How to open a night club
Be the toast of the town, the life of the party – and a successful entrepreneur? Yep. You can have it all when you open a bar.
Friends, laughter, celebrations, entertainment – fun! These are the things that might come to your mind when you think about owning your own bar as you imagine 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.
“There is a misconception out there that owning a bar is an easy business,” says Gary du Toit, an industry stalwart who has started 18 bars and pubs in South Africa, including the Jamaican and the ever popular Back-to-Basics, both in Westdene, Johannesburg.
“The reality is that it consumes an enormous amount of time, and there is a direct correlation between the amount of hours you put in and your turnover and profit.”
Owning your own bar/club can indeed 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.
Although people still gather to socialise in bars, just as they have for hundreds of years, other factors have come into play for the industry.
Problems with driving while intoxicated have changed the drinking patterns of people in many countries, and South Africans too are more aware of the need to drive sober.
“It’s one of the reasons,” says Du Toit, “that innovative taxi services like Toot ‘n Scoot are doing well.” The growing concern with health and fitness toward the end of the 20th century also 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?
In 2008, the total income from bar sales was R216,3 million, down by just over 6% compared with the previous year, according to Statistics South Africa.
The liquor industry on the whole is estimated to be worth R40 billion a year, and adult per capita consumption of alcohol is among the highest in the world – more than 17 litres a year.
This means you have some pretty 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.
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 for bars aren’t in favour of the start-up.
Why do they fail? The most common reason is they don’t have enough capital to keep the business going. The second reason is a lack of knowledge about the business.
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 whether you plan to be an active owner or not. 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 3am or 4am at your bar. If you have a family, you need to discuss how owning a bar will affect them.
Many days you will have to be at your bar from the time you wake up – say, around 10am or 11am – to the time you go to sleep – say, around 4am or 5am.
As you can see, this could take its toll on your family life. Eventually, you’ll probably be able to have a saner 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. If we haven’t scared you away yet and you’re ready to go for the bottle-in-the-sky dream, read on!
Choosing an Establishment
What’s Your Bar Type?
Some bars have great ambience, like the Zoo Lake Bowling Club. Some, like The Radium Beer Hall in Orange Grove, serve good food. Others offer excellent service. “Great food, excellent service and a good vibe will ensure that you get the customers,” says Du Toit.
“Often you just need to meet one of those criteria to get feet through the door. If the ambience is good, people will come back just for that.”
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 neighbourhood bar to large-scale club – and see which one is right for you.
1. Neighbourhood bar
Conceptually, the neighbourhood bar is a version of the English pub. If you own this kind of place, you can expect to know many of your regular customers. Like the TV show Cheers, you may find yourself taking phone messages for customers or cashing their pay cheques.
It’s because of the friendly “home away from home” atmosphere that neighbourhood bars are successful. Some of these pubs open early in the morning, but 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.
Across the country, this is probably the most popular type of bar you’ll find. There are a lot of neighbourhoods out there, but you might find that there is room for one more in your area.
According to the experts, the start-up cost for this kind of bar ranges widely, depending on the size and concept, but mostly on location.
You can buy an existing neighbourhood bar for around R500 000. Not coincidentally, the amount of revenue these businesses produce varies greatly, depending on your bar’s location and capacity.
2. Franchise bar
The Keg and My Grill My Bar are two examples of bar franchises available in South Africa. You won’t be able to bring your own style and taste to the bar, but you will have a great amount of support from the franchise system.
The initial outlay may make franchise bars more expensive than independent venues, but some prefer to have the power of a brand behind them.
Du Toit believes that franchises and independent locations have different types of customers. “A student hangout with live entertainment will not attract the same customers as a more family-oriented pub,” he points out.
3. Sports bar
Depending on the establishment’s capacity, sports bars can be a specific version of the neighbourhood tavern, or they can take on a life as big as a club.
