We have years of experience in this industry for the valuation of the business, equipment and real estate. Let us help you with our valuation consultation in all areas of the valuation of night club businesses. Below is a brief synopsis of the industry.
Description of Business
Establishments for evening entertainment, generally staying open until the early morning, that serves alcoholic beverages and usually food and offers patrons music, comedy acts, a floor show, or dancing.
General Industry Information
The bar and nightclub industry includes about 50,000 locations with combined annual revenue of about $15 billion. No major companies dominate; varying state liquor laws complicate the ability to form large chains. The industry is highly fragmented: the 50 largest companies hold just over 5 percent of sales.
Personal income and entertainment needs drive demand. The profitability of individual companies depends on the ability to drive traffic and develop a loyal clientele. Large companies can offer a wide variety of food, drinks, and entertainment, and have scale advantages in purchasing, financing, and marketing. Small companies can compete effectively by serving a local market, offering unique products or entertainment, or providing superior customer service. The industry is extremely labor-intensive: average annual revenue per worker is $45,000.
Bars and nightclubs compete with other venues that offer alcoholic drinks or entertainment, including restaurants, hotels, casinos, and consumer homes.
Beer is about 40 percent of sales, distilled spirits or hard liquor 30 percent, food and non-alcoholic beverages 10 percent, and wine 7 percent. Customers consume the majority of bar drinks on-premise, and companies may specialize in certain beverages, like craft beers or martinis. Entertainment includes live music; disc jockeys (DJs); dancing; and adult entertainment.
While most customers go to bars and nightclubs to socialize, bar activities tend to focus more on drinking, while nightclubs focus on entertainment and dancing.
Red Flags and Risks
The failure rate for nightclubs is extremely high. According to Nightclub and Bar Magazine, eight out of every ten will fail during the first year of operation. Another obstacle for opening a nightclub is zoning restrictions. Oftentimes local governments will see community resistance to opening another nightclub due to expected noise and drunken patrons. Additionally, the club will have to purchase a liquor license to sell alcohol and a pouring license to serve it and allow it to be consumed in the building. Both could be in limited supply in the community and/or expensive to obtain from local governments. Some local municipalities might also require an entertainment license allowing the establishment to provide live music, television, and dancing.
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