Establishing a Liquor Store
Gauteng
www.liquorlicensing.co.za
Introduction.
The intention of this exercise is to assist the
first time Liquor Store entrepreneur to note some factors which might influence
his/her decisions when establishing a new Liquor store.
The intention is NOT to give legal or financial
advice. All information is available for the entrepreneur to use at his / her
own discretion and risk and Frik Liebenberg Business advisory services cc does
not except any responsibility whatsoever for losses which the entrepreneur may
occur when using this information. This information is by no means
comprehensive and must be adjusted to suit specific situations and to suit provinces
other than Gauteng.
Opening a new Liquor Store is an exciting
venture but not without risk.
Before you jump in and start spending money on
your new venture, stop and read these few pointers that may save you money and
loads of frustration.
The question is often asked “Where do I start?
1.
SAPS Clearance.
You need a SAPS clearance certificate confirming
that you do not have a criminal record. This step can take up to six weeks, so
start with this before you do the rest.
- Take
a copy of your I. D. document and +- R200.00 to your local SAPS during
office hours.
- Ask
them to do your fingerprints for the purpose of an application for a
Liquor License.
- The
SAPS will send your fingerprints to the Criminal Records Centre in Pretoria.
2.
Premises.
You need premises before you can even apply for
a Liquor License. The public area must not be less than 50m2.
The ideal is that your premises is +500m or
more from a church, school or similar business. However, this is not always
possible and the Liquor Board may approve otherwise.
Do not start spending money on renovating the
existing building or start building a new building or sign a lease contract
on the building before you have cleared the following:
- Visit your local Municipality’s Town
Planning or Land Use department
and confirm with them that the premises or stand that you want to use are
suitable for a Liquor Store. (You need the ERF number of your premises)
- Request a Zoning certificate from the
Municipality on the stand that you
intend to use. Your Liquor License Consultant must be convinced that the
zoning is correct. In Gauteng you need a Local Authority Approval (A letter confirming you may apply)
for a Liquor Store in addition
to the zoning certificate.
- Negotiate a Lease Contract. If
you are not the owner of the property then you require a lease contract
between you and the landlord. Be careful when signing the lease contract.
Read the conditions very careful, especially with regards to the
following”
1. Escalation clause.
This means the amount the rent will increase after every year. An annual
escalation of up to 8% is acceptable in today’s economy. (Do not accept a 12%
escalation clause for this is too high in today’s terms 2014.)
2. Right to renew.
The renewal clause gives you the right to renew the lease contract after the
expiry of the lease. There should be a % increase or a rand figure of the first
year’s renewal increase in rent with an escalation clause for every year
thereafter until the end of the renewed contract. The applicant is welcome to
contact the writer for more information. (Do not accept a clause stating “The
lessee has the right to renew the lease contract, without a clear stipulation
of the cost of the lease after renewal.)
Note: The monthly payments stipulated on the lease
contract can be inflated by the lessor’s on-costs such as administration cost,
security cost, cleaning cost, rates, and taxes etc. Establish first what extra
cost will be charged before you mak a decision.
A
guideline on the influence of rent on the profitability of a Liquor store is
that if the rent is in the region 10% or more of a liquor store’s turnover, you
are paying too much rent which will inflate your overheads out of proportion.
Keep
your overheads as low as you can. If you do not achieve at least 11% net
profit, then your overheads are too high.
3.
SARS clearance.
Apply for your Tax clearance certificate at
SARS. If the applicant is a juristic person such as a Company, the Tax
Clearance must be in the name of the company otherwise the tax clearance
certificate must be in the name of the applicant/s.
4.
Liquor License.
- Contact a reputable Liquor License
Consultant to give you a quote clearly
confirming all cost. Investigate the Liquor License consultant and ask for
references. Make sure you know what is included and what is excluded in
the quotation. Apply as soon as possible because a Liquor License
Application can take a long time. (4-6 months or longer) You can apply on
existing premises or on a stand on which there is no building yet.
