November 16, 2022
Adam Hoeksema
Despite COVID-19 impacting social scenes of all kinds, liquor stores remain resilient. Both online and offline, stores selling drinks have weathered innumerable storms of changing demographics, customer preferences, and even a rise in sobriety.
A well-planned-out liquor store, in the right state, in the right part of town, will almost always be a winner. And setting one up doesn’t have to be any more challenging than starting up any other venture. We’ve even got some tips on how to get started, as well as a few guidelines for how to get your first clients once you do, all coming up.
First, let’s take a look at what the liquor store environment looks like right now.
Liquor Stores: An Industry Overview
The alcohol industry as a whole is a robust and adaptable one. Able to match demand both in preferences and volume, it’s survived well where other industries haven’t. The industry trends tell an interesting story: even a rise in demand for alcohol-free drinks has presented alcohol companies with a niche to fill; supplying the demand with low or no-alcohol alternatives to some of their most popular beverages.
In fact, non-alcoholic drink searches are up 91% over the last five years. The fermented drink market, therefore, is still alive and well, despite millennials drinking over 20% less than their parents’ generation. The industry stands to reach a CAGR of 6.2% by 2025 at least, and that’s just an average across markets. Specific markets like hard kombucha are expected to 42.4%
Cannabis-infused drinks are also on the rise and commonly sold in liquor stores alongside alcoholic beverages. This all boils down to an increasing diversity of beverages, all striving to maintain a market share in the industry. For liquor stores, this is a good thing.
Online liquor stores are also in growing demand, accelerated by the restrictions of the pandemic and boosted by the closing of physical supermarkets and bars.
Some of the challenges to liquor stores come from the very same changing preferences that allow them to adapt to the market. While diversity keeps the customers visiting the store, it is a constant effort to match the demand in terms of the range and quality of what people are looking for.
There’s also a dynamic ecosystem of regulations that adapts and grows with the times, and this is another factor that keeps the alcohol industry on its toes. Further, the rise in the adoption of cannabis and cannabis products does provide significant competition for the legal high market. One other challenge comes from a push towards moderation that many companies are addressing with smaller portions and more variety.
If you’re looking into opening a liquor store, you’ll have to be prepared to meet these challenges head-on, but it’s certainly an investment that can be returned well if executed properly. As with any startup venture, knowing how to open a liquor store comes from knowing what to expect in terms of what goes out and what comes in.
With that in mind, let’s take a look at the startup costs and revenue streams common to liquor stores.
Before Opening a Liquor Store: Startup Costs and Revenue Streams
There are several business models that will affect the outgoings and incomings of liquor stores. One major thing to consider is whether liquor sales are state-run, as they are in 17 control states. If that’s the case, you may be totally out of luck, or you might at least have to jump through a lot more hoops. You may also be limited in what you are allowed to sell.
If not, then you’re going to have to look into what your state and federal licensing requirements actually are.
From there, you have some common business models to choose from. Are you going to open up a brick-and-mortar store, or run everything online? Offering both options reaches a much wider market but will come with significantly higher costs than running an exclusively-online store.
The benefits of online stores are significant. The savings to material marketing are huge, and your shop front display is entirely virtual, meaning it requires no rent or maintenance. Your stock can be stored efficiently without the need for spacious presentations, and you don’t even have to have everything in stock to get started.
However, even with this model, your liquor license might be one of the most significant startup costs to anticipate. The cost of this will depend on your location and what you’re selling, but a full liquor license can cost anywhere between $12,000 and $400,000. If you’re only selling beer and wine, it’ll be lower.
Then, you’re going to need to stock the shelves. Even a virtual store needs real stock, and again, depending on what you’re selling, this might be costly. The good news is that alcohol has a long shelf life, but getting your initial stock list filled might set you back tens of thousands.
Company-related insurance will be another cost, one which will increase if you have staff and a physical store. In this case, there’s also the rent and upkeep to consider.
All in all, if you’re starting from zero, factor in a budget of at least $50,000 for a small-scale, average-range liquor store startup.
So, how do you make this money back? Well, that’s up to you. You may want to focus on single malts that appeal to a customer with a higher budget or supply a range of cheaper drinks for those who want to party. Your revenue streams will come almost exclusively from the liquor you choose to sell, and that will depend on your location and marketing chops.
You might be able to pedal other products, whether you’re a physical or online store. Snacks that complement your booze sales, and other drinking accessories like coolers or wine racks may bring you in some supplemental income, depending on your market.
All this contributes to revenue that will vary greatly based on multiple factors. In Summary, your income will depend on:
- Your location
- The type of liquor you’re selling
- The markup you can get away with
- Market saturation
- Whether your state controls the price of liquor
- Whether you’re a brick-and-mortar store or online, or both
Some sources claim you can easily expect to bring in $20k to $100k in revenue annually, depending on traffic but these figures won’t be universal, by any means, and will vary greatly based on the above factors, so it’s important that you do your research.
Of course, you’ll have ongoing expenses to cover, even after all your startup costs, so it’s important that you calculate whether or not you’ll have enough coming in to pay back any debts you’ve built up as well as make sure the ongoing costs don’t get out of hand. Let’s take a look at some of those now.
The Ongoing Expenses of A liquor Store
Thankfully, the ongoing costs of running a liquor store are mostly fixed. This makes financial planning and forecasting a lot simpler – something we’ll come to again soon – and can provide a sense of predictability that’s encouraging. Here are some of the costs you’ll incur in your day-to-day:
If you’re running a physical store, you’ll have the rent or mortgage to pay, as well as the utility bills. These will cover the costs of running the fridges and lights, and so on, and will generally be more or less uniform across the months, perhaps increasing and decreasing in relation to the outside temperature if you’re in a location with significant seasonal weather shifts.
