Last Updated on August 16, 2020

The culturally-rooted tradition of smoking hookah is still alive and well in America today, and hookah lounges create places for smokers to connect over this pastime. Hookah lounges appeal to a wide variety of customers, and opening a lounge of your own can be an exciting business opportunity. With relatively minimal startup costs and the chance to build up a loyal, returning customer base, your venture into the hookah lounge industry can be a financially rewarding one.

Business Overview

Hookah lounges, also called hookah bars, are known for their relaxed, often trendy atmospheres. Customers can go to these lounges to smoke hookah with their friends, often all sharing a single hookah or hooking up multiple lines to a single hookah to smoke simultaneously. Most lounges provide a variety of shisha, tobacco with flavors like mint, fruit, and molasses. 

Hookah lounges provide a social setting, and some also feature live music. Many lounges offer teas and some limited food selections. It’s also common for a hookah lounge to serve alcohol. Hookah lounges are common in college towns, and many cater to a younger audience. 

Industry Summary

According to Benzinga, the United States is currently home to the majority of the hookah market. As of 2018, the global hookah market reached $130 million, and the market is expected to grow to $210 million by the end of 2025. Hookah sales are largely dominated by 11 manufacturers, which account for approximately 65% of the total sales revenue. Many of these products come from the United States, and Al Fakher Hookahs, Starbuzz Hookahs, and FUMARI are the three top production manufacturers. 

Industry Trends

Many trends affect and shape the hookah industry. Mel Magazine notes that increased taxes and regulations are challenging the industry. For instance, new laws in New York required that establishments that serve hookah now must hold a permit, must serve only non-tobacco shisha, and must display signs outlining the health risks of smoking hookah. Previously, many of these establishments that offered tobacco-free shisha were able to avoid indoor smoking law requirements, but increased regulation is changing that. 

While these regulations do pose a challenge, the hookah industry is largely thriving. Over the past 20 years, hookah use by younger generations has increased. The social nature of hookah lounges is particularly appealing to younger audiences. These lounges also create an appealing atmosphere during winter, encouraging consumers to come in, stay awhile, and get out of the cold. 

The hookah industry is facing a significant challenge in the form of vaping regulations, though, according to Vice. While cities, towns, and states work to ban flavored tobacco products to discourage teens from vaping, shisha is increasingly being lumped into these laws. Hookah lounge owners and retailers argue that hookah is a cultural tradition and are working to educate lawmakers on the differences between hookah and vaping. However, Massachusetts has already banned flavored tobacco products (though there is a hookah exemption), and other states are positioned to follow suit. These tobacco laws and future legislation could threaten the hookah lounge industry.     

Target Market

A hookah lounge may have a varied target market. While hookah increasingly appeals to younger consumers, it’s also rooted in cultural tradition. According to Fumari, hookah has been present in Indian, Persian, Egyptian, Turkish, and Middle Eastern cultures. Traditionally, families, relatives, friends, and even businesses used hookah to connect, relax, and strengthen social bonds. Adults from these cultures are likely part of a lounge’s target market. 

Skills, experience, and education useful in running a hookah lounge

Starting a hookah lounge doesn’t require a business degree, but certain skills and advantages can help the lounge to become a success.

Hookah knowledge. Knowledge of hookah can help a lounge owner to choose quality products and offer lounge visitors an enjoyable experience.

Awareness of trends. A lounge owner who stays on top of current hookah industry trends, like using oxygen with a hookah, can ensure that the lounge offers the experiences and products that are in-demand.

Cultural familiarity. Because hookah is rooted in many Middle Eastern cultures, awareness of the nuances, and an overall sensitivity to these cultures can help a lounge owner to create a spot that’s inclusive of each culture. This can encourage potential customers to visit and provide them with an experience where they feel welcomed and appreciated. 

Customer service skills. Experience providing great customer service can help a lounge owner to ensure that customers have positive visits and can build the foundation for a returning customer base.

Lounge or restaurant management experience. Previous experience working in or managing a lounge or restaurant is valuable. This experience makes a lounge owner aware of processes like inventory management and ordering, and the familiarity with food service regulations and precautions can be an advantage, too.

Staff management experience. Experience in hiring, training, and managing staff can help a lounge owner to find staff who best represent the business.

Common Startup Costs

Hookah lounges can often be established in smaller spaces, saving the business owner startup costs. If you’re able to work with a space that was previously a lounge or small restaurant, there should be minimal renovation costs, if any. It’s possible to start a hookah lounge for approximately $40,000. 

