So, you’re thinking about starting a liquor store? Fantastic choice! The liquor business is not only considered to be recession-proof, but it also offers a unique opportunity to become a neighborhood staple. It’s not just about selling booze; it’s about becoming a part of the community. However, diving into this business involves more than having a knack for picking a good bottle of wine. Let’s unpack what it takes to start and run a successful liquor store.
At its core, a liquor store is a retail business. But unlike a typical retail store, you’ll be dealing with a heavily regulated product – alcohol.
Your store could be a boutique focusing on high-end wines and spirits or a more general store with a wide range of alcohol, including beer and mixers. The choice is yours, but it comes down to understanding your target customers and the local market.
The liquor store industry includes businesses that retail hard liquor, beer, wine, and other beverages for off-premise consumption. The industry has shown resilience through economic fluctuations, owing to the steady consumer demand for alcohol.
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.
The liquor store industry is expected to rake in around $78.9 billion in 2023. It’s worth noting that the industry is highly fragmented, with the top 50 companies in the industry bringing in just 25 percent of the total sales. This makes it easier for independent stores to enter the industry.
Liquor stores target consumers who are aged 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, craft beer aficionados, or people who seek out unique small batch spirits.
Checklist To Start A Liquor Store
Starting a liquor store requires more than just a passion for alcoholic beverages or the technical know-how of retail management. It’s a complex process that includes complying with various legal requirements, market understanding, and a knack for keeping up with industry trends.
With good planning and preparation, your new business can get off to a great start and this guide aims to be your roadmap, offering an overview of the business, actionable steps to get started, and answers to questions you maybe didn’t even know you had.
Step 1: Assess the Market
You wouldn’t dive into a pool without checking the water level first, right? The same logic applies to starting a liquor store. Researching the demand is your way of “testing the waters” before taking the plunge. Sure, it’s tempting to dive straight into the business based on a gut feeling, but let’s face it: gut feelings don’t often pay the bills.
Market research offers data that can either validate your business idea or send you back to the drawing board. It’ll give you valuable insights about the best location for your store, inventory selection, pricing, and marketing strategies. It can also identify gaps in the market, providing opportunities for your business to offer unique products or services that aren’t currently available.
So, how do you go about this? Here are a few low-cost ways to sniff out if there’s demand for your proposed liquor store.
- Licensing agencies: This one may stop you immediately in your tracks. If there is a limit to the number of licenses provided in the community and there aren’t any left, you won’t be able to start your liquor store, regardless of how much potential it may have.
- Local surveys: Simple and cost-effective. Create a survey asking people about their alcohol preferences, spending habits, and what they’d like to see in a new liquor store. Share it on local community websites or even door-to-door.
- Check out the competition: A no-brainer, but crucial. Visit existing liquor stores in your area. See how busy they are, what they stock, and even chat with customers if you can. Also, check out the comments left on the online review platforms to learn what customers have to say about them. These insights are gold.
- Social media polls: Create polls on platforms like Facebook and Twitter targeted towards your local area. It’s a quick way to gauge interest and gather some data.
- Talk to distributors: These folks have a finger on the pulse of the industry. They can give you an idea of how other liquor stores are doing in the region and what types of alcohol are selling well.
While none of these methods offer a guaranteed success ticket, they do give you a clearer picture of what you’re getting into. So take the time to do your homework. A couple of weeks of research is a small price to pay for avoiding years of struggle in a business that was doomed from the start. After all, you’re not just starting a business; you’re investing in your future. Make it count!
Step 2: Write a Business Plan
You wouldn’t embark on a cross-country road trip without a map, would you? Writing a business plan serves the same purpose when launching a liquor store. It’s your roadmap, plotting out each turn and giving you a birds-eye view of the landscape ahead.
It’s a vital tool for bringing clarity to your vision, not just for you but for potential lenders and even the staff you’ll hire down the line.
Speaking of funding, there are a few sections that lenders or investors are going to pay the most attention to. These include:
Market analysis: In this section, you need to present a clear picture of the market in which your liquor store will operate. If you followed the advice in Step 1, a lot of this has will have already been done.
But, don’t just state that there’s demand; show why your business in particular, is poised to succeed. Perhaps you’ve identified a gap in the market, or maybe your unique product range or customer service will set you apart. Back up your assertions with the data gathered during your market research.
