Growth industry?

[Andrew]

Nightclubs and bars come and go, as we all know.

So many people want to start interesting businesses like the ones we discuss. So I ask:

Is this is a growth industry and is the number of venues escalating? Just wondering...

[David]

In my experience, I think that as the populous grows so does the number of alcohol related businesses.

Most states issue Liquor Licenses on a per capita basis. They use the official last census and a growth equation to figure the allotted licenses that should be in circulation. If a town loses population, then they will lose licenses through attrition. If a town has more licenses then their new population numbers support, the state will usually allow those owners to sell their licenses to other towns. Towns that have gained population can float or transfer these licenses to their town. They are usually awarded the opportunity to do this through a state run license lottery. If you are one of the lucky people that is picked through the lottery, you can make offers to those that have licenses that are able to float to your town.

For example: Licenses in my town sell for ~$325,000 plus. If a town, within my state, has a license to float, it's value is only what an individual is willing to pay. Normally it's the value of the license in the floating town , say $40,000 plus ten percent is considered fair market value. But, once the license is sold to the new owner in the larger town, the license is valued at that towns fair market value. In this case $325,000.

The liquor industry, on a whole, has seen a steady increase in sales and business. The big decrease is in the size of the clubs foot print. More smaller venues are popping up rather then the larger 8,000 to 10,000 square foot super clubs. More and more people that I talk to in the industry and those that are our customers have noticed that people are moving from club to club more often. They aren't staying in one place for very long. I call this the "Gypsy Effect". They will start at your local, after 5 restaurant/pub. Then they will visit a Brew Pub or Venue Specific club (Applebee's etc) and then slowly make their way to the Dance/Nightclubs around midnight (in areas where the closing time is around 2am). Many Nightclub operators are seeing a serious change in their customers spending and drinking habits. A large number of the customers that are arriving at or after midnight, have already reached their personal state of euphoria. They aren't buying alcohol any more, they are purchasing soda's, energy drinks, water or other non-alcoholic beverages. When the Club Operators talk to me about this and their loss of revenue, I have suggested numerous ways to capitalize on the opportunity. One thing that really works is a graduated, increasing cover charge. The cover is set up like this $2 at 9pm, $3 at 11pm and $5 at Midnight. If the club stays open past the 2am official closing time and ceases to sell alcohol, I have suggested that they kick everyone out and then let them back in with an additional cover charge. $3.00 for those that have already been their and $5 to $7 for the newbees. So far, the customers have accepted this as a fact of Clubbing. This also helps build an earlier crowd. The Spooks (tight wads) come in early so that they don't have to pay the $5. We have also seen numerous people come in at 9pm, pay their $2, get their stamp and then leave. I suggested that the Club Operators tell them that once they leave, they have to pay to re-enter.

This is something that those that are thinking of going into the Nightclub business need to take a hard look at. Because of these late arrivals and the loss of revenue, numerous Nightclubs are staying open past the 2 am closing time and only serving non-alcoholic beverages.

Is anyone else out there seeing this trend in their respective markets? I would like to hear from you. Please state your population and the number of true Nightclubs in the market.