The 3 Lessons I Learned After Accidentally Buying a Liquor Store

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February 18, 2014 at 11:48 am  •  Posted in Business, Pueblo by  •  90 Comments

I bought a liquor store last year….it was sort of an accident.

No, I wasn’t binge drinking at the time. I wasn’t really shopping for a liquor store. I wasn’t even shopping for a bottle of wine. But, here I am … proud owner of a liquor license and a terrific selection of craft beers, pinot noirs and small batch bourbons….among many other standard liquor store offerings.

Since 2010 I’ve been investing in real estate in Pueblo, Colorado and when a commercial building with retail on the ground floor and multifamily residential on the second floor was listed for sale I went to take a look. I liked the building, especially the location in the heart of Pueblo’s Mesa Junction neighborhood. As I walked around with the owner, it became clear that the liquor business was being sold with the building.

Hmm. Intriguing. My college buddies would be so jealous.

mjws-map

So, deciding to roll the dice, I made an offer. I fully expected a counter-offer that wasn’t sufficiently attractive, allowing me to walk away and go back to business as usual.

Instead, the owner accepted my offer…..hey, that’s great newwwwzzz….holy shit.

With the building under contract I began due diligence. I remember thinking, before I ever contemplated the notion of liquor store ownership, retail liquor stores enjoy a tidy little monopoly. Must be nice. Well, yes and no. It’s not quite as easy as it sounds. Since taking ownership of the store I’ve learned a few things about the liquor business that might surprise you.

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Lesson 1. The liquor business is highly complex. Retail liquor, at least in Colorado, is a fascinating business. Huge number of SKUs. The quantities of categories, brands, flavors, price points and size variations are mind-numbing. Talk about Big Data. Liquor distribution is heavily regulated in Colorado with a 3-tier system composed of manufacturers, distributors and retailers; each tier has its own set of rules and requires its own special license with an application paperwork trail that only a lawyer could love. Inventory is expensive and margins are thin, managing inventory and cash flow is extraordinarily difficult and SKU level demand is nearly impossible to forecast accurately. Running a small liquor store requires business acumen – accounting, operations, human resources, customer service, marketing, sales – the whole enchilada. If you were thinking that a liquor store is like an advanced lemonade stand you’re completely underestimating the task. This is good by the way. Communities need opportunities for individuals to learn how to run a complex business with full P&L responsibility. 

Lesson 2. Distributors hold all the power. As a retail liquor store owner I am only allowed to purchase inventory from a licensed distributor. Seems reasonable to keep tabs on who’s moving liquor around the state. But, here’s the catch. Every licensed distributor has a complete monopoly on every product they sell. So, any self-respecting liquor store should have various sizes of Jack Daniels on the shelf, right? I think I’ll call around and see who has the best deal on a case of 750 ml bottles of Jack, compare prices/terms and place the order, right? Wrong. If you want to buy Jack Daniels or any other product whether it’s a brand of beer, wine or spirits, you have your choice of exactly one distributor who carries that product. So, negotiating price isn’t an option. The only possible way you can get any sort of discount is by purchasing large volumes. As a result, the distributors pass along more favorable prices to the mega-stores who can afford to purchase 100 case deals; if you’re a small liquor store you just have to bend over and take whatever price is offered. When I learned this was the way the system worked I was stunned. What? [fade to the Caddyshack scene with Chevy Chase talking to Danny Noonan, “Is this Russia? This isn’t Russia.”]  

caddyshack-russia

You mean to tell me that we aren’t allowed to shop around for a supplier who might provide better service, better prices or both? Nope. The Budweiser distributor welcomed us to the industry by requiring cash upon delivery for the first 90 days. No checks. No 30-day net invoice. Not even a money order. Cash on the barrelhead. Nice manners, Bud. 

Lesson 3. Owning and operating a small liquor store can provide a comfortable income and job security but it’s no cash cow. If you read my About page you’ll see that I have a day job in a completely separate industry. I don’t work in the liquor store. I hired a manager to run the operation and she supervises a handful of employees who staff the store when she can’t be there. She’s paid a decent salary providing a reasonably comfortable living in Pueblo. We pay hourly employees a decent wage as well. It’s not lucrative but I’m willing to bet we pay better than comparable positions at local grocery or convenience stores. The store is humming along. We did a good bit of business around the holidays and customer traffic is steady. But here’s the thing. This business is not designed for an “absentee” owner because after payroll and inventory replenishment there’s not much left over. However, the setup is perfect for an owner-operator.

As an owner-operator of a liquor store you have roughly the same job security as a tenured college professor. The store could go under if you fail to compete effectively or if the market for liquor dries up somehow (just like a school could close or an academic department could be eliminated). And, your take-home pay will vary with some years better than others depending on volume. But, so long as you have customers who walk in the door, no one can really take away your job.

Sure, I wish the store was a huge cash cow; you know, pay myself a nice salary every month and do whatever I want all day. Sounds great in theory but as a member of the community I’m glad it’s not so easy because big corporate greed would quickly follow. It’s nice to have the owner behind the counter. Customer service is better. And, it’s nice that the liquor store provides a comfortable income. That way the owner is highly unlikely to sell booze to minors – there’s too much at stake to break the law for a few extra bucks. Mostly, it’s nice that a big company can’t swoop in and take over every liquor store in sight. In the name of low prices, they’d shut most or all of the small stores down and open newly constructed mega-locations on the outskirts of town where land is cheap and profit maximized, laying to waste neighborhood small markets within walking distance….sort of like what’s happened with the grocery industry.

This dispersed single-unit ownership system is better for the community because it provides economic activity in a variety of locations along with solid living wage jobs that can’t be readily outsourced or automated. More people have skin in the game and a strong incentive to take care of their stretch of sidewalk in the community. In fact, aside from the distributor monopolies and the cumbersome government licensing process, it just might be a model worth considering for distribution of other commodities, like fresh food.

But that’s a topic for another blog post.