Your
Liquor License Consultant will give you a list of requirements for a Liquor
License Application.
Don’t
attempt to do a DIY job on your Liquor License application unless you are fully familiar with all aspects of the
Liquor Act.
Section
23(3) of the Gauteng Liquor act reads: “Where an application for a license has been refused by the Board, no new
application may be made in respect of the
same premises within a period of one (one) year from date of refusal,........” If it takes six months
before you receive a refusal from the board
it means that you have wasted 18 months before you can apply again and then you might wait another 6
months before your application can be approved.
That could mean 24 months which you might pay rent on an empty shop.
5. Start planning your shop.
Decide
on your target market. (High income, medium income or Low income group). Your
products that you will sell depends on this decision as well as the outlay and
image of your shop. (We will assist you).
For a
Liquor Store you may decide on a self service or service counter shop. This
depends on safety and security and income level of the area. A self-service
Liquor store will require much more starting- up stock than a service counter
shop.
- Pay attention to the condition and suitability of the shop’s floor. If it needs replacement, estimate the cost. The shop floor is part of the image you wish to portray. It must be practical for high traffic, easy to clean and non-slip.
- Painting and renovation
the shop. Estimate the cost to paint and renovate. Choose your colours wisely. Steer clear of a dull neutral
colour.
- Determine
the security requirements and cost
such as burglar bars, safety doors, alarm system, armed response, and new
locks for the shop (Don’t use the old locks. You don’t know how many keys
are floating around.) Install security mirrors, CCTV cameras, dummy
cameras, an alarm system with armed response, safes, and a door chime.
Your shelves should be ±900mm high and placed in such a way that the
cashier/s can see down the isles.
- Design and
estimate the cost of the signwriting
and promotional material. Proper signage and graphics are crucial to
establish brand recognition and must portray the message load and clear
that your shop is a Liquor Store.
Decide
on a Name and Logo and colours of the business. (Remember your business must
“jump out in the street” It simply means that your business must not melt into
the surrounding shops but stand out very clearly) You must be able to read
the signwriting and advertisements at 60 km/hour. Rather write less than
clutter the signboard with too much information. Items may include Neon Signs,
Banners, Store Front Signs, Displays and message sign boards.
- The lighting of the shop is important.
It must suit the required ambiance of the type of business you intend to
operate. A dark Liquor store does not contribute to the image of an
upmarket Liquor Store or any Liquor Store for that matter. Ensure that the
lighting is bright white light. Stimulate an environment that is pleasing
to the human eye. You can consider ceiling lighting, spot lighting on
focus points, and colour lighting.
- Shelving and Gondolas. Shelving
should be strong to support the weight of the liquor on display. At the
end of each isle shelf must be a Gondola or product display. Instead of
storing your products in a storeroom, you can create attractive displays
with it. Your shelves must be fully stocked. It creates the impression of
a successful store. Avoid partially stocked shelves. Wall shelving must
cover the walls, contribute to the image of the shop, and must suit the
dekor of the shop. A good idea is to use the open space above the wall
shelving for promotion or alternatively it can be boxed with cladding or
similar.
- Floor displays. Here
you can display some actual stock or promotional material. Note that you
do not disturb the traffic flow or cause an obstacle that can cause a
customer’s fall. You can also employ a dump table for slow moving items,
specials or other products. Dump tables or bins can display combo sales
such as a bottle of spirits tied to a two liter of mix beverage, or other
promotional gift. You can display in Glass Displays, Wine Fixtures, or the
original package of the product cut open to facilitate access to the
product.
- Impulse buying Countertop Display. Well
selected display of smaller items usually bought on impulse can be
displayed on the check out counter.
It can be displayed in the packaging, opened for easy access, on
stands, show cases or small shelving.
- Temperature control. Decide
if an air conditioner is required to control the temperature in your shop.
