Buying a business: Off-licences

Popping down to the off-licence for a few bottles of wine or cans of beer is a weekend staple for many of us. Or it might be to collect some ice or a packet of cigarettes. As off-licences continue to become a regular feature in every high street you might be considering it as a viable business proposition. So is it a licence to make money?

What is it?

There are many thousands of licensed premises in the UK. This includes pubs, bars, restaurants, cafés as well as off-licences. The majority of off-licenses are made up of independent stores while the rest comprise of management run chains such as Thresher.

Of the independent variety, many double up as corner shops, convenience stores and/or newsagents, while others specialise in selling varying types of alcohol and pride themselves on their knowledge of good beers, wines and spirits. They may also stock products such as cigarettes, snack foods and the odd lime to squeeze into your gin and tonic on a hot summer’s day.

On the other hand there exist several larger chain-based off-licence companies of which Victoria Wine and Thresher, owned by Allied Domecq and Whitbread respectively, are examples. These stores are well recognised within the market and, along with supermarkets that also sell alcohol at reasonably low prices, offer competition to their independent counterparts. It is worth noting that they are not off-the-shelf businesses and are rarely found on the books of a business agent. Independents, however, do differentiate themselves by specialising in wines and their knowledge of specific products.

David Rhodes of Lakey and Co business transfer agents says there is rarely an easier business to run: “The business is fairly basic apart from the long hours that can stretch into the evening – this can be from about midday until ten o’clock at night. All you have to do is buy in the stock, that is limited to only a certain amount of products and see which ones work and which don’t.”

But competition is rife within this trade and you will have to sell alcohol, snacks and cigarettes alongside a host of other retail food and drink supplying businesses. These will include newsagents, supermarkets, convenience stores, petrol stations, pubs, bars, as well as online rivals who can sometimes undercut your prices and extend the convenience factor by eliminating travel and delivery time.

Competition in the off-licence trade is also something to consider. You will have to compete with the growing volume of cross channel imports or ‘booze cruises’ (people who go on day trips especially to collect beer, wine, spirits and cigarettes from abroad) as well as smuggled alcohol. These areas, says Rhodes, are worth bearing in mind as they can deprive the industry of valuable trade. “To make the business work you will have to consider several factors. These include your location in relation to competition as well as takeaways – who can push business your way – and parking. This seems obvious but if you are on the left-hand side of the road then you can stop a lot more easily and enter the shop.”

Who is it suited to?

On average, most retail businesses are open from at least 9am until 5pm but running an off-licence is one of the exceptions to the rule. You are legally allowed to open at 8am in England, Wales and Scotland on weekdays but many off-licence owners choose to open later at around 10am or even midday and continue trading until 10pm or 10: 30pm. This will mean long hours and also a high level of patience with customers, some of which may have had more than a few too many drinks during the earlier part of an evening.

Later opening is generally due to the fact that your primary stock holding and source of revenue is the sale of alcohol. This means that only a small amount of customers will want to purchase these types of products early in the morning, leading to a lower sales rate in the daytime. However, in the afternoon on a sunny summer’s day, for example and particularly the evening, trade will pick up considerably. This is where you will have to stretch yourself in order to cater for late demand from either people drinking at home or those who want to purchase more alcohol or snacks to take home just before the pub, bar or restaurant closes.

As well as the training involved in obtaining a licence and learning to apply the law to your business, you will also need to have a certain amount of business savvy. This will involve finding the right balance between supply and demand and not holding back on ailing stocks lines that are just not selling. The rule for a business with a small amount of variable stock should be that if it doesn’t budge within a short time frame then it should be discontinued or replaced with a new more ‘sale worthy’ product.

How much does it cost?

Buying a business is like buying a house. Once you have chosen the property you wish to purchase and are happy with the price and payment agreement you can then go to the agent in question and sign on the dotted line. But what about all the extra costs involved?

If you are buying a business then it is essential you consider the hidden expenditures that lie under the floorboards of every retail outlet.

Initial outlay

This will cover the price of the business as well as the initial startup costs involved. Startup costs will also vary. In some cases the equipment, stock and staff may already be in place and some cases they may not, so make sure you know what you’re getting for your money.

Costs could include the following:

• any renovations or improvement work to the property/premises
• any additional equipment not supplied within the purchase of the premises. This can include a cash register, a computer to collect and collate orders and business stationery, for example
• initial stock to cover the opening
• transport: A delivery vehicle or your own car or van plus the price of petrol

Working capital

As an off-licence is a volume based business it is important that you have the right amount of stock due to high demand on certain products. There may already be a certain amount of existing stock within the business, but it is crucial to know what stock you have, as the first few weeks of trading will be a vital sign of things to come.