 

 

 

 

90 Comments

  1. Pingback: Liquor Store For Sale | Geographical Perspectives

  2. Kat / March 18, 2014 at 4:31 pm / Reply

    Hi Justin,

    Are you feeling any impact from big box stores?

    Thanks,
    Kat

    • Justin / March 18, 2014 at 5:08 pm / Reply

      Hi Kat – it’s hard to say. I think if someone is going out to do a big shop they are more likely to go to one of the big box liquor stores rather than to our small store. But for most of our customers the convenience of our location is a more important factor. Other customers come specifically to see our manager and benefit from her knowledge to get good wine or craft beer/spirits recommendations. Hope that answers the question for you. Best, Justin

      • Cutter / May 26, 2015 at 9:01 am / Reply


        “Other customers come specifically to see our manager and benefit from her knowledge to get good wine or craft beer/spirits recommendations.”

        To me this is number one in choosing where I spend my money, no matter what the item is. I am willing to pay more for this type of service. This is lost in big box stores. I can remember the day of good advice at stores, car part shops, etc. It won’t be long when no one remembers as my generation retires and “moves on.” It might not be such a concern to the millennium generation, so Corporate America can keep squeezing the middle class to funnel funds to the board and CEO’s. That is such a shame what they have done to our country.

        Cutter

        • Justin / May 26, 2015 at 6:29 pm / Reply

          Cutter, it is indeed a sad state of affairs. We’ve sacrificed local economies and real estate values for lower prices on doodads and processed food. As part of the deal our communities have become more car dependent and less business savvy. Residents complain about the struggling local economy yet send their money to Wall St via 401k plans rather than investing locally. And no one seems to notice the irony. Thanks for sharing your thoughts. Best, Justin

  3. Pingback: A 3-Point Plan for Marijuana Distribution in the City of Pueblo | Geographical Perspectives

  4. Brenda Fisher / August 7, 2014 at 11:31 pm / Reply

    Thanks for the info. My husband and I would like to buy or start one in a small northern colorado town. With the oil and gas influx the traffic would be good. I am an accountant and am looking to change. This would be my undertaking.

    • Justin / August 8, 2014 at 9:44 am / Reply

      Hi Brenda, best of luck to you and your husband! Be sure to start with a good war chest of cash so you can take advantage of volume deals on your best SKUs! Cheers, Justin

  5. César / August 12, 2014 at 11:29 am / Reply

    Hi Justin,

    Very good information and clearly explained. My partner and I are studying the possibility of buying a liquor store in Miami and we are just studying the same issues you mention in your blog.

    Good job, thank you.
    Caesar.

    • Justin / August 12, 2014 at 11:44 am / Reply

      Hi Caesar, thanks for the comment! Glad to hear that some of the info is transferable to other States. Best wishes to you and your partner! Cheers, Justin

  6. Adam / October 15, 2014 at 4:18 pm / Reply

    Hi Justin,

    How small of a store is Mesa Junction? Just trying to differentiate between a Mom and Pop operation and a megastore.

    Thanks,
    Adam

    • Justin / October 20, 2014 at 10:28 pm / Reply

      Hi Adam, the store area is 2600 sq ft with about half of that accessible to customers. We have 2 employees working during business hours but just 1 register. Not sure if that’s what you’re looking for – I can’t reveal financial information here. Best, JH

  7. Tom / December 18, 2014 at 10:27 am / Reply

    Hi – I’m thinking of just specialty beer (and maybe wine) shop in CA. License is *much* cheaper, but can’t make as much per sq. ft. of space, and will require substantial refrigeration. Do you think this model is viable? Or is hard alcohol required to make it profitable?

    • Justin / December 18, 2014 at 1:43 pm / Reply

      Hi Tom,
      I don’t really have sufficient expertise to provide useful guidance here. What I will say is that, at least in Colorado, profit margins on liquor (hard alcohol) are quite a bit higher than they are for beer. I would imagine you would also lose a whole lot of revenue as beer aficionados may also need to grab a pint of Jack Daniels from time to time. Rather than focusing on specific product categories I would suggest focusing on a specific customer segment. Talk to beer aficionados and find out what they would want on the shelves. I’m guessing they would want to see some standard wine and liquor offerings for convenience. Hope this helps! Best of luck!
      Justin

      • Tom / December 18, 2014 at 9:36 pm / Reply

        Thanks! Great info.

    • Jeff / December 27, 2014 at 7:02 am / Reply

      Where in CA Tom?

  8. Abrar Siddiqui / December 29, 2014 at 4:22 pm / Reply

    What’s going to happen with the new petition to let grocery stores sell hard stuff? Would this pass? will it put a lot of liquor stores out of business?

    Thanks!

    • Justin / December 29, 2014 at 4:55 pm / Reply

      Grocery chains have been trying to change the liquor laws for years. The liquor lobby seems to have the upper hand, at least for now. If laws were to change, liquor store owners would need to innovate to survive. Some locations would have no chance.

      • Justin / December 29, 2014 at 4:56 pm / Reply

        This applies only to Colorado.

        • John / March 15, 2015 at 4:39 pm / Reply

          Hi Justin, a couple questions.

          1. Wonder if you’ve heard any new news around the grocery push to get full alcohol sales? I’m considering a pre-retirement investment in a Denver store, but very wary if the law changes in 2016 which I’ve heard is gaining strong support.

          2. Sounds like you had a store in a suburban median income area. Did you find it difficult to decide what crafts to bring in with all the proliferation of skus?