The largest costs to start a hookah lounge include:

  • Furniture
  • Decor
  • Hookah pipes and lines
  • Inventory (shisha, teas, food)
  • Signage

Steps to Starting a Hookah lounge

Step 1. Write your Business Plan

After coming up with the idea, the next step in starting your business should be to write a business plan.  Not only will a bank require you to have a business plan, 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
Free sample business plans

Step 2. Form a Business Entity

A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from which include the sole proprietorship, partnership, corporation, and LLC.  Each type of entity has its own pros and cons such as liability exposure, costs, and administrative requirements. 

Related: Comparison of Business Entities

Step 3. Select your Location

Rental costs for a hookah lounge will depend on the lounge’s size, location, and available amenities. A lounge located in a high-traffic prime retail area will carry higher rental costs, but it can generate valuable walk-in traffic. 

Related: Choosing a business location

Step 4. Apply for Business Licenses and Permits

A hookah lounge owner will need to obtain certain business licenses and permits. These permits and licenses can vary based on the state and town where the business is located. 

In addition to standard business permits, a hookah lounge may be required to obtain additional permits from the town, county, or state giving it permission to provide and sell tobacco products. Verywell Mind notes that these lounges may need to obtain indoor smoking permits to operate. 

If a lounge serves food and drinks, then the business owner will need to hold a food service license, which may require the completion of a food safety training certification course. If the location serves alcohol, then the business will need to obtain any required alcohol service licenses. 

In addition, some of the common local, state, and federal registrations a hookah lounge may need include a sales tax permit, Employer Identification Number, and Occupancy Permit among others. 

Related: Common business licenses, permits and registrations by state

Step 5. 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 hookah lounge is another.  In order to get a loan, the borrower(s) will need to have good credit and be able invest 15-25% of their money towards the total start-up costs. 

Related: Finding the money to start a business  

Step 6. Get your Marketing Plan in Place

Marketing costs are important ongoing expenses that can help to bring new and existing customers into a lounge. Common marketing activities include social media marketing, online advertising, print advertising, and radio advertising. The costs of these activities will vary depending on the type, volume, and location of each marketing effort. A lounge can also establish a referral program or loyalty program to encourage new and returning customers. 

Related: Low-cost ideas to market a new business

Step 7. Get Insurance

A hookah lounge needs several types of insurance for full coverage:

  • General liability insurance helps to protect the lounge against expenses like medical bills and legal fees that can occur if a customer is ever hurt while on the lounge’s property. 
  • Commercial property insurance helps to protect the business against losses if the lounge, its inventory, or its equipment are ever damaged in an event like a fire. 
  • Worker’s compensation insurance helps to cover expenses like medical bills and legal fees that can result if an employee is ever hurt while on the job.

To get the best idea of insurance policy cost, it’s best to request quotes from multiple insurance providers. Be prepared with details like the store’s location, the building’s value, and the number of employees on staff to get the most accurate quotes. When comparing quotes, look not only at how the premiums compare, but also consider the differences between exclusions, coverage limits, and deductibles. 

Related: Common types of insurance business may need

Step 8. Hire Employees

A hookah lounge will need multiple employees. PayScale reports that lounge servers make an average of $7.46 per hour, though that pay can range from $2.17 to $12.64 per hour. Glassdoor reports that lounge bartenders earn an average of $20,342 per year. And, according to Salary.com, line cooks earn about $26,242 per year.

A lounge’s budget will not only need to include salaries but will also need to include other employee-related expenses. A lounge may need to cover worker’s comp, unemployment insurance, paid time off, and vacation time for its employees. 

Related: Hiring your first employee

 

How much can you potentially make owning a hookah lounge?

Hookah lounge profits will vary depending on the lounge’s size and location, business model, years in existence, and profit margins. A lounge in an area with a large Middle Eastern customer base may be at an advantage and could be able to bring in a larger number of customers than a lounge in a location where fewer residents come from a culture that embraces hookah. A lounge owner who strategically chooses the lounge’s location and designs the business to appeal to a broad customer base can maximize their profits and position their business for success. 

Things to consider before starting a hookah lounge

As the owner of a hookah lounge, you should be prepared to field questions from local residents, other store owners, and the general public about the health risks of hookah. Gaining approval to start up a lounge can be a challenge, especially in a more conservative area, so be prepared with facts and figures. Highlighting hookah’s cultural importance can also help, but the public will question the safety of your business both when you start it up and once it’s established. 

While the bulk of sales will come from hookah and shisha, offering additional options, like oxygen, food, and teas, can enhance a customer’s experience. This improved experience can encourage customers to stay longer and increase per-customer sales. The same is true of offering some retail items, like shisha and hookah supplies, that customers can purchase to take home. 

Resources:
National Association of Tobacco Outlets
Tobacconists Association of America