Liquor stores tend to fly under the radar when it comes to ideas for setting up a new business. Which is probably a bit unfortunate, as they have a great long-term potential when handled right. That’s not to say that running a liquor store is trivial – far from it. But when you consider the amount of effort it requires and the expected profit margins, that idea stands out pretty well right now.
Are liquor stores profitable though? They definitely can be. Running a liquor store is not for everyone. It requires a good understanding of the market and a dose of patience for dealing with the occasional inebriated customer. But it’s also a great opportunity to build a place with a sense of community and establish a business that can grow for many years.
Are Liquor Stores Really Profitable?
A well-run liquor store in a nice part of town can easily bring in $70,000 – $80,000 per year in profits. If you’re lucky enough to get a place in a high-traffic area, this can easily go up. One of the best parts of running a liquor store is that you can enjoy some pretty high profit margins.
20% – 30% is typically the norm across the country. Some stores manage to bring in even more than that. It’s not rare to see places with profit margins as high as 50%. Most people are used to paying a high markup for their liquor store purchases, and you can do especially well if you sell some exclusive, expensive products.
Benefits of Running a Liquor Store
Other than the great profit margins, what other benefits are there to running a liquor store? As it turns out, there’s quite a lot to consider. It’s a relatively stable business model, you’ve got a controlled market of established brands, and best of all, many of these brands are doing their own marketing which directly helps you!
Liquor stores aren’t really affected by seasonal demand or economic fluctuations. People who like to drink do it through the whole year. They might spend a bit more during the holiday season, but your sales will generally remain at a stable monthly level.
Even during difficult periods like a recession, people still like to enjoy the occasional drink. In fact, some studies have shown a potential link between economic challenges and an increased consumption of alcohol. Your prices won’t really get affected during those periods, so you can enjoy the benefit of a stable store.
Streamlined Product Selection
It’s pretty easy to stock up a liquor store with just a little bit of research. While the market is huge and full of different products, most liquor stores tend to look pretty identical in terms of inventory.
You might choose to specialize in certain products, but for the most part, everything related to purchasing products will be very streamlined. You can also rely on the assistance of competent suppliers to guide you through your first few orders until you figure out a good system.
The market for alcohol is tightly regulated. While some see that as an extra burden, it usually plays in your favor as a liquor store owner. You have to abide by various rules, but so does your competition.
There’s little room for straying from the norm, so the playing field is pretty level. Even a newly established store can easily find a place on the market and develop into a stable business with little interference from its competitors.
Relatively Location Independent
Once a liquor store has been opened, people in the area will quickly learn about it. You don’t have to do a lot of aggressive marketing to get the word out, and your customers will find you on their own. This means that you don’t need to invest in expensive properties on busy streets.
While this can certainly help, it’s not a strict requirement for making it as a liquor store owner. Even if you’re in a low-traffic back street, you won’t lose out on many potential customers, since most people who’ll frequent your store will be locals who know the neighborhood.
Marketing Handled by Brands
Speaking of marketing, that’s another unique advantage liquor stores have over other types of businesses. Many of the brands you’ll be selling are already doing their own marketing, and people are familiar with the biggest names on the market. When somebody wants to buy a bottle of a specific brand of liquor, they will do the work of looking up the nearest liquor store in their area.
Costs of Running a Liquor Store
While the opportunities for earning a lot of money are there, you must also consider the expenses associated with running a liquor store. Like any business, there are certain costs you need to anticipate. One additional advantage of liquor stores in this regard is that they are pretty predictable.
Like most businesses that rely on a physical storefront, rent will be one of your main expenses. You can expect to pay at least $1,000 for a very basic location, and at least $2,000 – $3,000 if you want something slightly more spacious and possibly in a better location. This will vary a lot from state to state of course, but liquor stores tend to be pretty standard in terms of physical location requirements.
Stocking up the store for the first time will be a major expense. You will pay anything between $20,000 – $50,000 for that first order, depending on the type of alcohol you want to sell and the size of your store. Try not to go overboard with stocking up on products at first.
Remember that some of them will be more profitable than others in the long run, but it will take a while to figure out what your best sellers are. A good POS system with in-depth analytics can go a long way towards helping you make sense of your monthly operations.
You’ll need to obtain a license for your liquor store. Note that this is separate from a license for a restaurant that serves alcohol, and is usually less expensive. The price varies from state to state – in some states, it’s only a couple of hundred dollars, while in others it’s a four-digit number.