- Packaging design. Your
packaging can display your
Company Logo, a board game, or the colours of your shop. It can also have
Braai recipes or Cocktail Mixing instructions printed. If you do
deliveries or offer a class and cooler loan facility for parties, it can
display your contact details and convey the massage that you deliver to
the customer’s site.
- Shopping Baskets and trolleys. Shopping
bags and trolleys must be available. Ensure they are supervised to
eliminate loss.
- Point of Sale System (POS) and software. The
liquor trader must employ a powerful POS system to control his cash flow,
stock, shrinkage, and sales statistics. Contact a reputable POS
supplier and decide on a system that will at least scan each item,
adjust the stock level automatically, have a complete stock control system
in place that will show any theft or shrinkage after each stock take, have
a minimum and maximum stock level control with a re-order level flag. It
must show the cash at hand and control the purchase of empty bottles
handed in by customers.
- Establish the suitability, quantity, safety,
and convenience level of the parking
for your customers.
- Decide on your pricing strategy.
Visit opposition shops and determine their prices. Find out from suppliers
the cost price of your products. Decide on a price mark-up percentage. Pricing
of single beers, quarts and “nips” are much higher than on bulk cases.
It is
not a good strategy to be the cheapest in town and never start a price war!
- Decide on your product strategy. The type of products you will sell depends on your target market’s income. Initially and before starting it is difficult to know for sure what products are fast movers, however you can talk to other dealers who are outside your influence area. Establish the fast-moving stock and list them.
Your
shop should be well stocked and must look successful. Do not allow partly stocked shelves but rather reduce the
number of shelves. Keep them stocked
to the brim. You can achieve this by moving your beverage coolers forward to reduce the initial floor
space and removing some shelves.
- Diversify. If
you want to stock products other than liquor and smokers’ requisites, you
need to apply to the liquor board to stock such items. Examples are rugby
shirts, flags, biltong, braai equipment and other paraphernalia.
- Initially
stock high priced items such as
exclusive wines and whisky with care. Keep a low stock of it until you
have established the demand for it.
- Compile a Suppliers List with alternative
suppliers. Your purchases can influence your
profit margins dramatically. Shop around for better deals. Your relationship
with your suppliers is critical. Try to line up alternative suppliers
where possible. This should include refrigeration mechanics, electricians
etc.
Some
suppliers offer a percentage discount on bulk/case purchases. Buy all your fast-moving
stock from them. The slow-moving stock can be purchased elsewhere and in
smaller quantities.
- Decide on an Employment Strategy. Many
successful businesses have failed because of employees. Take note of the
following:
1.
Do not employ anybody to do
the work that you can do.
2.
Work out your budget and cash
flow before you employ anybody. It is not fair to an employee if you inform
them soon after you employed them that you can not afford them.
3.
Do not trust anybody. Ensure
strict financial a stock control. Do your own buying and stock control. Ensure
that your employees have no access to the Point Of Sale systems manager’s
files. You as the owner must enter all stock delivered into the computer
program and NP staff member may have any access to that program.
4.
Follow up the applicant’s
previous employees and get a reference.
5.
Follow up the applicant’s
qualifications.
6.
At least one male must be
employed as a “customer service” person. He will assist the customers in
finding their purchase required by the customer, but he is there to observe for
shoplifters or security threats. He will be equipped with a remote panic button
which is connected to an armed response alarm. A liquor store is less busy on
Mondays than Fridays and Saturdays. You can plan the number of staff and their
working hours accordingly.
7.
Draw up disciplinary
procedures for the employees. If an employee is found guilty of theft, do not
only dismiss the person. Lay a criminal charge against that person and
prosecute. Otherwise, the person moves to a new liquor store and repeat the the
same.
- Insurance cost.
Some lease contracts require the lessee to insure for shop- front windows
and other breakages. Also insure the Stock and Equipment.
