Do you want to know how much money craft beer shops make yearly? If YES, here are 8 factors that determine the income & profit margin for craft beer owners. Whether it is for a special event, or just to wind down after a long week, Americans are beginning to go down the craft beer lane. With over 30,000 craft beers in the United States, Americans are enjoying the option of choosing from different tastes and flavours.
Just like other alcohol based retail stores, there are so many details that go into owning a craft beer shop, but many find it to be a very rewarding experience. By owning and managing a craft store, you get the opportunity to interact with customers regularly and ensure you have made their day a little brighter.
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How Much Does It Cost to Start a Craft Beer Shop?
Note that the capital needed to start up a craft beer shop varies depending upon a number of factors. Location, staffing costs, beginning inventory, and licensing fees are all defining factors in how much you’ll need for your initial investment.
In the United States, the ideal customer of a craft beer shop is anyone over the age of 21, who enjoys a tasty beverage and prefers to do business with smaller, local establishments over large retailers. Before investing in any retail space, a prospective craft beer shop owner is advised to conduct research to determine the competition in the areas they have chosen.
How Craft Beer Shops Make Money
Craft beer shops, just like other alcohol retail shops, make money through the sale of beverage. Some are sold by the bottle, while others are sold in greater quantity, as determined by the distributors. The prices of these beers vary from product to product and are defined by the size, packaging, and distributor prices.
According to reports, general liquor stores (including craft beer shops) are among the top five least profitable businesses, taking home a profit of 1.7 percent. Owners who are able to run their own business take home an average salary of $21,000 – $51,000, depending upon size, location, and sales. At 1.7 percent, a store that has total sales of $500,000 realizes an annual profit of $8,500.
To further dictate the profit a craft beer shop can make in the United States, we have to consider some crucial factors that dictate the revenue streams of the business. These factors include:
7 Factors That Determine How Much Money Do Craft Beer Shops Make Yearly
Note that being the only craft beer shop is something every entrepreneur wants, consumers, on the other hand, want options. Competition keeps prices in check and allows consumers to have a say in what’s offered.
Although healthy competition isn’t bad for a business, but many retailers are seeing changes in how competition affects their sales in this modern era. In this age, consumers can easily check and order beers online—which can drive down prices and make it more difficult for craft beer shops to make a profit.
2. Sales and Service Strategies
Since craft beer shops mainly sell just liquor, entrepreneurs in the industry are beginning differentiate themselves via customer service strategies aimed at encouraging buyer loyalty and repeat sales, such as free shipping or free returns.
Reports have it that online shoppers given free returns tend to increase their spending at the same shops by between 50 and 350 percent, depending on the type of item. When consumers have to pay for delivery, the value of purchase declines.
3. State of the Economy
Although the liquor industry is recession proof, people still buy more and store more beers when they are confident of their job, business or the general economy. That, in turn, drives even more economic growth, resulting in a healthy economy. During downturns, not every liquor store gets customers or product orders. Some suffer—along with the economy.
4. Product Costs
For a craft beer shop, the cost of the beer sold is a key variable in long-term profitability. This takes into account direct and indirect costs that ultimately affect bottom-line profits. A craft beer shop, just like other retail businesses, figures these costs by including the value of inventory at the start of a given period, adding in new purchases made during the period and also calculating costs such as labour and shipping.
Costs to sell goods can be lowered based on factors such as the beer’s country of origin, processes the business uses to obtain materials, track shipments and otherwise keep inventory closely matched with demand.
5. Beer Trends
Note that consumer trends are important in the beer market, and every craft beer store owner is expected to pay attention, because these shifts can have lasting impact on a business’s success. For example, many consumers are concerned about how bottles and cans affect the environment, and are more interested in sustainable options when shopping.
Although Americans still shop in store, however, a good number still like to have the option of shopping online. A craft beer shop that adapt to consumers’ preferences can survive and thrive, and also generate substantial profits.
6. Product Mix
Craft beer shops hardly carry just one brand of beer, most sell just beers and no additional liquors, and this subjects them to price volatility. Most craft beer shop owners employ a product mix, which protects them from the ups and downs associated with just beer.
The product mix also enables craft beer shops to offer different products, which attracts a wide range of potential customers. A very successful craft beer shop needs to carry a variety of options of craft beer and other liquors like wine and spirits. Their products range from mainstream brands to specialty beers. Naturally, the mark up should be different for each, the higher the price, the greater the perceived quality.
7. Price Points
Price is without doubt one of the major factors that influence a customer’s decision on whether to buy an item. However, in this business, craft beer shop owners must decide on a price point for each product that is high enough to cover their costs, but not so high that it drives away potential buyers. The price point must also be maintained at a level that ensures maximum overall profit for that item; even it means less profit per individual item sold.
Technology has affected every aspect of our lives, and the craft beer market is no exception. While the influx of data that is now available to entrepreneurs can be very valuable, there are downsides for businesses, especially for small shop owners. Consumers can now price-check on the fly and see what their other options are in real time.
Technology has completely changed the landscape of almost every industry. Craft beer retail shops have also seen its fair share of changes, including mobile payments, targeted advertising, big data, and e-commerce. As time goes on, technology will play an even bigger role in how we shop—and craft beer shop owners need to be prepared.
In conclusion, the amount of profit a craft beer shop in the United States will make will depend on these crucial factors mentioned above. Since there is very little ability to negotiate with distributors over pricing in the industry, due to they have the monopoly on their alcohol brand, competitive pricing between retailers becomes difficult and results in a fairly low profit margin.
The only way craft beer shops can secure significant price cuts is by investing in the purchase of large bulk orders, which presents its own set of challenges. It requires deeper pockets and additional space for storage.
Estimated Profit Margin of a Craft Beer Shop
According to reports, the average mark-up on beer is about 200 percent to 300 percent for retail shops. But it depends on the type of beer and the size of establishment. Craft beers can be quite expensive to buy wholesale, so retail shops don’t mark them up as high. However, the profit margin for craft beer should be around 60 percent – 80 percent for retail shops.
The prices and mark up strategies for craft beer tend to depend on the products a shop offers, the shops expenses, and what people will pay. A craft beer shop owner is advised to always strive for balance between profit and customer satisfaction. Don’t be afraid to try a combination of these strategies and figure out which works best for yourself.