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 sandwiches, burgers, pizza, sandwiches and appetisers. 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. As with neighbourhood bars, start-up costs and revenue potential vary widely, depending on the size, concept and location.
4. Brewpub or beer bar
Microbreweries are not as popular in South Africa as they are in the US, for example. The experts we interviewed say this is because South African beer drinkers are extremely brand loyal and tend to stick to the beers they know and like, and which are backed by huge advertising budgets.
There are, however, several brewpubs in the Western Cape which brew their own beer right on the premises. In this type of beer bar, you can offer a large selection of different types of beer, including microbrews produced elsewhere.
Most brewpubs only sell their own beer on tap (draft beer), with a few selections of bottled beer available too. Since you’re 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 because of the brewing equipment you need to have. Beer bars tend to have lower start-up costs, again depending on size and location. The revenue potential depends on the geographical location and drinking trends in the community.
5. Speciality bar
Specialty bars, which concentrate on one type of libation, from wine to martinis, or theme, like cigar bars, are gaining popularity.
Although some specialty bars focus on only one drink category, there must be a wide variety available within the genre.
Take martinis: They have become very popular due to the variety they offer. The traditional martini still has a solid appeal if made with quality vodkas and gins, but other mixes, like sour apple martinis, have expanded the martini-drinking base, especially among women. But even with their increased popularity, martinis are still looking up at wine.
Beyond the traditional glass or bottle with a nice dinner, for many, wine is the drink of choice. In fact, women order wine more often than any other alcoholic beverage.
Wine bars offer guests the opportunity to taste a variety of different kinds of wine and the ability to learn more about their qualities.
Specialty bars tend to stay small and intimate in size and are located in more sophisticated neighbourhoods. The costs and revenues you can expect to find when opening a specialty bar depend mostly on the type of product you serve and your location.
Like the neighbourhood 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 club might look like a neighbourhood bar during the lunchtime hours, then spring to life with a popular band at night.
Or if you have a big enough budget, your club might be a large dance club where the most fashionable people and hippest celebrities hang out every weekend.
Getting to Know your Market
Profile Your Customers
Whichever path you take, you must be prepared to spend a great deal of time and money on promotion to create your “buzz.” Clubs can make plenty of money if they’re managed properly.
Most successful clubs 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 key.
Gerard Schoonraad, who has over 23 years of experience in the industry and is currently setting up Mama Tembo’s in Greenside, Johannesburg, says that bars and pubs in residential areas in Johannesburg attract people from surrounding areas too.
“We will have no problem keeping a 150-seater bar full,” he adds.
As a bar owner, you need to embark on some relentless detective work to profile your customers before you start investing large sums of money in your business. The majority of the research material you need is probably already available to you. You simply have to compile it.
You can go about developing your customer profile in several different ways, then compare the results to determine your direction:
1. General demographics
Contact your local chamber of commerce and industry to find out about the age, gender, income level, marital status, and political and religious affiliations of your target market.
Your bar’s concept may go in a totally different direction if you’re in a university town like Stellenbosch or Potchefstroom with a high percentage of young, single students than if you’re in a quiet, conservative suburb populated with families.
2. Alcohol trends
Hotel & Restaurant magazine, a business-to-business publication for the hospitality industry, publishes an Alcoholic Beverage Review, incorporating Beverage Business yearbook. This annual independent survey of the liquor industry makes the total package the most comprehensive guide to South Africa’s liquor industry.
National and regional alcohol suppliers keep records of how their product fits into the market. Your potential suppliers can provide valuable information about your customers and what they like to drink.
Generally, they are glad to help. If you do your research and have a successful bar, your suppliers will profit, too.
3. Lifestyle trends
Call the lifestyle and entertainment editors at your local newspaper and regional magazines, as well as the advertising and marketing departments of local radio stations.
They can give you information about your competitors and tell you more about the establishments that have been successful in the area.
4. Your customers and the competition.
You can discover a ton of information about your customers using internet resources. Spend some time on the Internet and visit sites like Statistics South Africa and the South African Wine Information Centre to find out more about demographics and spending trends.
