Book
Excerpt
Chapter 1
Friends, laughter, celebrations,
entertainment—fun! These are the things that might come to your mind
when you think about owning your own bar. Rooms filled with friendly
conversation, music and people enjoying themselves. If you’re thinking
of opening a sports bar, you might envision an exciting game on
big-screen TVs with everyone cheering and having a great time. Owning a
bar sounds like the perfect life to many potential entrepreneurs, but
it’s not always fun and games behind the scenes.
Owning your own bar/tavern can mean long hours,
meticulous attention to detail, giving up vacations and weekends, and
sometimes dealing with unruly customers. But if you have a clear vision,
do your homework and learn the ins and outs of the business, it can also
translate into a rewarding and financially successful enterprise.
Bars aren’t like retail establishments. People
don’t go there just to buy a drink or two and then leave. Depending on
the type of bar you want to own, it will be a place where people can
hang out with their friends and co-workers, negotiate a big business
deal, celebrate a special occasion, and meet new people. As a rule,
people want to be around other people, and your bar can provide an
excellent opportunity to fill that human desire.
A Look Back At History
According to the history books, people have
enjoyed consuming alcohol for thousands of years. Ancient writings on
clay tablets describe the use of wine and beer for religious ceremonies
and rituals. That’s a lot of alcohol consumed over 4,000 years! Back
then, people fermented fruit juices into wine, honey into mead and grain
into beer. In some parts of the world, alcoholic beverages were
considered safer to drink than water. Plus, they could store alcohol in
barrels, and it would still be safe to drink over long journeys.
In the Golden Age of Greece, establishments known
as phatnai served traders, envoys and government officials from a
variety of regions. In fact, tavern growth generally followed the
development of trade, travel and industry all over the world.
The early American settlers brought the tradition
of the English pub over the Atlantic Ocean and invented the American
tavern. In 1634, the first tavern opened in Boston and was called
Cole’s. In New Amsterdam (later New York), Gov. Kieft grew tired of
entertaining Dutch Colonial guests in his own home, so he opened a
tavern and lodge to accommodate them. That same building became New
Amsterdam’s first city hall and remained so until the current one was
built in the 1880s.
Back in those days, the government required every
community to have some kind of public meeting place, and they usually
ended up being the taverns. The government set regulations for their
operation and controlled the prices.
From the 1950s to the 1980s, people’s interest in
bars centered a great deal around television. First, it was to see the
new invention. Then, they wanted to watch big-screen TVs, and later,
they wanted to check out satellite-broadcast programs from all around
the world. Even today, you’ll often see television reporters
interviewing people at bars about the latest hot political topic or
sporting event.
Although people still gather to socialize in bars,
just as they have for hundreds of years, other factors have come into
play for the industry as well. Problems with driving while intoxicated
have changed the drinking patterns of people in United States. The
growing concern with health and fitness toward the end of the 20th
century took its toll on the bar industry. Keeping tabs on this industry
requires a look at the alcoholic beverage industry as a whole—what
people buy in the store doesn’t differ much from what they buy in a bar.
So what’s the status of the modern alcoholic beverage industry?
According to the Distilled Spirits Council of the
United States, sales of distilled spirits declined considerably from
1980 to 1985 but turned around to a growth period in the late 1990s.
Sales of white spirits (vodka, rum, gin and tequila) increased 0.6
percent from 1993 to 1997. They rose again from 1997 to 1998 by 1.6
percent. Sales of brown spirits, on the other hand, did the opposite,
although the decline slowed in the late 1990s. From 1993 to 1997, sales
of brown spirits dropped 3 percent and declined 1.5 percent from 1997 to
1998.
You can see how certain social issues have taken
their toll on the sales of alcoholic beverages. Now let’s take a look at
the “state of the union,” so to speak, for the United States bar
industry as a whole. In the mid-1990s, the total number of operating
liquor licenses in restaurants and bars exceeded 225,000, and beer and
wine licenses reached more than half a million. Generally, the number of
liquor licenses distributed is based on the population of the county. In
1996, food and beverage workers held 4.6 million jobs, with 390,000 of
those being bartenders.
So what does all this mean to you? Well, it means
you have some tough competition out there. But you’re not just competing
with the other bars in your area these days. You’re competing with every
entertainment option from which your customers can choose.
The Competition: Other
Entertainment Options
In the 21st century, the bar/tavern industry is
more challenging than ever. The climate of entertainment began to change
in the late 20th century. People have more and more entertainment
options inside the home, such as cable television, movie rentals and
surfing the Internet. According to Michael O’Harro, board member of the
Oxford, Mississippi-based National Bar & Restaurant Management
Association, as a bar owner, you should look beyond other bars for your
competition.