- Register with the Receiver of Revenue
such as Income Tax, Employees tax (PAYE), Value-added tax (VAT) if
applicable, Unemployment Insurance Fund (U.I.F.)
- Apply for a Business License
(if applicable) at your local Municipality.
- Appoint a registered accountant.
Seek advice from your accountant on VAT registration and tax issues. You
can save substantial amounts of money by using professionals.
- Decide on your business hours
and stick to it. Advertise it at the entrance of the shop. You should keep
in mind the security aspect inside and outside the shop and taking into
account the surrounding shop’s closing times.
- Decide on the legal entity of the business
such as a Sole Proprietor, Company (Register the Company) or partnership
(Draw up a partnership agreement).
- Banking. Negotiate
with different banks the Cash deposit fee charged by that bank. (Cash
deposits can attract huge bank charges) then open an account.
- Order your stock. There
is a direct correlation between the stock holding and the turnover, but
only up to a point. If you open a self-service Liquor store and your stock
is less than R150 000 to R200 000 (in 2014), then it is unlikely that
your liquor store will survive. If you open a counter service liquor store
then you can get away with R70 000 worth of stock. Decide on Minimum
/ Maximum stock levels and re-order levels of your stock.
- Credit card machine. Negotiate
with your bank for the installation of a credit card machine.
- Before
opening buy an advertorial in the local newspaper with opening specials.
Limit the specials both by quantity and time.
- Ice sales
can initially be achieved by selling ice purchased from suppliers. Once
your business is established you can consider an ice making machine.
6.
Budget.
- Work out a Budget. Without
a Budget you can fail before
you opened your doors. Remember to budget for the actual and hidden cost
which are listed but not limited to the following:
1. Cost
of the Liquor License Application.(± R13500 in 2014)
2. Cost
of your first payment to the Liquor Board on approval of the Liquor License.
±R1500 in 2014)
3. Rent
deposit.
4. First
months rent in advance.
5. Cost
of stock.
6. Electricity
deposit.
7. Painting
and renovating the shop.
8. Tiling
the shop floor. (If required)
9. Lighting
and wiring. (If required)
10. Burglar
bars and safety gates.
11. Alarm
system and camera system.
12. Signwriting.
13. Stationary,
printing etc.
14. Cost
of equipment, furniture, and fittings plus installation.
15. Cost
of electrical installation of equipment
16. Cost
of Point-of-Sale system and software.
17. Plumbing.
(If required)
18. Trading
License.
19. Computers
and software.
20. Employment
contracts.
21. Cleaning
material and equipment.
22. Transport.
(Initially you can survive with a trailer)
23. Cost
of rent while waiting for the Liquor License.
24. Installation
the alarm system
25. Installation
the turnstiles.
26. Packaging
material.
27. Telkom
line.
28. If
your business is in Gauteng order a sign with letter 50cm high for the front
door which displays the following:
Name of Business.
Type of Liquor License (i.e.,
Restaurant)
Trading times of the
Business.
Liquor
License Number.
29. Fire extinguishers.
Some
notes on a Liquor Store.
Make
sure that the electrical distribution board of the shop you have decided to rent
have the capacity to carry the electrical load of your equipment. Your lease
contract may have a clause placing to onus on the tenant to ensure that the
shop is suitable for your purpose. They will not rewire the electrical
distribution board.
1.
Minors.
Section 46 of the Gauteng Liquor act 2 of 2003. A licensee shall not sell or
supply liquor on the premises to persons under the age of 18 years....
2.
Intoxicated
persons. Section 47 of the Gauteng Liquor act 2 of 2003.
A licensee shall refuse to admit to the licensed premises or any part thereof
or sell or supply to an intoxicated person and shall have such person removed
from the premises or any part thereof. (An intoxicated person is when his/her
capabilities are so impaired by liquor that he/she is likely to cause injury to
himself/herself or be a danger or nuisance or disturbance to others.
3.