Besides general demographics, you can surf the web for information about other bars in the area. Pop into chat areas and news groups to find out where the action is and which bars are the hot spots. (This is especially important for clubs) Seewww.jhblive.co.za as just one example.
Using Your Research Effectively
Once you’ve compiled all your research, you can devise a concrete profile of your clientele.
For example, you may decide your target customers are professionals between the ages of 30 and 50 who have incomes of more than R30 000 and like jazz music. Whatever you set as your target market will affect all the decisions you make from here on, so make sure you get it right.
Once you have a profile, you can develop the menu and bar inventory based on what your customers like. Look for trade magazines and industry associations that provide data on food and beverage spending patterns.
The Federated Hospitality Association of South Africa (Fedhasa) will be able to provide you with information about the performance of many eating and drinking establishments. You can get a large chunk of this information from your suppliers as well.
Keep in mind that you may have more than one profile to work with. You may have a conservative professional clientele during the daytime and a rowdy university crowd at night.
If you use your research wisely, you can develop a bar that caters to both profiles for even more business.
What it costs
As we’ve discussed, the bar/club industry can be a pricey undertaking. Because of the high failure rate, you may come across desperate bar owners willing to accept a low purchase offer just to get out of the business.
You’ll also find that start-up costs for bars vary depending on size, location and target market. So we can’t give you a concrete amount for what you can expect to pay to start your business.
We spoke with one entrepreneur in Johannesburg who spent R100 000 taking over someone else’s bar business. Another bar owner spent over R2 million starting his club (and he didn’t even build the building). The numbers vary across the board.
However, if you are able to do much of the work yourself in areas like design, alterations and décor, you can save a huge amount of money. Another good move is to buy all the equipment you need on auction.
“There are many establishments that go under, and finding everything you need on auction is easy,” says Schoonraad. “You should expect to spend between R500 000 and R1 million to set up a bar.”
Both Schoonraad and Du Toit agree that set-up costs are higher in cities like Johannesburg and Cape Town, where you will need to differentiate your offering from what is already available. “In a smaller town, set-up costs will be lower and it will be easier to build your clientele as there is less competition,” says Du Toit.
Naturally, if you buy an existing bar, you’ll spend a lot less than if you decide to start a large-scale, über-trendy cocktail bar-cum-club. You’ll have to do some research to find out what your bar will cost based on your concept, size and location.
Schoonraad says that setting up a late-night drinking venue like the eclectic Gin can cost anywhere from R900 000 to R1,5 million. “When you have several years of experience behind you, you can spend a lot less, but if it’s one of your first ventures, that is what you should bargain on.”
Calling your bar an operation fits because of how much operating it takes to keep it running. Someone will have to mind the store every minute your doors are open and some minutes when they aren’t, and your place will need some sort of monitoring during the off-hours to prevent vandalism or break-ins.
Du Toit says experience has taught him that you cannot spend too much on security in this industry. “I recommend having more than one armed response company, and I always give security guards and the police as much free coffee as they like.” Many compare running your own business to raising a child.
If true, then a smooth-running, problem-free, profit-making bar compares to parenting a happy, well-adjusted, self-assured teenager preparing for adulthood.
But don’t worry, the bumps in the road hold the best lessons. And as with parenting, you succeed with consistency and concern instead of rigidity and blame.
The Nitty Gritty
Applying for a liquor licence
To sell liquor, you are required by law to have a licence. When applying for a liquor licence, it’s advisable to use the services of a consultant. They have extensive knowledge and expertise regarding the Liquor Act, and are able to correctly advise and consult with prospective clients.
“The best consultants have worked for the Liquor Board,” says Schoonraad. “It’s a very bureaucratic organisation and someone who knows the ropes will save you an enormous amount of time. Expect to pay around R10 000 for a liquor licence, which will take between six to 12 months to be finalised.