“People never have to leave their houses,” O’Harro
explains. “You have MTV, cable, satellites and computers. Plus, you have
got carryout and food delivery. You are not just competing with the bar
down the street or the movie theaters. You are competing with people who
are staying at home and entertaining themselves there. So you have to
give them a reason to leave the house.”
In recent years, consumers have become more
health-conscious. The number of men and women who have consumed at least
one alcoholic beverage over a six-month period declined 12 percent
between 1986 and 1996. However, at the end of the 1990s, surveys of
consumers between the ages of 21 and 55 reported that 52 percent had at
least one alcoholic drink in the past month, and 35 percent had a drink
within the past week.
“Census data supports a case for renewed growth of
[alcoholic beverage] consumption, as the legal drinking age population
in this country is expected to grow by about 2 percent annually through
2010,” says Martin Jones, president and CEO of Westport,
Connecticut-based Allied Domecq Spirits USA, one of the world’s largest
distillers. “Overall these younger consumers—popularly labeled
‘Generation X’—have demonstrated an affinity for drinking. They may
drink less, but they do drink better than their baby boomer
predecessors.”
So the good news for the industry is that those
who drink have become more discriminating. The popularity of
higher-priced microbrews and top-shelf liquors continues to increase,
which is great for you as a prospective bar owner!
What You Can Expect
Successful new bars can be in the black within the
first six months, and they can go on to recover their initial investment
within three to five years. However, like many new businesses, the
statistics aren’t in favor of the start-up. About 80 percent of new
businesses fail within the first five years, and the bar business faces
the same kind of statistics. Why do they fail? The first reason is they
didn’t have enough capital to keep the business going. The second reason
is a lack of knowledge about the business.
Are we trying to scare you out of owning your own
bar? Maybe. If you’re not interested in a high-risk business, this isn’t
the one for you. But if you look at risk as a challenge waiting to be
conquered, then this may be the industry for you. If you’re still not
sure, check out “To Bar Or Not To Bar?” on page 5 to see if you’re
really ready to give this business a shot.
From a personal perspective, you need to ask
yourself if you’re really the type of person who wants to own and run a
bar. Of course, you don’t have to run it if you own it, but you’d better
make sure you have a team of good, trustworthy managers working for you
if you plan to be “hands off.” In the beginning, you will probably have
to be greatly involved no matter whether or not you plan to be an active
owner. If you’re the kind of person who would rather deal with paperwork
or sit in an office where you don’t have to talk to people, this
business is not for you. You will need to be out there talking to people
and shaking hands. Getting to know your patrons, even if it’s just to
say “Hi” can go a long way for your customer service.
Another thing you should consider is the time
commitment and hours of operation. If you’re an early riser, you might
not enjoy having to work until 3 or 4 a.m. at your bar. If you have a
family, you need to discuss how owning a bar will affect them and your
personal situation. Many times you will have to be at your bar from the
time you wake up—say, around 10 or 11 a.m.—to the time you go to
sleep—say, around 4 or 5 a.m. As you can see, this could take its toll
on your family life. Eventually, you’ll probably be able to have a more
sane schedule, once your managers and staff are well-trained, but it may
take six months to a year to reach that point. If this could cause
problems for you or your family, you may want to reconsider the idea of
owning a bar.
From a business standpoint, however, a bar can
provide an excellent return on investment. The federal government
receives a large portion of its tax revenues from the sale of alcohol,
and it’s not much for risky ventures (well, maybe sometimes, but it
doesn’t mean to be).
If we haven’t scared you away yet, and you’re
ready to go for the bottle-in-the-sky dream, read on. We’ve designed
this book to give you the tools needed to succeed.
What’s Your Bar Type?
Before you get started on the actual nuts and
bolts of creating your dream bar, you have to decide what kind of
establishment you’d like to own. Let’s take a trip through the various
kinds of bars—from neighborhood bar to large-scale nightclub—and see
which one is right for you. We’ll also introduce you to a few of the
owners and experts we interviewed for this book and the types of bars
they own (or would own if they could start over).
Neighborhood Bar
Conceptually, the neighborhood bar is still an
American version of the English pub. You will find them everywhere in
the United States. You might have one around the corner from where you
live or across the street from where you work. They’re excellent meeting
places for friends and business associates. Depending on where you live,
there may just be one, or there may be thousands of neighborhood
taverns.