Management team: Investors and lenders don’t just invest in a business; they invest in people. The success of your liquor store will be heavily influenced by the individuals driving it. So, dedicate a section to the management team, which includes the owner(s). Who are they, what’s their experience, and why are they the best people to run this business? Credentials, industry experience, and even relevant skills—this is the section where all that shines.
Location: In retail, especially for a liquor store, location is everything. Is the area high-traffic? Is it easily accessible? Are there complementary businesses nearby like restaurants or event spaces? Detail why the chosen location is ideal, and back it up with data like foot traffic statistics, local demographics, or proximity to busy areas.
Financial projections: This is the section that can make or break your pitch. Banks and investors will spend the most time on your financial projections to determine the viability of your business.
It’s not just about showing that you’ll be profitable but also about showing that you have a grasp on the financial aspects. Consider including a break-even analysis, income statements, cash flow forecasts, and balance sheets. And get someone else, preferably a business-savvy individual or an accountant, to look over your numbers. An external perspective can identify weak points you may have missed.
Related: How to write a business plan
Step 3: Secure Funding
Securing funding is often a long, somewhat draining process. Each source of funding has its upsides and downsides, and the best route for you will depend on your specific needs, risk tolerance, and the assets you already have in play. But no matter which route you go, make sure you’ve got that business plan polished and at the ready.
Let’s look into the most common ways to rustle up the capital you need.
Personal savings: The first place most folks look is their own pocket. Using personal savings gives you full control, no debt, and no obligations to anyone else.
But let’s be real: how many of us have enough in our piggy banks to cover the entire startup cost? If personal savings fall short, you’ll need to seek external sources.
Lenders: Now, banks are the traditional go-to, but they’re not just handing out checks. Generally, lenders will want you to invest between 15% and 25% of your own funds into the business. They’ll also look at your credit score and ask for collateral – things like property or assets that they can seize if things go south. And if a bank thinks lending to you is a gamble, they might bring in a Small Business Administration (SBA) loan guarantee to reduce their risk.
Friends and family: Borrowing from friends and family can be a quick way to secure funds. But let’s set one thing straight: business is business. Even if it’s your cousin Vinnie lending you the cash, get the agreement in writing. Lay out the terms, the interest rates, and what happens if you can’t pay it back on time. Trust me; it’ll save Thanksgiving dinners down the line.
Microloans: If you’re finding it tough to secure traditional loans, or if your funding needs are on the lower end, microloans are a solid option. Organizations like Kiva, Accion, and local economic development organizations specialize in these. Some even offer free business training along with the loan, a nice two-for-one deal.
Local investors: Investors can provide a substantial cash injection, but let’s manage expectations here. In the liquor store biz, your likely investors aren’t venture capitalists but local folks with an interest in you or your type of business. These are typically individuals with higher net worth who see potential in your local market. However, it’s a tougher road; most investors look for high-growth, scalable businesses. Your pitch has to be rock-solid to get them on board.
Step 4: Acquire & Set Up the Location
Now that you’ve secured funding and registered your business, it’s time to bring your plans to life. This stage involves acquiring the right property, setting up a functional layout, ensuring security, and establishing an efficient inventory and point-of-sale (POS) system. Let’s delve into each of these crucial steps.
Acquiring the Property
The first step is locating and securing the perfect spot for your liquor store. You’ll need to consider factors like local regulations, accessibility, visibility, and competition in the area.
Before you sign any contracts, make sure you’ve got your funding locked in. Nothing’s worse than finding the perfect spot and realizing your bank loan hasn’t been approved yet. Another important step is checking that the property is zoned for your type of business. Many a dream has been crushed by zoning laws, so check and double-check. Once you’ve ticked off these two essential boxes, go ahead and finalize the deal on your property.
Planning the Store Layout and Purchasing Equipment
Okay, you’ve got the keys—now what? Time to think about the layout of your store. Where will you place the shelves? What about the refrigeration units? Where does the checkout counter go? Your store layout should encourage sales while providing a pleasant shopping experience.
Once you have the layout taken care of, it’s time to purchase all of that equipment.
Setting Up a Security System
Security is pretty much a give for a liquor store. Invest in a robust security system that includes surveillance cameras, alarm systems, and secure locks. Implementing strict security measures will not only protect your investment but also provide a safe environment for your customers and employees.
Establishing an Inventory and POS System
Last but not least, your inventory and point-of-sale (POS) system should be set up before opening day. This isn’t just a cash register; a good POS system will track sales, manage inventory, and even generate reports to help you understand customer behavior.
