Expert: Eric Hofer - 6/15/2010

Question
I am currently performing my marketing research to see if this is a business I can compete in. My questions is, how do you start up a liquor distribution business? I wanted to start small by getting deals with a few local bars that have a high volume of business and then branch out from there. Also, how much on average does it cost to open up a liquor/beer distribution?

Another idea I had was to open up a liquor store in an area of high traffic. Do you know on average how much does it cost to start up a liquor store?

Thanks,
Adam Troyer

Answer
Adam,

Effectively you want to break into an established business.  If you approach this from the traditional vantage, it's going to be costly; if you have a disruptive (new) angle, then possibly less so.  

Consider.  The bars you want to target, are they not already established?  To exist, mustn't they already have inventory in order to satisfy their customer demands?  Would they not already have done deals, secured the most advantageous pricing, etc.  As you noted, these are high volume locales, so wouldn't they already be "prized" by their existing suppliers?  

It sounds to me like you've got a background in launching products or ideas (as you wrote, you're  market research); so your research has to be along the lines of what is missing from the market, not what is the market already doing.  Ask the bars you're talking to, how could their suppliers improve, what is lacking, what is flawed?

Gut feel, for me, I'd expect to spend a couple of million USD to start up a distributor over several years before you'd break even.  However, your numbers will vary.  It depends upon many factors - location, penetration, GDP, competition, availability, exclusivity, terms, maturity, rents, etc.

To start up a liquor store is of a similar nature vis-a-vis a question.  How big?  Are you thinking of 12 sqm in the middle of Harlem?  How many skus?  etc.  I guess you could get going for 50K if rents are low, you carry a limited selection, you don't need any security, and use a paper based system to manage things, and customers are beating a path to your door from Day 1.  To start with, you're not going to get product on credit - you'll have to buy it all in; you'll have to pay a few months deposit on premises, you'll need some sort of insurance, etc.  

Have you done any of these sums yet?  Identified what you need?  

What might be an idea is to spend a day in a liquor business and see what you can learn about that business - and then list what you'll have to spend, estimate the traffic you expect and see if it's something you can afford to do.