Temporary licences are available on a week-by-week basis. Note that if your licensed premises cause a public nuisance, your neighbours can lodge a complaint.
If the problem persists, the Liquor Board may hold a hearing and place conditions on the licence or withdraw or suspend the licence. This is why it’s vital to research your location thoroughly before you set up operations.
The Road to Success
The foundations you lay to operate your bar include the systems you use to track liquor and food. How much does the customer owe the server/bartender, and in turn, how much do they owe you?
Also, what liquor and food do you sell the most? The systems you choose depend on the type and size of bar you have. In most bars, only the bartenders and servers handle money. Cashiers or takeout staff may also have cash-handling responsibilities.
Factors to consider when choosing an accounting system include the level of sales you expect, both from alcohol and food, and the efficiency needed for your staff to operate at its full potential.
Also, look for holes that your accounting system might leave open for theft at all levels, not just servers and bartenders. No-one thinks they are hiring a thief.
Many people who might steal if the opportunity arises do not consider themselves thieves, either, so they don’t come across as such.
If you use the cash-and-carry system, where the drink is ordered by the server verbally and then paid for before the bartender or server rings it up, you might find many “forgot to ring it up” drinks, as well as a few given away for free.
It is the nature of the system. If your inventory controls are so tight that you will notice when too much has been used, or if your manager, who shares in the profits anyway, is your bartender, then you can use this system without much fear.
Finding Your Perfect Location
Your choice of location will depend on how you want your bar to look, what you want your bar to contribute to the community, and the kind of clientele you want to patronise it. Then you need to decide whether you want to buy the location or sign a lease.
Again, that depends on your budget. Finally, you need to figure out how to fuse your concept with both your name and your location to your best advantage.
People who know this industry well have polar opinions on the concept of location.
Some owners and experts we talked to put enormous importance on the bar’s location while others refuted its significance altogether. It all depends on what you want your bar to be and what your strengths are as an owner.
If you want your bar to get impulsive neighbourhood traffic in a particular area, then you should be closest, and most obvious, to them.
If you’d rather spend the time and money saved by more affordable real estate to develop your establishment’s concept and create your own buzz and destination, your actual location won’t matter so much.
You should consider factors such as safety, parking, and accessibility for customers – even the history of the site – when choosing a location.
Your Bar: The Place to Be
The word “location” can refer to two different things – what area your bar is in (downtown, uptown, suburbs, etc.) and where you are in relation to your customers. Are you on their way home from work? Or do they have to make an effort to get to you?
Gin introduced the idea of late-night drinking to a stretch in Greenside, which is known more for its restaurants than the nightlife. With a combination of great music, ambience and cocktails, it’s now one of the hottest spots in Joburg.
On the other hand, you can have an incredible spot and still not be successful. If your staff is stealing from you, operating procedures are badly managed, or your service isn’t up to par, you could quickly find yourself out of business – grade-A location and all.
Have You Heard?
Naming Your Bar
When it comes to naming a bar, experts generally fall into two major schools of thought. The first says your bar is your dream – your hard work – so you should name it anything you want.
The second approach to naming says your moniker is the first and greatest form of advertising for your drinking establishment.
A name like Steve’s Bar & Tavern doesn’t really tell the public anything about your business. “People will expect the place to be a neighbourhood hangout,” says Du Toit. “I recommend giving customers something they can connect to.
Think of Cantina Tequila and Cool Runnings – there is a definite link between the name and the concept. Likewise, you’re unlikely to go to a place called The Jolly Roger for a quiet drink.”
Du Toit advises that your name should exemplify your concept. “First, I would try to figure out what my concept is going to be,” he says.
“Sports bar? Club? High energy? Low energy? Singles bar? What exactly am I going to be? Then, what’s the name of this business going to be?
I would do tremendous research to try to come up with a name that literally fits with the concept.” When coming up with different names, don’t stop until you love at least three. In your brainstorming sessions, keep these three questions in mind:
- How well does the name fit the concept you want to create?