Make sure your inventory system is set up right, and you know how to use it so you can monitor stock levels in real time. You don’t want to realize you’re out of popular items just as the weekend rush hits.
Related: Choosing a business location
Step 5: Register the Business
Setting up a liquor store isn’t just about the booze; it’s about the bureaucracy, too. 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.
Here is a general overview of the legal requirements for opening a new liquor store:
Business formation: The structure you choose for your business will affect taxes, paperwork, and liability. For liquor stores, the four major structures you can choose from are:
- Sole proprietorship: This is the quickest and cheapest option to get your liquor store up and running. As a sole proprietor, you’re personally responsible for all debts and liabilities of the business, so tread carefully.
- Partnership: This is another option if you’re going into business with someone else. It’s more or less like a sole proprietorship but with more than one person.
- Corporation: This is a more complex structure, but unlike the two above, it is a separate legal entity and provides personal liability protection for the owners. That means if someone slips on a puddle in your store and decides to sue, your personal assets are better protected.
- Limited Liability Company (LLC): This structure is like a mix of a sole proprietorship/partnership and a corporation. It’s flexible, offers liability protection, and is generally easier to manage than a corporation.
LLCs and Corporations are commonly used for businesses with higher risk, like liquor stores, due to their liability protection advantages.
Related: Comparison of business structures
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
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Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.
During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.
Liquor licensing: To operate a liquor store business, you will likely need permitting at the federal, state, and often at the 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.
Regulations to establish a new liquor store are stringent and differ from state to state, even county to county. So, you’ll need to get familiar with local laws, including licensing requirements and restrictions on what you can and can’t sell. You might even have to jump through some hoops to secure a local liquor store license, especially if you’re in a region where they are limited.
The price for a state liquor license can vary from $300 to $14,000, depending on your state and the intended use of the license. It also can take up to six months for a liquor license to be approved. You’ll likely have to prove you’re over 21, that you’re a U.S. citizen, and sometimes even that you’re of “good moral character” (no, seriously).
While this can be a complicated process, your state’s Alcoholic Beverage Control Board is a good place to start, as they can help you understand the nuances of regulations and policies in your location.
Business licenses and permits: In addition to liquor-related licensing, there will likely be a variety of general licenses or permits needed before opening. This could include a business license, seller’s permit, and Employer Identification Number (EIN).
Step 6: Purchase Inventory
The next step is to purchase inventory to stock your store. In most cases, distributors won’t even discuss wholesale pricing or think about setting up an account with you until your business is properly registered and licensed.
Different distributors offer different terms. Some might require minimum purchase amounts, while others might offer discounts for bulk purchases. Keep your target customer in mind when choosing products. High-end scotch won’t move quickly in a college town, and cheap vodka might not be the best fit for an upscale neighborhood.
Step 7: Hire Staff
The next step in starting a liquor store is the staff to help run the day-to-day operations. Common types of employees in a liquor store include cashiers, stock clerks, and store managers.
Before you begin the hiring process, there are several legal requirements you must meet:
- Obtaining an EIN: This Employer Identification Number is like a social security number for your business. You’ll need it for tax filing and reporting purposes.
- Employment eligibility: You’ll need to verify that your employees are legally allowed to work in the U.S. This usually involves the I-9 form and sometimes E-Verify, depending on your state.
- State reporting: Hiring requirements can vary by state, especially concerning new hire reporting, which could include submitting details to a state agency.
- Labor laws: Familiarize yourself with both federal and state labor laws, including minimum wage, overtime, and worker’s rights, to ensure you’re in compliance.
In terms of budgeting for employees, know that payroll costs aren’t just the salaries or wages you pay. You should also budget an additional 15% on top of salaries to cover payroll taxes, which include Social Security and Medicare taxes, federal and state unemployment taxes, and any other applicable state taxes.
Related: Hiring your first employee
Step 8: Create a Marketing Plan
Alright, so you’re almost ready to open up shop. Now’s the time to let people know you exist, and a solid marketing plan can do just that.
Many liquor stores find success through good old-fashioned word-of-mouth, so don’t underestimate the power of in-store promotions and special events to get people talking. Social media platforms, like Instagram and Facebook, can be potent tools to showcase new arrivals, flash sales, or tasting events. Email newsletters are another avenue, especially for sharing exclusive promotions or updates with your most loyal customers.