If you own this kind of place, you can expect to
know many of your regular customers. As on the TV show “Cheers,” you may
find yourself taking phone messages for customers or cashing their
paychecks. It’s because of the friendly “home away from home” atmosphere
that neighborhood bars are successful. Some of these pubs open as early
as 6 a.m., and they sometimes close earlier than other bars—depending on
the clientele. This type of bar is perfect for small-scale entertainment
options, such as darts, pool tables, video games and jukeboxes.
If you’re thinking of owning a neighborhood bar,
you might consider starting out with a beer and wine license first, and
then moving on to a liquor license later if the business warrants it.
You may or may not want to have a kitchen or extensive food menu, again
depending on your concept and your customer. Some neighborhood taverns
offer sandwiches for the lunch crowd and appetizers in the evening, but
no dinners. This avoids the need for a restaurant license and cuts down
on costs.
Across the country, this is probably the most
popular type of bar you’ll find. There are many neighborhood bars out
there, but you might find that there is room for one more in your area.
According to the experts we interviewed, the start-up cost for this kind
of bar can range anywhere from $20,000 to $200,000, depending on the
size and concept. The amount of revenue these businesses produce varies
greatly depending on geographical location—big city or small town—and
the size of the bar.
Doug P. owns a neighborhood bar in Murfreesboro,
Tennessee. He started his career in the bowling business. His father
owned bowling alleys for nearly four decades, and Doug followed in his
footsteps. While Doug’s bowling alley had done well, there was an
8,000-square-foot building attached to the bowling alley that he wanted
to develop. Along with his brother, Doug decided to start a neighborhood
pub. “We wanted to do something a little different from bowling,” says
Doug. “We have a little bit of everything: live entertainment, trivia,
billiard tables, cigar parlor, and a 20-foot bar. Our goal was to put in
an English-style pub. We did not want to become the bowling alley bar.”
They decided to create a concept around a train station and researched
the history of trains to maintain the old-time theme throughout the
bar’s atmosphere.
Sports Bar
Depending on the establishment’s capacity, sports
bars can be a specific version of the neighborhood tavern, or they can
take on a life as big as a nightclub. You may have the latter in mind,
but your market research may point to the former. It’s important to do
your homework!
Generally, sports bars offer some kind of menu
options, such as burgers, pizza, sandwiches and appetizers. Since the
main attraction is sporting events, sports bars have televisions in view
of every seat, sometimes all tuned to different channels. Audio and
video technology comes into play, with some owners spending a large
percentage of their revenue on keeping up with the latest in
technology—from satellites to big-screen TVs. The start-up costs and
revenue potential reflect basically the same numbers as a neighborhood
bar.
If Bob Johnson, CEO of the Beverage Management
Institute in Clearwater, South Carolina, decided to open a new bar
today, he says he would start a sports bar for both business and
personal reasons. “I love anything to do with sports,” says Johnson,
whose organization offers a Certified Bar Manager Program. “I love to
see people in a bar cheering for a team in front of big-screen TVs.”
He also says it is a good business because you
have built-in events to use in your marketing throughout the year.
“There is always something to promote, there is always something to do,
and there is always an aura of excitement in the room,” he explains. “To
complement the TVs, you can have video games and sports-oriented games
so people can entertain themselves and have fun with each other. They
can do more than just sit there and drink. You have to offer your
consumer more than just the drink. They’re not going to sit there and
drink if there’s not something going on to captivate them.”
Brewpub Or Beer Bar
Studies have shown that although consumers are
drinking less alcohol, their tastes are becoming more discriminating. As
a result, microbrews are becoming more and more popular. In a brewpub,
you can brew your own beer right on the premises. In a beer bar, you can
offer a large selection of different types of beer, including microbrews
produced elsewhere. It’s often easier to get a liquor license for a
brewpub or beer bar than a full-scale liquor license, since you don’t
need a fully stocked liquor bar. Another benefit to owning a beer bar or
brewpub is that men drink beer more often than any other alcoholic
beverage, which can translate into a profitable business for you.
Most brewpubs only sell their own beer options on
tap (draft beer), with a few selections of bottled beer options, too.
Since you are creating your own product in a brewpub, you also have the
ability to control what you make and sell—from quality to quantity. The
start-up costs of a brewpub can be quite high—from $100,000 to $1
million—because of the brewing equipment you need to have. If you
produce a popular beer, you have the opportunity to grow into a very
successful operation to make two or three times your start-up costs.