          Thanks so much.
          Jon

          • Justin / March 17, 2015 at 6:43 pm /

            Hi John,
            The big grocers have been trying for decades to get full alcohol sales. So far they’ve failed and I think they’ll continue to fail; but they will certainly keep trying and .. who knows … maybe they’ll get their way one of these years. I hope not but stranger things have happened. I would avoid liquor store locations in shopping centers right next to large grocery stores. They will be the first to go under if the laws change. I prefer urban locations to avoid the Big Box developments. You might also keep an eye open for stores with large enough square footage to allow for conversion to a grocery + liquor market if the laws change. I would expect some sort of transition period if they do make the shift. Still, I would bet against it.
            My store location was urban and fairly low income. We mostly had a difficult time keeping the cheapest 24-oz beers in stock. SKU proliferation is a big problem. It’s so expensive to have a good selection of craft beers, craft spirits, wine and everything else that people want to see on the shelves. My advice is to have a huge pile of cash in the bank to provide a cushion.
            Hope this helps. Good luck!
            Best,
            Justin

  9. Ruben / January 4, 2015 at 12:47 am / Reply

    I know you cant mention profits or cash flow, but could you share an estimated ROI from your store?

    • Justin / January 7, 2015 at 12:43 pm / Reply

      Hi Ruben, it’s difficult to say and probably warrants a separate blog post. I’ve now sold the store and still own the real estate. The new store owner will probably exercise an option to purchase the real estate in 2015. When all is said and done I expect to have at least doubled my investment capital. Probably more. But my profit has more to do with buying the store + real estate at a good price than anything else. I didn’t make any money operating the store. If you’re looking for a buy/hold situation you have to be willing to work at the store as your regular gig for it to make sense. As a passive investor you can either make money by flipping, like I did, or by purchasing a higher volume store with more potential to generate regular cash flow. However, this latter option requires a much larger pile of cash up-front. Hope this helps. Best, Justin

  10. David Belmonte / January 21, 2015 at 12:30 pm / Reply

    Thanks you for this article i found if very informative. I am looking for a small business opportunity in NY. I understand this business isnt a cash cow and the margins are thin but you also describe is as stable and able to provide a comfortable living. Would you suggest this a a valid first time business owner opportunity? what percentage of your gross income results in owners cash? this is and example of a store for sale in my area does this seem reasonable?
    Asking Price$199,000.00
    Gross Revenues$589,862.00
    Financing$ 199,000.00 Down and Sales Price does not include inventory
    Owner’s Cash Flow$91,920.60

    • Justin / January 21, 2015 at 2:18 pm / Reply

      Hi David, glad my post was helpful! In your example, the asking price is about 33% revenue which is a bit high. Try for something in the 25-30% range so if you like what you see maybe offer $150k. If the owner is providing financing it will be more difficult to get a lower price. Another key factor is real estate – can you buy the real estate? If not, are good lease terms available, etc. Cash flow of $90k on a store doing $590k is solid and probably requires that you work a *lot* of hours. You could hire help if you’re willing to pay yourself less. I do think a liquor store is a decent first time business owner opportunity. Just be sure you have a good pile of cash in the war chest for start up expenses. You’ll make mistakes – some of them expensive – and you need a cushion. Think of it as tuition to be paid. As a reward, so long as the location is good, you’ll have job security most can only dream about. And 90k/yr isn’t a bad salary to go with it. Just don’t count on it in year 1. Hope this helps. Cheers, Justin

  11. Rickey / January 27, 2015 at 7:00 pm / Reply

    Good advice for those considering a liquor/wine store as a business. I have owned a liquor store/beer store/wine store going on 6 years. Retired from IBM at age 55 and have been operating this store ever since. My brother and I both put up 150.00 to buy this business. We have a long lease. I’m afraid the lease may last longer than my brother or I. My brother and his wife and I and my wife operate the store. My brother and I each draw 90,000 a year. Wives are not paid. We are in Texas and it never ceases to amaze me how consistent the revenue is from one year to the next. In our six years we have been very fortunate to have minimized the mistakes that most new business owners make. The one thing that really stands out is your statement, any liquor store owner is at the mercy of the distributors. How true it is.

    • Justin / January 27, 2015 at 7:10 pm / Reply

      Rickey – thanks so much for sharing your experience and thoughts! Congrats on retiring from Big Blue and moving to a situation where you have more control over your own destiny (aside from those darn distributors). Thanks also for sharing your purchase price (I assume you mean $150,000 each?) and annual draw. I’m sure this is a huge help for others considering a similar move. I went into my own venture with too little capital, underestimating the amount of money needed to accommodate proper inventory levels and cash position. Thanks again and best wishes, Justin

      • derrick / February 27, 2015 at 11:15 am / Reply

        I am trying to buy a liquor store in Memphis, TN. I need your help! Thanks 901-281-7762

        please call me anytime

        • Justin / February 27, 2015 at 11:52 am / Reply

          What’s my commission? 😉

          • David / June 30, 2015 at 7:08 pm /

            You are a life saver!!! I need help buying a liquor store. Can you call or text me at 832-335-3661. Thank you Justin

  12. Ashley / February 2, 2015 at 11:55 pm / Reply

    Hi Justin.
    Thanks for your insight, it was very helpful. My husband and I currently own a 7-11 franchise in northern colorado but are considering leasing the building next to our store and opening a liquor store. (Unfortunately, I don’t think the real estate would be an option to buy) What advice would you have in terms of installing equipment? Do you think we should try to negotiate some of that cost into our lease agreement? (I’m also not sure what a good deal would be on leasing a commercial space, it’s not a very large space) Do you have a rule of thumb in terms of competition compared to the surrounding population? Lastly, can you educate me on what you can and can’t sell? (Soda,juice, crackers, limes?) Did you do any in-store beer/wine tasting at your store? If so how does the licensing work for that?
    Thanks again!!

