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Should I Buy a Liquor Store?

April 2, 2013

How the heck should we know? But we can tell you SOME of the issues you will want to research.

Liquor Stores can be extremely profitable. But they are not ALL so profitable. And they are not without concerns, when you think about buying one.

First, look at whether it makes sense for you to start one up from scratch, or buy one that is already operational. When a new Shopping Center is built, a Liquor Store is one of the first Leases that are signed, because they are in such demand. So you need to be quick in making a decision, if you want to start one, rather than buy one.

Ideally, you get one that is close to the local Grocery Store. People do not want to stop multiple times to finish their shopping, so if they can buy a bottle of wine to go with the dinner they just bought, they will do so. This is not ALWAYS the case, but it does make sense. On the other hand, if the local Grocery Store also has a Liquor License, you may want to avoid that area, at all costs. It is almost impossible to compete with a Costco or a Safeway!

Second, if you start one, how easily will you be able to get a Liquor License? In one area where we operate, getting a new License is impossible; the County is simply not allowing any new Liquor Licenses to be issued. And buying an existing one in that area can cost as much as $350,000, just for the License! This is one circumstance when buying a mature business can be the best course.
If you decide to buy an operational Store, take a look at the kind of sales they are doing. Are they selling mostly Beer? And if they are, what kind of Beer are they selling?

Beer takes up far more space in the Store, than either Wine or Liquor. If the Store is selling mostly Bud and Coor’s, the profit margins for these mass produced brews are terribly small, again compared to Liquor and Wine. So, if the Store is located in a decidedly beer-oriented area where most of the sales are mass produced Beer, you not only have low-margin sales, but your inventory takes up a huge amount of space, and even refrigeration. That means you are paying higher Rent and Utility costs for decidedly lower margin product. That equals to both less profit and higher costs.

On the other hand, if you are dealing with “Craft” Beers, the margins are almost as high as Wine sales, and Wine offers the highest of margins, in most stores. Do not guess; look at the Store’s point-of-sales records, which should tell you the Sales and Profit Margins of each segment of inventory sold.

Know your own limitations. We once were involved in a Liquor Store sale, where most of the sales were high-end Wines. One Buyer saw the profits and wanted to buy that store, in the worst way! Unfortunately, he did not drink and as a result, knew nothing about Wine. All he saw was the numbers. He did not get the Store we represented – another Buyer out-bid him – but he bought another, similar Store through another Broker, and within a year, he was forced to sell that Store at a loss. His Customers would routinely come to the Store and ask for advice about which Wine to buy, and because he knew nothing about Wine, and he had difficulty learning what to tell them because he did not drink, the Customers left him for stores where the workers could answer their questions.
Knowing your limitations is not only something to consider with Liquor Stores.

We routinely ask Buyers about their work experience and past employment, to try to help them understand whether the businesses they want to buy will have the chance of success, for them. Even a business with a rich history of long term, high profitability will go sour, if the new Owner is not able to understand that business and continue its record of success.

And you need to know what is going on in the general marketplace, rather than just what is happening inside the walls of the Liquor Store you want to buy. What is going on with competition?

In some States, Grocery Stores already sell Liquor, or at least Beer and Wine. In other States, that kind of licensing for Grocers is just starting. If you are considering buying one that has been around for years, and the local Grocery Stores have also been licensed for Liquor sales for years as well, you are probably safe: The impact of sales and traffic patterns has already occurred. Increasing sales in that kind of environment could be difficult, but the influence on your Store’s level of sales has already been experienced.
However, if Grocery Stores are only now being permitted to obtain Liquor Licenses, the impact on local Liquor Stores can be devastating. You need to know what is going on with legislation of that nature, in your area. Stores like Wegman’s in the Northeast US are pairing with huge Liquor Stores, and that can make an enormous difference in local Stores throughout the area.

The newest wrinkle is the effect of “big box” Liquor Stores. One such player is Total Wine, which has ninety (90) Stores across the Country at this writing, with another opening shortly; and you know, if one such company succeeds, you know others will follow. Total Wine are great Stores, with enormous inventories that offer far more varieties of product than just Wine. They buy in huge amounts, so they can get discounts the Stores can pass on to Customers. This makes it very, very tough for smaller Liquor Store operators to compete, in price. And, Total Wine offers Web Sites so Customers can place orders on the Net, then pick up their orders at the Stores. If you cannot compete on price, you have to be able to compete with tremendous Customer Service, so being aware of the competition in your area is vital!

Total Wine and similar Stores will not locate stores in every neighborhood. They do not threaten every Store. But you need to understand the market and be able to plan your purchase or startup, accordingly.

Should you still think about buying a Liquor Store? Absolutely! But you need to go into the process with your eyes open and understanding not only that particular location today, but what can happen over time. Your business should be a long term investment, in order to provide you with profits down the road, or a chance to sell at a profit, at a later date.

(The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divesture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Thank you for your interest.)

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