How much does it cost to start a liquor store?
The costs to open a new liquor store can start at a minimum between $50,000 and $100,000 to cover inventory, shelving, coolers & freezers, and building renovations.
How much can a liquor store owner make?
It’s difficult to pinpoint the average take-home for liquor store owners because there’s such a difference in profits from store to store. A liquor store’s profits will fluctuate depending on its location, years in business, target market, and more.
A way to get people to spend more when they are in the store is through events like wine tasting and mixology classes. Especially effective on weekends when there is good traffic, sampling allows your customers to try something they might not normally consider. In many instances, distributors will provide free product, additional signage, and sometimes a person to help as they know this will help increase sales.
While the volume of the big brands is important the profit margins are slim. While the craft market can be fickle, stores selling craft beer and spirits along with local wines, tend to have higher profits.
Because inventory is so expensive, opening a liquor store requires a significant initial investment. Purchasing liquor at volume helps to keep costs down, but store owners then end up with more inventory than they need. Sales can fluctuate throughout the year, resulting in potential cash flow issues.
What skills are needed to run a liquor store?
No one needs a business degree to start and operate a liquor store, but the following skills and experience are useful in this industry.
Liquor expertise. A liquor store owner doesn’t need to be an expert in every type of alcohol, but familiarity with major brands and types of liquor will certainly help with running a liquor store. Because some liquors, such as liqueurs, expire, store owners must have an understanding of what’s in demand so they can stock their stores appropriately without ending up with too much unsold and expired inventory. Knowledge of the shelf life of different liquors can help with this task.
Bar tending experience. While not a requirement to start a liquor store, some experience bartending or working in a restaurant that serves liquor can be helpful. Understanding how different drinks are made, the types of alcohols that people tend to enjoy, and how flavors work together can help a liquor store owner curate a comprehensive inventory. This experience also helps owners to make recommendations and upsell products to customers.
Customer service skills. Because liquor stores face lots of competition from other businesses, providing a positive customer experience is key to a store’s success. Customer service skills or experience in a customer service position can leave store owners prepared to engage with customers, address customer concerns, and ensure that customers become repeat customers.
Inventory Management. Owners will need to keep a close eye on inventory to ensure products aren’t being stolen. Also having sufficient stock of products without having too much money being tied up in slow selling products.
Business skills. The ability to manage inventory, payroll, and marketing are all necessary for liquor store owners. Store owners who are lacking in some of these skills can take business classes or work with a business mentor as they get started.
Are there grants to start a liquor store?
It’s extremely rare to find a grant to start a liquor store. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov, and you can check on your state’s economic development office to see if they have any grants available.
What is the NAICS code for a liquor store?
The NAICS code for a liquor store is 445310.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Related: What is a NAICS code?
American Beverage Licensees