    • Justin / February 3, 2015 at 2:21 pm / Reply

      Hi Ashley! Could you carve out a portion of your existing 7-11 for liquor sales? That might be better. It’s possible under Colorado Liquor Laws. You just need separation between the two areas within the store. Doesn’t need to be a wall. You also need separate cash registers. But that’s it. Worth investigating. For lease negotiations, competition, non-liquor items, tastings, etc I will try to answer when I have more time. Let me know what you think about dividing the 7-11. Cheers, Justin

  13. Penny / February 5, 2015 at 9:32 am / Reply

    Hi Justin, you are a wealth of information, I wish I could add you to my pocket in our venture. We are selling a business in the next few months and looking to purchase a liquor store in Colorado Springs area and we would own/operator the business ourselves. We see a sea of liquor stores for sale and wondered why and if it would be a wise choice for us. We are both in our ‘upper” ok fine, top 40’s and are moving to Colorado where the weather is not as extreme as Minnesota. We have owned and operated our existing business for 10 years and neither one of us is afraid of putting in the time to succeed. What other experience and advice would you be willing to share that would help us decide if this is the right choice. We do not want to purchase a store that has a lease, we would want to buy one that has the building included in the sale. We would also be going into this business with a good savings for purchasing inventory as we know there is always a large investment in inventory and we would always pay our vendors at delivery.

    • Justin / February 5, 2015 at 10:51 am / Reply

      Hi Penny – location is everything in this venture. You’ve already narrowed down to Colorado Springs but I think you should look carefully at the density of existing stores to assess competition before making any commitments. Maybe there are too many stores in the Springs and that’s why so many are for sale? Not sure. That would be a good question to answer. You can add me to your “pocket” for the transaction if you change your mind and target Pueblo instead. We need good business people with solid Midwestern values to help improve the economy in Pueblo. Plus your real estate dollar will go about twice as far as it would in Colorado Springs. Good luck! Best, Justin

      • Tamara / February 11, 2015 at 1:55 pm / Reply

        Any ideas on how to promote a new liquor store that been opened for 2 months in Houston, Texas

        • Justin / February 12, 2015 at 9:25 am / Reply

          Hi Tamara – I don’t know much about the subject but I think it depends on location and customer type. What sort of location? Downtown/urban? Or suburban shopping center? Who are your customers? Office workers grabbing a 12-pack on the way home from work? Retired/disabled stopping by for a regular half pint of cheap vodka? You don’t want to waste money advertising until you understand your core customer base and where they are coming from to visit your store. Once you better understand who you’re trying to reach it becomes an easier problem to solve. Hope this help. Cheers, Justin

  14. Pierre / February 24, 2015 at 5:27 am / Reply

    Message from a french guy, reading your blog. Interesting to see how american people can discuss business and share experience. I have always thought that I’d love to work over there. Reading your post and comments make me think I should really try to!
    Bonne continuation à tous
    Cheers
    Pierre

    • Justin / February 24, 2015 at 5:41 pm / Reply

      Hi Pierre,
      Venez aux États et nous pouvons commencer un magasin d’alcools spécialisée dans le vin français!
      Cheers,
      Justin

  15. Romy / February 26, 2015 at 5:46 pm / Reply

    Hi, Justin
    1)Looking into buying a liquor store in NorthWest of Denver. Gross is 1.6 mil, and the net to owner after all the expenses is $135,000. Asking price is 750,000 and not inlcuding inventory. 8 years on the lease left. Based on these numbers, how much would you offer? Do the numbers look healthy?
    2) Although I am doing my due diligence such as requesting annual credit card statements, tax returns, P&L and inner computer generate reported to make sure that all match the 1.6 million figure or at least come close but any thing else you recommend or ideas that helps my due diligence to make sure those numbers are legitimate?
    3) Store sells liquor and lottery but I also want to add cigarettes? Will that help with sale or is it worth it?

    Any other recommendations that you might pass on to make sure I am making a good decision or something I need to watch out for? could be legality issues, competition etc.
    Again thank you so much for your help!

    • Justin / February 27, 2015 at 11:36 am / Reply

      Hi Romy,
      (1) For a liquor store grossing $1.6 Million I would offer $400k and I wouldn’t pay more than $475k. Also, is the lease renewable at the end of 8 years? I would insist on an option to renew after the current term. How much for the inventory? You need to know what you’re getting and you should only be paying wholesale cost. You might also refuse to purchase any “dead stock”, i.e., inventory that’s just collecting dust and hasn’t moved in the past year or so.
      (2) Tax returns should suffice. Find out what the breakdown is for Beer, Liquor and Wine. Beer is the least profitable category so, ideally, the store would do a strong % of sales in liquor and wine. If Beer is well over 50-60% your margins will be relatively thin. You might request to work the store alongside the owner for at least one full week to validate sales numbers. This time of year is slow but the store should be bringing in about $25k per week. Less than $20k and alarm bells should go off in your head.
      (3) Adding tobacco is probably a good idea. At my store 10-15% of revenue was from tobacco sales so it can add a significant chunk. Plus it brings traffic. Add groceries and other convenience items is good too but you have to comply with State law which requires a separate cash register and a clear distinction between the retail space dedicated to liquor vs retail space dedicated to other sales.

      There are lots of other factors. Competition is key, of course. So is parking, visibility, traffic flow, and on and on.

      Good luck!

      Cheers,
      Justin

  16. Romy / February 26, 2015 at 6:14 pm / Reply

    Hi Justin,
    1)Buying a liquor store Southwest of Denver. Gross is 1.6 million from past 2 years, Net to owner after all expenses is $135,000 and 8 years left on the lease. Asking price is 750,000, inventory excluded. What would you offer? and lets just say if those above numbers are true, do you they look healthy?
    2) I am doing my due diligence to make sure 1.6 mil is a legitimate figure by requesting annual credit card statements, tax returns, p&l and inner computer generated sales so I can match them. Any other ideas you can pass it on so I can verify the accuracy of the sale?
    3) Store sells liquor and lottery, but i also want to add cigarettes and add groceries to boost the sale? Is that a good idea?
    4) Anything else you can recommend for me to be aware of such as license, marketing or lease, competition?

    Thank you much for your help!

  17. Romy / March 6, 2015 at 11:18 am / Reply

    Hi Justin,
    Thank you again for the response. Is it possible to exchange numbers and talk at some point? I am coming close to making an offer and would love to talk with you and get some advice and I am willing to hire your services.