Another aspect that you shouldn’t ignore is claiming your business on online directories, think Yelp, TripAdvisor, and a Google Business Profile. Many customers go first on these platforms when looking for a new place to shop. So, ensure your store information is accurate, and encourage happy customers to leave reviews.
Online ads targeted to locals can also give you a leg up. And don’t forget about the Chamber of Commerce; it’s a fantastic way to network and gain local visibility. Being a member can provide your liquor store with that community stamp of approval.
Step 9: Prepare to Open!
You’re almost there. Your dream of opening a liquor store is within arm’s reach, but there are probably a few more tasks that are on the checklist. Each business will have different needs, but here’s a general overview of what could still be left:
Business insurance: Business insurance is essential to protect your store from potential risks. This may include liability insurance, property insurance, and workers’ compensation insurance.
Bank account: Opening a business bank account is important for managing your store’s finances separately from your personal finances.
Pricing: Strategically set pricing on products considering wholesale costs, overhead, and competing local prices. Stick to MAP (Minimum Advertised Price) policies.
Credit cards: Most customers expect to be able to pay with credit cards, so you’ll need to set up a reliable credit card processing system. If you’re not using a POS system with merchant processing integrated, some popular options include Square or Stripe.
Grand opening: Plan some opening day specials or events to draw crowds. Make sure you’re stocked up, staffed, and ready for action.
This material is property of StartingYourBusiness.com
Common Questions When Starting A Liquor Store
How much does it cost to start a liquor store?
Starting a liquor store isn’t cheap; you’re looking at a total initial investment that can be expected to range from $70,000 to $500,000. Of course, the amount can vary significantly depending on location, size, and other factors, but that gives you a ballpark figure to start planning. Let’s break down the costs:
Property acquisition: This can range from $5,000 plus for initial deposits if leasing to $400,000 or more if you’re buying a property outright. Research local real estate markets to get a better handle on your particular costs.
Store build-out and renovations: Between counters, shelving, lighting, signage, and other fixtures, you’re likely looking at around $20,000 to $50,000.
Liquor license: This is a big one, ranging from $300 to $14,000, depending on the state and the availability of licenses. Some states have a quota system, driving up the price of available licenses.
Initial inventory: This is another significant cost. To adequately stock your store, you’ll need anywhere from $30,000 to $60,000, again depending on the size of your store and the types of products you’re offering.
Equipment: Refrigerators, security system, and a point-of-sale system will cost you around $25,000 to $75,000.
Insurance: Initial payments for liability and property insurance can range from $4,000 to $10,000.
Marketing: For your initial marketing push, budget around $5,000 for things like a grand opening event, initial online advertising, and in-store promotional materials.
Legal and accounting: Formation fees, lawyer costs for contract reviews, and initial setup with an accountant can set you back around $3,000 to $7,000.
Initial staff costs: Before you even open your doors, you’ll need to train your team, in addition to branded shirts or other costs. Factor in at least $1,000 for this.
Miscellaneous costs: Grand opening events, permits, and utility deposits will add another $2,000 to $6,000.
In addition to these startup costs, it’s wise to have a financial buffer. A cushion of three to six months’ worth of operating expenses can be a lifesaver for unexpected hurdles or slower-than-anticipated initial sales. This can help you weather the ups and downs without panicking.
When you add it all up, you’ll have a much clearer idea of what you’re diving into. Knowing these costs upfront allows you to plan better, negotiate harder, and sleep a little easier as you take this significant step into business ownership.
How profitable is a liquor store?
The profit a liquor store owner can make varies widely based on several factors, such as location, size of the store, and inventory selection. However, industry statistics can provide some insight into potential profitability.
Industry research shows that liquor stores operate on a gross margin of around 25-35%. This means that for every dollar in sales, the cost of the goods sold (COGS) is about 65-75 cents.
For example, if a store generates $1 million in sales, the COGS would be around $650,000 to $750,000. Subtracting COGS from total sales gives a gross profit of $250,000 to $350,000.
From this gross profit, other expenses, such as rent, utilities, salaries, insurance, etc., need to be deducted to calculate net profit. If these operating expenses amount to $150,000 per year, the net profit would be $100,000 to $200,000.
Of course, these are rough estimates. The actual profitability of a liquor store can vary based on a wide range of factors. It’s also important to note that these calculations don’t account for any debt service the business may have if the startup costs were financed.
What skills are helpful in running 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 liquor types will certainly help run 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.
Bartending 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 alcohol 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 tied up in slow selling products.
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?