- What types of customers will the name attract?
- What will people expect based on the name?
Creating Buzz for your Bar or Club
It’s time to start planning how you’re going to get people into your bar to enjoy it. Just like any other aspect of operating your bar, marketing is an ongoing process. Many bar owners think marketing is the most fun and exciting aspect of running a bar.
The entrepreneurs we interviewed agreed that advertising in the media didn’t bring as much reward for the cost as it does for many other types of businesses. Generating a buzz for your bar will mostly come from word-of-mouth and the special promotions you set up.
“The best way to advertise a bar is word-of-mouth,” says Du Toit. “When you don’t have word-of-mouth working for you, you are in serious trouble. There are ways to get some advertising out there without spending a ton of money. But your customers are your main marketing tool.
“Word-of-mouth advertising is priceless,” he continues. “It means everything is right. Everything is happening. The bar is alive. Your employees love working there.
They are talking and saying great things about the place, and that is passed on to your customers. The customers love being there, and they tell other customers.”
Schoonraad agrees, and adds that it’s important for a bar owner to have what he calls “an open hand”. “I’ve given out a lot of free tequila over the years, and if I see that a guy has wolfed down his burger I don’t mind offering him another on the house.”
He also recommends pamphlet drops, advertising in local newspapers and invitations.
“You just need enough of a crowd to get the business going; if the service, the food and the vibe are great, people will come back.” One-on-one contact is vital, according to Du Toit.
“You have to build relationships with your customers. When you see people coming back, you know you are getting it right.
I would send my own mystery shoppers to my venues and ask them to report back on everything from the food to the toilets.” So what are some ways to generate word-of-mouth buzz?
You can get involved in community events and charity functions to gain exposure. You can launch a direct-mail campaign with a newsletter for regular customers, develop a website, and use any other creative marketing techniques you can dream up.
Staging Promotional Events
A great way to promote your bar is to create special internal promotions. Once you have established what your promotions will be, it’s time to start making them happen. After your bar is up and running, you’ll have a better idea of what nights need a little boost.
Most bars are busy on Friday and Saturday nights, with Thursdays coming in third place.
You might decide you need to pump up business on Monday or Tuesday, so pick one day and keep it going until you have established enough regular business to move the promotions to a different day.
Of course, you’ll still do your regular promotions, like Valentine’s Day, St Patrick’s Day and Fathers’ Day. Here are some ideas to keep in mind when you’re working on promotional events.
Work out a budget. If your promotion continues for more than one day, budget for the entire time you want it to run. A good goal to shoot for is to make a profit that’s three times the cost of the promotion.
2. Make a schedule
Design a planning calendar at least eight weeks before the promotion. Depending on the size and magnitude of the promotion, you may want to start advertising it at this point, too.
Never advertise an ending date, though, so you can cut it early if it doesn’t do as well as you planned or you can extend it if it really takes off.
3. Maintain the energy level
On the day of the promotion, don’t stop the action to give away prizes or make announcements. You can turn the music down, but don’t turn it off.
This will keep the energy level high and consistent. If you absolutely have to turn off the music, never keep it off for more than 10 minutes, or you risk people getting impatient and leaving.
4. Party all night
Schedule your prize giveaways, contests and entertainment to run throughout the night.
If you have a grand prize to give away or a finale planned, don’t do it until after midnight so your guests stay in your bar as late as possible.
5. Promoting your bar can be fun and creative
During a promotion and after it’s over, ask your customers and your employees for feedback and critiques. Of course, your sales will give you a lot of the information you’re looking for, too.
SA Bar Culture
What Du Toit enjoys about South Africa’s current bar culture is the fact that it’s evolving, with professionalism becoming an important part of bar management.
“A huge emphasis is being placed on bar training that gives people the ability to create cocktails and drinks with flair. There is definitely a move towards greater sophistication, and some of our best bars are on par with the top venues around the world.”