    Thanks
    Romy

  18. Joe / March 19, 2015 at 8:18 pm / Reply

    Hello Justin,

    Wow, thanks for all of your information. I’m in GA and currently looking into purchasing a package store(liquor store). The business is 8 years old, and sells have increased every years, 6% last year to be exact. $1.2 Gross sales and the least is 10 years remaining and can be extended. The store is fully supplied and fully staff but the inventory is not included in the $50,000 asking price. There is $300k in inventory which is not apart of the asking price. How should I approach this, especially the inventory price?

    • Justin / March 20, 2015 at 11:07 am / Reply

      Hi Joe,

      I assume you mean the asking price is $500k? If the price is really $50k pull the trigger! At $1.2M gross I would think the store is worth $350k or thereabouts. For the inventory, I would only agree to pay the actual cost that was paid by the current owner as documented by purchase orders/invoices/etc from distributors. In addition, I would ask to review the entire inventory and have the option to not purchase “dead” stock, i.e., inventory that hasn’t moved in the past year or so. You shouldn’t have to pay for the previous owner’s merchandising mistakes. Make sense?

      Good luck with the purchase! Let me know how it turns out.

      Best,
      Justin

  19. Alex Quainoo / March 23, 2015 at 10:04 pm / Reply

    Hi justin, I have been able to save 75k cash.will I be able to open a liquor store

    • Justin / March 26, 2015 at 12:51 pm / Reply

      Yes, a small one. Look for opportunities with owner financing.

  20. Dan / March 27, 2015 at 11:38 pm / Reply

    I am planning to buy a liquor store with real estate priced at 600k includes 100k inventory. Annual sales are 1 million. How much would I net with that kind of sales and no lease payments or mortgage payments?

    • Justin / March 29, 2015 at 1:42 pm / Reply

      Hi Dan,
      There are a few more variables necessary to come up with a net income estimate. It depends on cost of utilities (refrigeration is expensive), annual licensing expenses, credit card fees and other misc costs. It also depends on your sales mix; for example, if you sell 80% Beer you’ll net less than if you sell 80% wine/liquor. Finally, how many paid employees will you want/need? The more you work, the more you keep in your pocket. All that said, and assuming you work the store full time, I think you could plan on clearing ~$100k per year. Maybe plan on a bit less the first year or two. By the way, given the numbers you laid out I would expect the real estate included to be worth ~$200k. If the real estate is worth less you may be paying too much. Good luck!
      Best,
      Justin

  21. Alyssa P., Michigan / March 30, 2015 at 9:46 am / Reply

    Hi Justin!

    It has been interesting reading your blog. You sound like an amazing entrepreneur! I am currently finishing my Bachelor’s in Business Management with an Entrepreneurship/Leadership specialty. In one of my capstone classes, we have been asked to complete a business plan start to finish. I chose “party store” as we call it in Michigan, which is ideally a convenience/liquor store with a sandwich deli, pizza, and delivery options. (They let us deliver alcohol in MI!) Finance and start up costs are posing to be my most difficult area to come up with answers as most businesses do not display financial data for everyone to see. If I was starting up a small (2500ish sq foot) operation on a rental lease basis, where I would be responsible for purchasing inventory and deli equipment, what would your general advice be for me to come up with a “Mock” number to attach to it? Also, I understand Colorado is different than MI, but how long/how much did it cost to obtain a liquor license? Any suggestions to add to my plan would be greatly appreciated. Your article has already helped spark new ideas to add. My parents owned one when I was a teenager for about 8 years so I have a general idea of how things are ran and operated, I simple hate finance and this is the weakest area on my business plan.

    Thank you!

    Alyssa from Michigan!

    • Justin / March 30, 2015 at 1:16 pm / Reply

      Hi Alyssa, thanks for reading my blog! What do you have so far for a pro forma? I can give you some ideas for the liquor inventory piece of the puzzle but there will be many expense categories to cover. Furthermore, it’s difficult for me to know how much you might need in liquor/wine/beer inventory so you’ll have to make some guesses as to volume of sales as well as a likely breakdown for beer vs liquor vs wine sales. Make sense? Best, Justin

      • Justin / March 30, 2015 at 1:21 pm / Reply

        By the way, you can’t be a successful entrepreneur without understanding your financial data. So, get over your “hatred” of finance and think of it as an important tool for growing a business and achieving success. You might also hate mops but customers like clean floors. For small businesses financial analysis is just a matter of gathering basic information and translating into a set of numerical estimates. You’re probably making it more difficult than it needs to be. Start with a list of anticipated expenses. Revenue forecasting is far more of a challenge.

  22. Daniel / April 4, 2015 at 2:04 pm / Reply

    Scenario: How much would you offer for a store grossing $600,000-$700,000?

    What’s the % net income that’s resonance for this size (1,600 sqft) that gross between 600-700k? Is 15% good number to use as rule of thumb? Rent is $4,000 per month.

    • Justin / April 5, 2015 at 10:23 am / Reply

      Hi Daniel,
      Lots of factors to consider but, generally, I would want to stay in the $150k-$200k range. Net income varies depending on too many factors to list but 15% is feasible. The rent sounds high to me. Check market rates to see if it’s in line.
      Best,
      Justin

  23. Bailey / April 7, 2015 at 9:32 pm / Reply

    Hi Justin,

    Great blog! I need to have a tutorial on the basics of selling into an account. Understanding margins, how to negotiate case prices for a brand new product, etc. Do you know of a good book? I would love to speak with a store manager. I wont be selling the product in Colorado and would sign a non disclosure agreement.

    The product has a lot of potential. I cant discuss in a public forum. We are thinking of seeking out independent sales contractors who sell into accounts for us, having a wholesales group handling distribution. The distributor agreements with their sales force cuts heavily into profits. Looking to see if we can work around that.