No
liquor may be consumed inside a Liquor Store.
4. Business Hours: Gauteng
Monday – Saturday 08h00 to
20h00.
Sunday 09h00 to 15h30
5.
Delivery
of Liquor.
· An original invoice of the order must be kept
on the licensed premises.
· A copy of the invoice must be inside the
Vehicle.
· The delivery address must be on the invoice.
· If
you deliver liquor, do not off-load after the prescribed hours i.e., 20h00
during weekdays. You can load your vehicle any time, but the time of
off-loading is regarded as time of the sale taking place.
· Hint. -Do not transport Liquor that is not on
an invoice or deliver to an address that is not on the invoice. Print the Name
of your business as well as the Liquor License Number on the invoice.
6. Bulk Sales.
·
A Liquor Store may only sell
to the Public. Do not sell to any person in bulk which is greater than a
reasonable person will buy for own consumption. Do not sell to unlicensed or
licensed Shebeens.
7.
Weddings and functions.
·
A liquor store license does
not allow you to set up a Bar at a function. A bar is an on-consumption license
and a liquor store is an off-consumption license. Your license for
off-consumption only covers your registered premises and within the constraints
of your floor plan approved by the Liquor Board.
8. If the Liquor License is in the name of a
Company or Close Corporation.
·
If the license in in the name
of a juristic person as mentioned above, a natural person must be appointed to
Manage the liquor store. Contact your Liquor License consultant.
9. If the License holder is not the person who is
running the Liquor
store on a day-to-day basis.
·
Then a natural person who is
running the business on a day-to-day basis must be appointed as Manager
10. Cash
flow is very critical. Don’t buy anything except
stock. Avoid
“Nice to have” equipment and buy them when your shop is
profitable. Many a profitable shop has closed because the owner ran out of cash.
Once your shop is profitable, save at
least six months overheads
and invest it in a sixty-day account.
11. Makro factor influencing the Sales of a
Liquor store.
As with all businesses there are distinct factors, which are out of your control, that influence the turnover of a Liquor store. If I may grossly generalize the following cycles may be observed in your liquor store.
1.
Weather. – The higher the
temperature the higher the sale of beer and beverages. There is a distinct drop
is beer sales during rainy and cold days.
2.
Sport. – Sport such as an
important rugby match can influence your sales.
3.
Weekdays. – Generally Mondays
are much slower than Friday or Saturday.
4.
Months. – Generally November
and December are the busiest with February the slowest. Generally in autumn
sales rise. Easter season will influence your sales dramatically and depending
on which days of the week the public holidays are, you will have dramatically
lower sales.
5.
Festive season. – This is the
busiest part of the year. You need to order larger volumes of stock because
most suppliers close over the festive season. Initially it will have a
detrimental effect on you cash flow if you do not plan for that. You need to
plan the fast moving stock such as beer. Again, you can order a large quantity
of beer for the festive season, and if it rains for three weeks, then in
January you can be stuck with a large quantity of beer and a with a cash flow
problem. The opposite is also true. If you order too little and run out of
stock, you lose customers and sales!
6.
Time of day. Mornings are
slower and it picks up at 16h00.
7.
Time of the month. From the 10th
until the 20th of the month is usually slower than the rest of the
month. But, if your target market is weekly paid customers, the scenario will
change.
8.
Labour unrest can affect your
business in that strikes reduce the expendable cash of your customers. It takes
a striker months or years to recover financially after a strike. If the
demonstrations are held in the vicinity of your shop, your sales come to a
virtual standstill. This can be expected from June to September.
Frik
Liebenberg of Frik Liebenberg Business advisory Services cc 99/05522/23 has
been a Business Broker since 1997 and a Liquor License Consultant since 2002.
Feel free to contact us for further information.
Frik Liebenberg
Frik Liebenberg Business Advisory Services cc
99/05522/23
082 556 8368
Follow us on Twitter @licensingliquor
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