The cost of the products you will sell will be a certain proportion of the sales price. In the independent off-licence trade, the cost of goods to be sold can often be as high as 80% of sales. If you then apply this percentage to the monthly income figure you have estimated you will have a rough guide as to what your monthly stock cost will be.

In addition, if the business doesn’t quite get off to the best of starts, it is important that you have enough working capital to cover any eventualities. Rhodes says: “If you have a business costing between £50,000 and £70,000 you should have between £20,000 and £30,000 to tide you over.”

This estimated figure of between £20,000 and £30,000 will cover:

• your initial stock purchase
• wages (if you have staff) as well as your own living expenses or ‘drawings’
• rent
• repayment rates if you have a loan or have borrowed a sum of money
• utilities such as electricity, gas, water, telephone bills (fixed and/or mobile) – you may find it helpful to use some of our guides such as our business energy comparison page

Miscellaneous

This will and may include the following:

• a licence fee. Every off-licence must have a licence. This costs, as does the attendent local authority training
• advertising
• marketing
• equipment contracts for photocopiers or computer(s)
• cleaners (some retail outlets have their windows cleaned on a regular basis, for example)
• repairs and maintenance

How much can I earn?

The leisure industry will always have a good market in the UK, and business for off-licences has been steady progressing for some time according to Lakey and Co’s Rhodes. “Due to people going abroad on booze cruises, government duty on alcohol steadily increasing and the development of the internet and online sales taking a slice of the market, the demand for alcohol has slowed down. However, I expect to see an increase in sales over the next few years due to the general harmonisation in the market.”

How much you make will depend heavily on the following:

• what your opening hours are
• what audience you will be selling to
• where and how big your premises are
• what competition there is around you – i.e. supermarkets and other off-licences, pubs and other
• licensed premises, convenience stores, petrol and forecourt retailers as well as mail order and internet retailers
• whether you operate a delivery service
• what range of products you stock and sell – will you specialise or offer a broader range of alcohol or even branch out into video hire, magazines and newspapers as well as more of a convenience store approach
• how you monitor theft, unpopular lines and how you price your stock while covering your overheads and costs
• other income: This may take the shape of having a notice board in your window whereby you charge a fee for advertisements or if you rent out part of your premises, for example

The majority of your trade will come in the evening so make sure you are well stocked, particularly within the most popular lines such as well-known beers and wines as well as cigarettes and crisps, for example. The important thing to remember is that this is a ‘volume, volume, volume’ orientated business. So keep stock levels high at all times. This may cost a lot to begin with but finding the right balance between supply and demand is key within any retail business.

You should expect to make an annual gross profit margin of approximately 17.5%. This is reasonably low but can pick up if you operate a larger store, expand and/or have a higher turnover.

Rhodes says: “If this is taken into consideration, the average earnings are around at least £20,000 per year. However, you have to deduct rent, wages and other costs from your earnings.”

Margins on individual products will vary but here are a few examples of the profit figures you can expect to make on:

Alcohol (Beer, wine and spirits) – 17.5% to 20%

Snacks (Crisps, peanuts, etc) – 30%

Cigarettes, cigars and tobacco – 8%

Tips for success

• Access potential – Investigate and assess the trading area and potential of the business
• Details to the solicitor – Explain the situation fully. The solicitor will then advise you of available dates for licensing sessions – decide a date and remember that the clerk to the licensing justices requires all details 21 days before the hearing
• Plan of location – Prepare a plan of the shop – show where all types of drinks will go. You will stand a better chance of obtaining a licence if you have your range of spirits behind the main counter
• Plan a map of the area – Indicate the location of your shop and using a compass draw two circles (one to a half mile radius another to a mile) around your shop as well as indicating all the off-licences within both circles. This should include pubs and each type of licensed business in the area
• Plans to the solicitor – Send at least six copies of your plans to your solicitor before the 21 day deadline
• Your solicitor’s job – Your solicitor will hand in your application to the court and send copies to the police and fire brigade as well as submit the announcement to local newspapers as required by law and send you a notice to place in your shop window leading up to the hearing
• Day of application – Make sure you consult your solicitor about the time and place of your court date
• Never assume – The magistrates can still decide against your case, so don’t spend too much money presuming you will get it
• Publicity – Once everything has gone through advertise as heavily as you can by telling the local population, leaflets drops
• Renewal – Licences can be renewed for a period of up to three years