    Would love your recommendations, etc.

    • Justin / April 8, 2015 at 9:21 am / Reply

      Hi Bailey. In Colorado retail liquor store owners are required by law to purchase through a licensed distributor. There are exceptions for Colorado-based brewers and distillers and I think you can buy wine directly from an out-of-state vintner if they don’t have their own distributor. So, at least in Colorado, you won’t be able to make an end run. Don’t know about other states. Sorry I can’t be of much help. Good luck! Best, Justin

  24. detek / April 7, 2015 at 10:23 pm / Reply

    I’m just looking for a 99,000 store with good cash flow in myrtle beach area.. I’m not planning on being rich but comfortable 55000 take home. I don’t that’s greedy

  25. Jay Hood / April 27, 2015 at 12:21 pm / Reply

    First off, awesome blog. There are not too many liquor store owners that would take the time to write such useful information. I would like to know what kind of Point of Sale software you would recommend? The options are daunting,

    Thanks!

    • Justin / April 28, 2015 at 4:22 pm / Reply

      Hi Jay, we used “Lightspeed” and it was pretty good. Price was significantly less than some alternatives. Easy to use and runs on Mac which was a priority for my manager. My only complaint was limited reporting capabilities. Best, Justin

  26. Glen / May 3, 2015 at 9:19 pm / Reply

    Justin
    Thank you for the information it has been a great help.
    I am in the process of putting together a bid for a Liquor Store in Southeastern Colorado. The Store is listed for $150,000 which includes inventory and real estate. Real estate does not have a great value and coolers need updated. I have also been told that the seller wants to retire very soon due to age and health which tells me that he would take less. The store owner told me that beer sales are around 60% Wine 10%. I have asked for the P&Ls and tax returns which I have not gotten yet, but should get soon. I have a feeling that the books might not be clean; cash might be leaving the business and not getting reported. Because of this I am going to look at purchases also. Can you tell me what kind of purchases/sales I should expect to pay this amount? Also can you tell me what the average margin is on the 3 main product categories.
    Once again Thank you for your help in this matter and the help you have given everyone with this blog.

    • Justin / May 4, 2015 at 7:37 pm / Reply

      Hi Glen. $150k for the business + real estate + inventory sounds very inexpensive. What sort of revenue numbers are they quoting? When the price is too good to be true it may be a red flag. Ask for tax returns if you don’t trust the P&Ls. I can’t speculate on appropriate revenue for these numbers because I have no idea about real estate or inventory values. Average margins would be about 15-20% for beer, 35-40% for wine and 30-35% for liquor. But it all depends on your customers and their preferences. I suppose it always depends on your customers. Anyway, hope this helps a bit. Best, Justin

  27. CHOO / May 5, 2015 at 7:54 am / Reply

    What is the best product to get inventory for, in other words what alchohol grosses the most money

    • Justin / May 5, 2015 at 11:13 am / Reply

      I don’t mean to be flippant but the best product is the one your customers want to buy the most. Every liquor store has unique customers and each store’s “customer profile” is slightly different. When you buy inventory it should be tailored to your particular customer base. Some customers like cheap beer, cheap vodka and cheap whiskey. Some like high-end wines and spirits. As a store owner you need to find out what your customers want to buy. Then find ways to build a profitable inventory to serve their purchase patterns. Best, Justin

      • CHOO / May 6, 2015 at 8:13 am / Reply

        Thanks Justin I am a little new to the buisness and have not made any relations with suppliers, is there any suppliers who are trying to cheap stores and have outragous costs, I want to make sure I buy from the right people.

        • Justin / May 6, 2015 at 1:46 pm / Reply

          If you’re in Colorado then ALL distributors (licensed suppliers to retailers) are “trying to cheap stores and have outrageous costs”. Unfortunately there’s no where else to go as each and every distributor has a monopoly on products they distribute. Building a relationship with suppliers is still a good idea but don’t expect to be able to shop for better pricing (unless it’s for non-alcoholic products). Your only path to lower costs is via volume purchases. And, of course, you can only afford to make large purchases for product SKUs you sell the most. Sorry to be the bearer of bad news. Perhaps you’re outside Colorado where retailers have more negotiating power. Best wishes, Justin

  28. Abrar Siddiqui / May 14, 2015 at 8:37 pm / Reply

    Hi Justin, lets say the proposed change in the liquor law passes and grocery stores are allowed to sell liquor. If my liquor store is anchored by a grocery store how likely would the city give another alcohol beverage license to a business that is right next door to a place that already has an existing license, would the grocery store chain attempt to buy my liquor stores license. What are your thoughts on that scenario.

    • Justin / May 18, 2015 at 12:22 pm / Reply

      Difficult to say. My best guess is that you’d be SOL. Might want to try to add a clause to your lease releasing you in case of change in the law. Or proactively begin communication with the grocery store management. They may want someone to manage liquor inventory for them. That said, I don’t expect the law to change so I would be more concerned about maintaining/growing revenue and profit. Best wishes, Justin

  29. Kieren / May 16, 2015 at 3:25 am / Reply

    quite possible what is your favourite tequila.

    • Justin / May 18, 2015 at 12:02 pm / Reply

      The one that sells the most.

  30. Dave / May 17, 2015 at 11:34 pm / Reply

    Hi Justin, Like others here, I am looking for opinion and knowledge before seriously contemplating a store purchase.
    In a nutshell, the store has been operating for 35+ years, the present owner is an absentee owner with other business.ventures.
    The owner will lease turn the key business for 1500 a month for 1 year with lease fee deducted from purchase price if property is bought after one year. Asking price is 160,000. Of course inventory would be purchased at start of lease. The gross for last year was 287,000 but I do not have a breakdown of this gross as for profit/loss.
    In your opinion does this seem like a good venture? Would you have any idea what the gross profit percentage might be?
    I should add they now sell beer, wine and liquor, but there is an additional 800sq ft available in store but not used at present for retail space. What other products could be added to increase sales?
    Your advice would be greatly appreciated.