The same store will incur ongoing costs to cover wages if you’ll have staff and insurance on those staff.
Inventory will be another ongoing cost, as you’ll need to keep well-stocked to avoid losing repeat customers. Taxes are another consistent drain on your income, and your license will need to be renewed periodically.
Finally, marketing and sales costs will vary depending on your approach and location but will be a continued financial burden if you want to stay competitive.
If all these costs seem like they’re going to be a lot, consider the following strategies you might employ to reduce your ongoing overheads:
- Keep good records of inventory – Sadly, if you’re running a place with some staff, there might be cases where a bottle of two of something goes missing. It’s important to keep track of your inventory closely to prevent losing out to theft.
- Stay on top of your customers’ preferences – It’s important that you market what you’re selling to those who want to buy it. So much money can be wasted by not following the attention of your customers when you design your marketing materials.
- Promote with tasting sessions – Bring people into your shop by hosting promotional tasting sessions if you’ve got something special to show them.
- Leverage the cost-savings of social media – To reduce on marketing costs, you can get recognized on free social media platforms. Have a website, and draw people to it via messaging groups.
Of course, all these tips relate more to running the store, rather than helping you with how to start a liquor store, so before we get ahead of ourselves, let’s go over some of the startup process.
How to Start a Liquor Store: Startup Stages
The process of opening a liquor store comes with several learning stages. In the initial steps, much of what you do will be around planning and sourcing funds. Then, when it’s time to open up and find customers, you’ll be focusing heavily on marketing and getting people interested in your brand. We’ll come to that stage shortly, but first, let’s look at actually how to start a liquor store as a fledgling company.
The first thing you need to do, if you haven’t already, is to settle on a business model. Will you be an online, high-street, high-end, or generalized store? Once you know where and how you want to operate, it’s time to design a business plan.
Your business plan will be the most involved and educational part of the entire startup process. It starts with some deep market research into who is buying what and extends into designing customer profiles for your store. You may have multiple profiles depending on the range of products you’re selling, but each one will have a specific set of preferences that you’ll need to understand in order to make your marketing effective.
In researching for your business plan, you’ll put together a document that not only teaches you about your business and its position in the industry but presents potential investors with a detailed and encouraging prospect for their investment.
Your financial projections will be a big part of this plan, and as such it’s important to have them in order, accurate, and well-framed. For your financial projections, we’ve got a full 5 year financial projection template specifically for liquor stores that makes it easy to create your financial pro forma statements.
Once you’ve got your business plan written up, you’ll need to work on your licensing and registration. Register your company name, and start taking steps to get your liquor license accordingly. This might not be as pressing if you need to generate some startup capital first, in which case do it after the next step.
When looking for funding, you’ve got several commonly-used options at your disposal. Bank loans are good for heavy capital injection with no loss of company equity, but they can be difficult to obtain, and you will have to pay them back even if your business goes bust or doesn’t cover the costs.
Investors come in various shapes and sizes and can sometimes bring with them a wealth of expertise and useful networks you’ll benefit from. Further, they take all the financial risk, so you don’t have to go into debt. The trade-off is that they will then own a portion of your company and their needs and demands will have to be taken into account.
If you’re starting small and you’ve got a bit saved up, you can have the best of both worlds by bootstrapping your business. Leaning on credit cards and bank balances might be a way of getting off the ground without too much external influence, and while maintaining creative control over your project. Still, if the startup costs are $50k and more, you may find this impossible.
Whichever source you go with, you’ll be left with the need to spend all that money to get your liquor store off the ground. Stock up, get compliant with local and federal laws, and hire whomever you need to help you. Then, it’s time to find customers.
How to Open a Liquor Store: Getting Your First Clients
Getting your customers through the door is all about how you present yourself. Your business plan should have given you all the information you need to know about who these people are and what they like. It’s then up to you to tailor your approach to this information.
If you’re looking to get clients fast, there are a handful of approaches. Let’s assume you’ve not made it all the way to this stage already, and you’re still in the process of learning how to open a liquor store. In this case, you have plenty of time to begin building your social media presence. Get involved in groups related to the newest beverages, or specialty drinks, or whatever you will be selling.
The more you make yourself known, the more trusted you’ll be when you finally come to open your store and start advertising. This will double up as market research too, as you’ll have your finger on the pulse of your demographics and their opinions.
When it’s time to find clients, you’ll have a solid following to draw upon. Reach out, show them that you have the solution to their needs, and offer them promotions and loyalty bonuses for getting involved early.
Another way to draw people in is to have something unique to offer. If you can find items that none of your competitors stock, you’ll be a lot more appealing.
The specifics of your outreach will depend on whom you’re selling to. The fundamentals are the same, though. Find out where they’re looking and what they’re looking for, and do what you can to provide it for them.
Conclusion
Running a liquor store doesn’t have to be very complicated, but knowing just how to start a liquor store is another thing entirely. Thankfully, with a little guidance and some significant market research on your part, even that doesn’t have to be overwhelming.
The trick, as with any retail business, is to identify your niche and the people who will exploit it. Whether that’s high-end whisky, or a range of fruity ciders and craft beers, or a mix of everything, pick a path and stick to it. Then, stand out with promotions and unique selling points.
If your business plan and projections are all in order, you should have no trouble finding the startup capital. All that’s left is to get out there and connect with your clients.