You must also pay attention to the specific restrictions of your license. For example, some liquor licenses only allow you to sell certain types of alcohol but not others. In NYC, you can get a license that allows you to sell liquor and wine, but not beer.
There’s no specific insurance required for a liquor store. You can still benefit from general liability insurance though, especially if you’re planning on hiring employees or hosting events inside your store. This can cost you around $1,000 per year, depending on the liability coverage you’re looking for.
Improving a Liquor Store’s Profitability
As I mentioned earlier, a liquor store is pretty profitable by default. Still, there are some things you can do to improve your bottom line and bring in even more money. Some common tricks that work for other business types can be very effective here too, like exclusive products and loyalty programs. You also have some more unique opportunities like partnering with local bars and restaurants.
Loyalty programs are a classic way to improve customer retention and drive more traffic to a store. They’re not limited to liquor stores, but they can work quite well for them too. It’s up to you how you’re going to define the terms of your program. You could reward customers for each purchase, or you can target a specific selection of items. Study some popular loyalty programs in your area and see what others are doing.
Limited, Exclusive Products
Liquor stores are great for selling exclusive products in limited quantities. Selling a few expensive bottles of high-end scotch can sometimes set you up for the whole month, although that probably won’t happen too often. Stocking up on these types of products can be a bit tricky.
You don’t want to end up with a lot of expensive inventory that you can’t easily sell. On the other hand, you also want to be prepared for the event that someone wants to purchase one of these items. This is another issue where having a good POS system can be very beneficial.
You can also look into selling some specialty products. A while ago, I covered some of my favorite Black-owned whiskey brands – check them out for a start!
Hosting events in a liquor store is not that common, but it’s also not unheard of. As long as you’ve managed to build a good community of regulars, there are various things you can do to gather them in your store from time to time. For example, you can host tasting sessions for wine and other types of alcohol.
Be very careful with your state’s legal regulations though. Depending on how you set this up, it could be seen as serving alcohol on the premises, which may require a separate license from the one you already have.
Partner with Bars and Restaurants
Cross-promotion can also work well for a liquor store if you have a few good bars and restaurants in your area. Talk to their owners and see if they’re willing to strike a deal where you boost each other’s traffic. Generally, there won’t be any overlap between your customers and theirs, so there’s no risk of compromising each other’s customer base.
You don’t need to have an online presence to be successful with your liquor store, but it can definitely help. You can even take things one step further and set up your own online store for selling your products. Keep in mind that this usually comes with some additional regulations that you have to watch out for. On the bright side, setting up an online store is easier than ever thanks to platforms like Shopify which do most of the heavy lifting for you.
Potential Pitfalls to Watch Out for
As great as running a liquor store is, you also have to be careful about a few potential problems that can come up along the way. Those issues are generally easy to handle as long as you anticipate them and are adequately prepared, but they still require some attention.
This varies from state to state, but you should be very careful with the cost of your licenses. Some liquor store owners make the mistake of spreading themselves too thin right from the start and end up spending a lot of money on a variety of licenses, most of which they don’t even actively use.
The sale of alcohol is controlled very strictly all across the country. You have to be very careful about verifying your customers’ age. At the very least, it’s the socially responsible thing to do. But even going beyond that, you can be sure that you will get tested every once in a while. And the government doesn’t play around when it comes to selling alcohol to minors. Having your license taken away is never worth it – nor are the huge fines that come with those incidents.
Liquor stores tend to attract the occasional problematic customers. This is especially common if your store is open 24/7. Sometimes you’ll get someone who’s already had plenty to drink but wants to continue partying. And if you try to refuse a sale, they might get aggressive. That’s part of the reason why having a comprehensive insurance policy is important. But you must also know how to stand your ground and defuse those situations without letting them escalate.
Frequently Asked Questions
Q: Can I sell alcohol across state lines?
A: If you live close to a state border, you might be tempted to sell outside of your current state, especially if you have transportation available. This is often risky though, and even when it’s legal, it could still introduce various complications. It’s best to avoid doing that at the beginning. If you insist, you can always look into branching out and opening an additional store in another state.
Q: Is a liquor store a good long-term investment?
A: A liquor store can be a fantastic long-term investment if you can run it right. As long as you have the funding to cover the initial costs and have a reasonable business plan, this can bring in a lot of extra money down the road. However, there are also some risks involved, especially in the first few months of running the store. Pay attention to those potential issues and try to be one step ahead of them at all times.