    • Justin / May 18, 2015 at 12:18 pm / Reply

      Unless the deal includes real estate or some other special consideration the price tag for the business seems too high. I wouldn’t pay more than $100k and $80k sounds about right to me. Not including inventory. Gross revenue is pretty low. How has it changed over the past five years? Going down? Holding steady? Moving up? I think I would favor a deal with higher gross. I like Mom & Pop size operations for owner-operators but this sounds more like a Mom *OR* Pop (not both). Being that tiny makes you even more vulnerable to the pricing whims of distributors. To add sales revenue I would add tobacco for sure. Maybe lottery. Depending on state law maybe use the 800 ft to sell snacks etc convenience store style. Hope this helps. Best, Justin

      • Dave / May 18, 2015 at 2:35 pm / Reply

        Hi Justin, I’m sorry, in my last post I didn’t clarify that the asking price included everything, equipment, building (1900sq ft) and large paved parking lot.
        As for change as I understand, the gross has gone down since the present owner has had it by about 30-40k. The owner admits this is mostly from not operating it himself and not managing it properly because of his other commitments.
        It is close to a lake, maybe bait and fishing gear along with the convenience items? Oh, I didn’t mention the state is MN.
        Thank you, again
        Dave

        • Justin / May 22, 2015 at 3:16 pm / Reply

          Is the location rural? If so, might be very slow when it gets cold, i.e., most of the year….unless there’s a big ice fishing scene on the nearby lake. Fishing gear is a good idea. But I would want to see a transaction count to better understand seasonal variability.

          The price seems reasonable since real estate and equipment is included, depending on market values for similar property in the area. You may want to request a provision to avoid depleted inventory when you take over. You don’t want empty shelves.

          In this situation I would probably want an owner carry deal. If he says he wants a clean exit so he can take the money and move on I would run the other direction.

          Cheers, Justin

  31. Harvey / May 24, 2015 at 1:07 am / Reply

    Hey Justin,

    Im from Canada and I’m thinking of buying a liquor store in California, Los angles area. Any tips?

    • Justin / May 24, 2015 at 10:44 am / Reply

      Be sure to start out with plenty of cash in the bank (after you purchase the store) to ride the inevitable ups and downs while you learn the particulars of the customers and suppliers in your market. Cheers, Justin

  32. David / May 27, 2015 at 11:05 am / Reply

    Hi Justin,

    Very impressed with your blog, business acumen and willingness to help others! I’m contemplating the following opportunity and would value your opinion. I’ve read that inventory should turn over 8-10 times per year – this seems to be about 6.5X at value below. Store is in NY – wine and liquor only. Also curious as to what you think about an owner putting in 40-50 hours with employees covering evenings and weekends?

    Store is located on a very busy roadway in a large shopping center next to a supermarket. This business has had continued sales growth each year since it was started in 2006. Past year the store grossed $1,833,796.03 (+7.5% from prior year) with a net income of approx. $263,000.00. At 2,500 sq. ft. – large retail sales floor and a tremendous amount of storage space. There are 6 years left on the lease (it can be extended). I’m told all sales and figures are verifiable. State of the art POS software. Price is $675K + $285K in current inventory.

    many thanks,
    David

    • Justin / May 28, 2015 at 6:49 pm / Reply

      Hi David,

      Sounds like a good opportunity with strong cash flow. Asking price of $675k seems high. I would offer $550k and try not to go beyond $600k. Be sure to verify inventory and ask for an option to reject inventory that hasn’t moved in the last 6-12 months (start with 6 mo, agree to 12 if push back).

      Owner working 50 hours per week should be fine if you have good people and treat them right. I think you’ll want to work on Saturdays as it is typically the busiest day of the week. Maybe take off Sun-Mon.

      Good luck!
      Justin

  33. Jay / May 29, 2015 at 12:11 am / Reply

    Hello Justin,

    Great article sir! Thank you so much for taking the time to answer all the questions; I’ve learned so much from your blog. Justin, I’m looking into a store in a small town, and wanted to get your advice. Liquor store is doing 2.2m in annual sales, they are asking 1.5 m; it’s with real estate. Location is great, right off the main road in town, with ample parking. Beer sales are 18 % and the rest is wine and liquor. Please let me know what you think.

    Thank you

    Jay

    • Justin / May 29, 2015 at 9:14 am / Reply

      Hi Jay, how much do you think the real estate is worth? Also, does the asking price include inventory?

  34. Harvey / June 16, 2015 at 11:36 am / Reply

    Hi Justin–great article and appreciate all the responses you’ve given to the comments. You’re giving out a lot of vital information/details.

    I’m looking to open a new liquor store with maybe a different approach than others. I have a partner and would like to invest 75k each. According to above comments, we would need to be in the $600-$650k gross range if we invest $150k total, right? If that’s the case we should be in the $90k cash flow range (divide by 2), we should each see about $45k annually in a traditional, owner ran store?

    Now, rather than both or one of us behind the counter we want to hire employees and have the pay be commission based. The two owners would be focused on marketing and managing the operations/inventory while the employees are behind the counter. In past experience I’ve noticed employees don’t really care about growing a store unless there is some incentive for them. I do understand paying commission will eat into our profit but I think in the long run we could have employees that could push sales and would be willing to educate themselves in the products. If we were to go with commission based pay, how much or what percentage do you feel would work well? I’m thinking with wine and liquor having a higher margin we could give a higher commission percentage to the employees for those products.

    After paying commission to the employees if we both only see $30k cash flow each, I would be okay with it as we could try to grow and own multiple liquor stores with the same concept in place, possibly adding tobacco, water pipes (and other smoking devices), and lottery.

    Any help/advice is appreciated!

