How do you ensure you have the funding behind you to keep serving your customers in all of these different ways? There are many financing options for liquor stores, even though oftentimes owners will be turned down by traditional lenders like banks because of industry restrictions.
Top Trends Affecting the Liquor Store Industry
Before considering a loan for a liquor store, wine and spirits merchants need to consider a few things first. Wine and liquor sales, consumption habits, merchandising and demographics have changed drastically in the past decade. The changes are so profound that even calling it a "liquor store" may be a misnomer since Americans buy more wine than liquor at their local stores these days.
According to a recent study by the Beverage Information Group, Americans consume approximately 350 million cases of wine annually. That's roughly a case of wine per citizen every year. With stats like that, it's no wonder operating a retail liquor store is so appealing.
Running a liquor store can be an exciting and rewarding business. However, this is a demanding business that is highly regulated. Additionally, it is becoming increasingly specialized as well. These days you will need to do your homework as consumer knowledge of wines and spirits has become more sophisticated and appetite for new libation experiences has grown just as quickly. Consumers are looking at quality, selection and price; and often turn to their local liquor store staff for guidance and recommendations.
In fact, during times of economic recession - sales of alcoholic beverage products tend to improve. The gross margins generated by liquor stores is moderate. Usually, a 20% to 30% gross profit is achieved on each sale. Specialty alcohol products (like vintage wines) tend to carry a much higher profit margin. The barriers to entry for a new liquor store is moderate. Generally, the startup costs for a liquor store range from $50,000 to $250,000 depending on the size and location of the business. One of the primary strengths for a liquor store is that financing can be easily obtained for inventory purchases. Banks and financing companies love to place capital with liquor store and package store businesses.
Risks and Challenges of Financing and Operating a Liquor Store
The retail wine, beer, and liquor industry in the United States consists of over 47,000 stores with combined annual revenue of about $58 billion. Despite a nearly recession-proof business model, independent liquor store owners universally struggle to maintain a healthy cash flow. Some major reasons for this can include restrictive government regulations, high cost of overhead, financial mismanagement, costly payroll, expensive inventory, and local competition. But the single biggest issue faced by liquor store owners is a lack of access to working capital.
Liquor stores must abide by strict Federal liquor laws to be compliant with the law and regulations and in effect, remain in business. The Tax & Trade Bureau's government website highlights its federal laws and regulations for retail dealers that entrepreneurs should be aware of before considering their idea of financing for liquor stores. The complete list of federal regulations and laws is quite extensive. . Any questions regarding these guidelines can be directed to TTBInternetQuestions@ttb.gov.
Richard Parker, President of The Business for Sale Buyer Resource Center™ offers his insights on the key issues that entrepreneurs need to know before venturing into the liquor stores financing on BizBuySell, the Internet's largest and most heavily trafficked business for sale marketplace in alliance with the Wall Street Journal. The most significant issues to consider before getting involved in owning a liquor store, according to Parker are the following items:
- The significance of obtaining a license to operate a liquor store
- Maintaining inventory
- The need for a hands-on type of owner
- The landscape and consumer preferences are changing
Despite being one of the most profitable sectors of the retail industry, liquor stores are frequently denied financing by traditional lenders who believe that their operations are high risk. This is especially true for startups and business owners lacking established business credit. Chances are that if you fall under this category, you've likely to have already experienced this sentiment firsthand if you've ever tried to apply for a loan. That's where Biz2Credit comes in. We have experience connecting entrepreneurs with business loans for liquor stores.
Liquor Store Financing Trends
The recent trend in liquor store financing is moving towards super-sized, low margin retail stores. This is a familiar trend in many retail sectors. Small neighborhood liquor stores have begun to feel the pinch as they cannot compete with the larger mega-chains in price and selection. The evolution of the mega-liquor store is very similar to the dynamic between neighborhood hardware stores and the large home improvement chains.
To survive, and indeed to fight back, smaller liquor store owners have begun to band together in buying groups to pool their purchasing power to match the larger mega-outlets. In many cases, this is the only way to survive. However, one advantage of a local neighborhood liquor store is the convenience factor. Many shoppers still buy alcoholic beverages on impulse or at the last moment. With enough distance between your store and the closest mega-store, a liquor store owner can ensure a good share of the last-minute liquor purchase market.
One of the strong attributes of the liquor store or alcoholic beverage retailing business is the notion that the industry has a reputation of being "recession-proof". Bottom line, alcoholic beverages are known as vice consumption items and are in demand in good times and bad. This makes a liquor store loan an attractive business proposition for a lender, even the US Small Business Administration. If your customers will keep buying from you even if the economy goes south, lenders will be more comfortable with offering you a larger loan or a longer term, which can both help you achieve your goals faster.
In addition, taxes on alcoholic beverages continue a downward trend. Some states (such as New York) are introducing tax incentives to promote the manufacturing and distribution of local spirits and wines. The rise of the local breweries and distilleries selling unique crafted beverages in cities all around the country means big business for state governments and liquor stores alike. So politicians have been favorable to this opportunity for economic development.
Another emerging trend is the micro-distilling and micro-winery industries. This trend is favorable to a neighborhood liquor store since it usually can establish a more intimate relationship with a local label.
Choosing a Liquor Store Loan Type: Best Options for 2019
Knowing what type of business loan you need is the first step to getting a loan for your liquor store. These options can help your business cover common expenses, expand a business or acquire an existing store.
Business line of credit
Similar to a credit card, a business line of credit gives you access to a certain amount of funds to draw from as needed. It's designed to help with ongoing expenses like buying more bottles or keeping your wine experts on staff when your cash flow isn't totally consistent.
Merchant cash advances
These days, chances are, most of your sales are in credit or debit cards. This option gives you an advance on your future sales and allows you to pay it back plus a fee with a percentage of your daily sales.
Business term loan
Have another big project on the horizon, or just want to upgrade your store? A business term loan can help break up any large one-time expense into manageable repayments.
When you need that specialty beer fridge or other equipment for your store, equipment loans and leases can help you cover the cost at a lower rate. These loans are often secured with your equipment as collateral.
Commercial real estate financing
This loan is designed specifically for buying, leasing or expanding your property. You could open another liquor store, expand a cellar or simply create a back office space.