The liquor market has remained buoyant amid a struggling economy.
Entrepreneurs who want a piece of the action have a number of franchise options.
A Tops @ Spar outlet, for example, will set you back in R1 million in equipment costs – but you can only get a franchise if you set up a Spar shop.
South Africans drink a lot of liquor – as much as 9 litres of pure alcohol per year, according to the World Health Organisation. Given that the majority of alcohol consumed in South Africa is in the form of beer and wine, this makes for significant annual consumption.
As a result, South Africa’s liquor industry has remained strong despite the economic downturn. A recent study found that South African liquor stores have the highest turnover of stores in the country.
Small independently owned liquor stores have thrived for many years. But mass retailers like Massmart, Checkers, Spar, and Pick n Pay have also aggressively moved into the market, opening their own branded liquor outlets across the country.
With independent retailers getting the squeeze from the bigger organisations, many entrepreneurs are turning to the relative safety and reliability of liquor store franchises.
Depending on size and location, franchisees can get away with an initial investment of around R1 million for a new liquor store. Larger standalone stores can cost more than three times that amount. If you already own an independent liquor store but want to benefit from the support and buying power of a franchise, it may also be possible to convert to a leading brand.
Tops @ Spar
Spar is one of South Africa’s leading supermarket franchises. More than 950 independently owned stores in Southern Africa are part of the group, many of which are coupled with Tops @ Spar liquor outlets
These stores have proven a hit for the Spar Group. In the half-year to the end of March 2019, wholesale sales at Tops liquor stores grew by 19.3%.
Equipment costs for opening a new Tops store are in the region of R1 million, 50% of which must be in unencumbered cash. Franchisees must also have a working capital of approximately R100,000.
However, Spar does not award Tops memberships as separate entities. Spar only considers these applications after approving supermarket franchises. The cheapest Spar supermarket available for purchase is a KWIKSPAR. This is the smallest of the Spar franchises and costs between R6 million and R7 million to equip. Working capital of approximately R500,000 is required. A traditional SPAR store costs between R10 million and R12 million, and requires a working capital of R900,000.
Overland Liquor Group
The Overland group of companies started in 1993, and includes over 300 liquor stores. These are typically located in smaller outlying towns, rather than main metropoles. The group sees an annual turnover of R3 billion.
There are three main brands under the Overland Liquor umbrella – Overland, Liquor Zone, and Spot On, all of which are available for franchising.
Overland offers new, standalone liquor franchises and for existing liquor stores to tap into their franchise network and benefits by converting into branded Overland stores.
When converting, they do not expect a total revamp, but work through basic equipment and compliance requirements. They allow stores converting into the Overland group to retain their original name with companion branding from the franchisor.
Overland offers two retail franchise options – convenience stores and retail stores. The cheapest of these is the convenience store. Without stock these comes in with an estimated set up cost of under R700,000. This includes all equipment needed to operate, including shelving, furniture, and signage.
Retail stores have a larger footprint, and see greater turnover. Excluding stock, these large liquor outlets have an estimated cost of under R2 million.
Liquor City is an established liquor store brand in South Africa, mostly based in larger urban centres.
The first store opened in Johannesburg in 1994, and the group has since grown to include close to 250 outlets across the country. They now claim to be the largest independent liquor group in the country employing 3,000 people.
They currently offer a custom liquor store business that includes marketing and promotions, business advice, training, liquor licenses, and shop fitting. The store also offers franchisees a line of signature brands not held by other local stores, which allows more margin on these than other mainstream brands.
Like other liquor franchises they also offer the opportunity for existing stores to convert to the Liquor City brand.
The cost of starting a new Liquor City store varies according to size and location. The average store costs between R1.7 million to R2 million. There are fewer costs incurred if converting from an existing store. Liquor City doesn’t ask for a percentage of store turnover.
Source: Business Insider – www.businessinsider.co.za