    Thanks

    • Justin / June 16, 2015 at 2:07 pm / Reply

      Hi Harvey, thanks for visiting and posting your questions. By “new liquor store” do you mean start from scratch? I can’t say that a $150k investment will achieve/require $600+ gross. Depends on too many factors, especially the local market dynamics, location, competition, etc. $90k sounds about right if you’re able to achieve $600k+ gross but that assumes at least one of you is working full time. If neither of you works the store you may not have much of anything left at the end of the year. For a store at that volume I recommend you work behind the counter. You’ll need to be there more days than not if you’re responsible for inventory/ordering etc. More importantly you need to get to know your customers so you can provide the level of service necessary to keep them coming back. I’m not a fan of commission schemes. If you take good care of employees they’ll take care of you. If you set up a commission plan you’ll end up spending a lot of time administering the plan; your time is better spent elsewhere. My advice is to find a partner who wants to work at the store full time. Sorry, this is probably not what you wanted to hear. You and your partner may be able to make money by building the business and selling it but I wouldn’t expect any cash flow along the way if neither of you will be working full time hours. Best wishes, Justin

  35. Om / June 17, 2015 at 2:46 am / Reply

    Hello Justin,

    First of all, thank you for all the information you are providing and for posting this great blog. It is very informative for the first time business buyers. Also, it will motivate people like me to post and share our experience so people make less mistakes and excel.

    I plan on buying a liquor store in IL. I would really appreciate any kind of input/advice from your side.

    Here are the numbers from P/L:

    Asking 330K + 160K (inventory)
    On lease for $4600 (as per my DD slightly high for that area)

    Total Income: 989,906
    Gross profit: 228,406 ( PM around 23% for last 3 yrs)
    Net Income: 30,781. (Owner has 5 employees and also pays salary to self) I have to find out how she pays herself.
    Payroll expenses are 82K. Currently she is paying 3k per month in salary to employees so I am guessing 82K-36K=46K is her salary.

    Any thoughts/questions/advice are greatly appreciated. Thank you Justin.

    Om

    • Justin / June 17, 2015 at 4:53 pm / Reply

      Hi Om. These numbers seem pretty good. Asking price is slightly high but not unreasonable. The seller will take $300k which isn’t too bad but you might try offering $270-275. Make sure inventory value is based on wholesale prices and try to avoid taking “dead stock” (product that hasn’t moved in the past 6-12 months). Depending on your financial circumstances, you might ask about the possibility of owner carry so you can begin with the strongest possible cash position. Good luck! -Justin

      • Om / June 18, 2015 at 1:12 am / Reply

        Thank you very much for your input. What the owner gave me is the P/L documentation. How do you verify the sales and makes sure the numbers are correct? I am guessing tax papers?

        • Justin / June 18, 2015 at 10:08 am / Reply

          Yes, once you’re “under contract” it would be appropriate to request tax returns to verify the P&L numbers.

          • Om / June 18, 2015 at 6:35 pm /

            Great. Thank you Justin for your input. I will update you if the deal goes through. ~Om

  36. paul / June 23, 2015 at 11:54 am / Reply

    Hi Justin. How are you? I have couple Qs please help me out, any comments or your advice is appreciated.
    Story: One liquor store in GA sell 6,5 millions plus 1.0 million inventory = 7,5 millions ( including store real estate 12k sqf = $2,5million)

    Information :

    ***Based on I -1065 sale increase 5% each year. Total sale 7,7 millions
    Cost goods sold. 6,4 million
    Gross profit. 1,3 million

    salary 400k
    Repair maintenance. 68k
    Rent ( they filed) 16th
    Tax , license. 54k
    Interest. 41k
    》》》 ordinary business income is 290k

    *** BASED. on owner info given
    Sale without tax 7.8 million
    #employees : 14
    Yrs business. 19yrs
    inventory 1.0 million
    Margin: 17%

    Expense:
    Payroll : 400k/ y
    Lic fee: 6500
    property tax 14k
    insurance. 14k
    electric. 36k
    water. 500
    Trash 1600
    Tel+ Internet 2000
    Alarm. 450
    Credit fee 4500/month x 12= 54000

    POS system
    40% of sale is wine
    43% is liquor
    15% is bear
    Rest is misc

    Dear Justin, they asked 7,5 million, could you please give me an advise HOW MUCH WE CAN MAKE AN OFFER? OR WE BUY.
    Thank you for your time and kindness to help me out, any your advice or comments is appreciated.

    Dearest,
    Paul.Rx

    • Justin / June 23, 2015 at 1:46 pm / Reply

      Hi Paul,

      If I understand correctly they are asking $4M + $1M inventory for the business and $2.5M for the real estate. I also see $7.8M gross annual sales in the most recent 12 months. Is that correct?
      (1) I can’t help with the real estate valuation. You should get an appraisal from a good realtor who knows the local market.
      (2) The business looks very profitable so you should expect to pay a premium but I think the asking price is high.
      (3) Keep the real estate, inventory and business separate in your negotiations.
      See (1) for real estate.
      For inventory, offer to pay the cost of documented (they should be able to show purchase receipts) on-hand inventory but reserve the right to reject dead stock (hasn’t moved in 12+ mo). You shouldn’t have to inherit purchasing mistakes.
      For the business, I would offer $2.5M and I wouldn’t pay more than $3M.
      All of these suggestions assume the business has been growing, the surrounding trade area is stable or growing and there’s no sign of new competition with deep pockets entering the market.

      Hope this helps. Good luck! -Justin

      • paul / June 24, 2015 at 12:10 am / Reply

        Hi Justin. It’s very helpful. Thank you very very much Justin.. I am very happy to accept your advice and I will make a deal like that. I also check the real estates to see what going on.
        Dearest,
        Paul.rx

      • Jack / June 24, 2015 at 2:47 pm / Reply

        Hey Justin I am looking into one large liquor store would like to get your advice over phone if it’s possible?

        • Justin / June 26, 2015 at 11:36 am / Reply

          Hi Jack. Use my contact form to send me a private message and we can go from there. Thanks, Justin

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