Beer bars tend to have lower start-up costs, which
can often mean obtaining a less expensive, fixed-price license from your
state government. Keep in mind that most states don’t put any limits on
the number of beer and wine licenses they issue. However, most restrict
liquor licenses based on the population of your particular county. (See
Chapter 5 for more information on licensing.) Beer bar start-up costs
range from about $20,000 to $100,000, depending on size and location.
The revenue potential depends on the geographical location and drinking
trends in the community. For example, the same beer bar in Ohio may make
much more money than if it was located in certain neighborhoods in New
York City, simply because of what the clientele likes to drink.
Dave K. in Boise, Idaho, has been in the bar and
restaurant business for about 25 years. In the 1980s, he noticed the
growing trend toward brewpubs in Oregon, Washington and parts of
California. “I personally liked the atmosphere,” says Dave. “I was tired
of the hard-liquor bars and that whole scene. I loved the way brewpubs
catered to a more family environment. I wanted to take all my knowledge
and put it into this industry.”
Wine And Champagne Bar
Wine has become an increasingly popular drink of
choice beyond the traditional glass or bottle with a nice dinner. In
fact, women order wine at bars and restaurants more often than any other
alcoholic beverage. Since a glass of wine has expanded its reputation,
wine and champagne bars attracting a more upscale clientele have sprung
up.
This kind of bar often gives guests the
opportunity to taste a variety of different kinds of wines and the
ability to learn more about their qualities. Wine and champagne bars
tend to stay small and intimate in size and are located in more
sophisticated neighborhoods.
Again, because you only need a beer and wine
license to open this type of bar, your licensing fees drop considerably.
Depending on the type of product you serve and the extent of your décor,
you can expect to find the cost and revenues close to the amounts for a
beer bar.
Nightclub
Like the neighborhood bar, nightclubs can take on
a number of different personalities. You can open a small cocktail
lounge with a jukebox or a tinkling piano in the corner. A medium-sized
nightclub might look like a neighborhood bar during the lunchtime hours,
then spring to life with a popular band at night. Or if you have a big
enough budget, your nightclub might be a large dance club where the most
fashionable people and hippest celebrities hang out every weekend.
Whichever path you take, you must be prepared to
spend a great deal of time and money on promotion to create your “buzz.”
Nightclubs can make plenty of money if they’re managed properly. One
nightclub in Miami makes roughly $10 million per year on a
5,000-capacity bar. The owner, Noah L., hired a top-notch staff, and his
marketing director earns a higher salary than many corporate CEOs.
Most successful nightclubs draw on a city
population of 500,000 or more. If you’re in a small town or suburb, you
may not have the customer base to open a large dance club. Market
research is the key. (Read Chapter 3 in this book and the “Conducting
Market Research” chapter in Entrepreneur’s Start-up Basics for the scoop
on market research.) Depending on the entertainment you offer, you can
develop a group of regulars that keep coming back or a transient
clientele that visits your club for a specific show but doesn’t return
for several months. Smaller nightclubs may charge a low cover charge or
none at all, while larger venues can charge as much as $20 at the door.
Creating Your Concept
Once you’ve defined the type of bar you want to
open, the next thing you want to figure out is your concept. Your
concept will drive nearly every decision you make from here on—including
your location, size, menu, décor and start-up costs. The most important
thing to keep in mind is that you are not just in the bar business, you
are in the entertainment business. Like any other type of entertainment
business, you need to create an image.
A successful concept doesn’t just focus on the
type of entertainment you want to provide. It can be detected all the
way down to the finest details. You can use your concept to stay focused
on what your bar is all about. Plus, it will help your guests describe
it to others and spread the word.
If you already have a general location in mind,
you may need to work in reverse. This will require some research. You
want to develop a concept that fits in with your location’s market. Ron
N., a bar owner in Manhattan Beach, California, worked with his partner
to develop a concept that would fit into a beach locale. They found
their location first, then developed a fun, shark-themed sports bar.
They wanted to create a casual social environment with good food and
drinks at reasonable prices. Their original simple concept resulted in
three additional locations over a period of just seven years!
In developing his concept, Ron kept the big
picture in mind right from the start. He visualized the marketing,
T-shirts, décor and big-bucket drinks with sharks in them. “You could
take our concept and put it two miles up the street, and [you would do
less] business,” says Ron.
Once you’ve decided what kind of bar you want to
open, and you’ve developed some ideas on what kind of concept you want
to have, you can get started on the actual structure of the business. Do
you want to form a corporation or a limited partnership? Should you take
over an existing operation or start from scratch? What do you need to
get started? We’ll address these questions and many more in the next
chapter. So let’s get going!
