HOW TO START A BAR BUSINESS IN KENYA

A step by step business plan for starting a local bar in Kenya

Overview

The first version of this guide focused on what has traditionally been the ‘local’ bar: the local neighborhood bar, small with a sitting capacity of the 10 to 40, an element of casualness and where everybody knows everyone.

Though this bar still exists the local has also come to mean large bars (over 100 sitting capacity), more professionally managed and which are not just patronized by consumers from the neighborhood. These are the kind of bars which traditionally used to be destinations for weekend outings. The larger kind of bar have sprouted in urban estates making them almost as ubiquitous as the small ‘locals’.

Another shift has been towards ‘hip’ locals; neighborhood ‘lounges’ where significant amounts of money are invested in the interior design and creating an impression of modern, chic and trendy.

The evolution of the local has been driven by access to large amounts of capital by some entrepreneurs, the attraction of scale as a way to succeeding fast ( shock and awe strategy aimed at attracting attention and intimidating competition) , changing drinking habits for instance bar hoping ;moving from bar to bar within one drinking session, consumers search for better experiences at relatively affordable costs among other reasons, the need to differentiate as a result of increased competition in the business.

This guide will give insights which cut across the different kinds of ‘locals’.

Some Changes In The Bar Business

Since 2013 when we prepared a quick ‘local bar’ guide, there has been a couple of significant changes that have affected the bar business:

-Crackdown on Wines and Spirits outlets: This largely happened in 2015. In addition to literally destroying wines and spirits outlets in some regions especially Central, Eastern and Nairobi there were efforts to criminalize drinking alcohol. Some counties even declared they were not going to issue any more liquor licenses. The crackdown seems to have lost its steam.

-Increased number of bars: Bar business has become one of the most popular to start, and thus bars have sprouted all over. And as expected the casualty rate; the number of bars closing down has also increased

-Increase in number of higher capacity bars: Larger capacity bars with sitting capacity of 100 plus are now more common, not only in selected ‘out of town ’ locations and along highways but also in estates.Fall and rise of Senator Keg : Due to changes in the tax regime, the fortunes of Senator Keg has fallen then risen recently ( 2015) again due to reduction in tax and the crackdown on Wines and Spirits..

-Alcohol blow : Alcohol blow was reintroduced in 2014 in Nairobi and some other urban centers. For a period this changed the drinking habits with some motorists preferring to drink near home, reduced bar hopping and moderating drinking a little bit. Nowadays consumers have learnt to play cat and mouse with police and National Transport and Safety Authority (NTSA) officials.

-Among a section of consumers, those with income of Kshs.70, 000 and above Alcohol consumption in urban areas growing despite relatively high inflation rates - This has been attributed by such consumers being more aspirational, living for the moment, wanting to belong (peer pressure), show off and eventually spending more on leisure.

-Though still debatable the economic is perceived to be expanding and with it the so called mid class who is urban, has access to credit, ambitions and seeks a more comfortable and entertaining life. This fuels the entertainment industry.

-Tax on beer : Every year the tax on alcoholic drinks has been revised upwards, of course resulting in higher beer prices. Interesting is that as the beer prices increase bar owners are raising their margins at a larger proportion. (For instance if before a price increase the margins were 20%, after a rise the margins shoot to 30 % and so forth...). The last change was in November 2015, when the excise duty rates on alcoholic drinks were increased.

-Rise in premium beers : Consumers opting for premium beers have been on the increase

-Micro breweries (Craft Beers) : Though the micro breweries hasn’t recorded major changes there is a growing interest among investors and consumers in craft beers. In addition Brew Bistro and Sierra there is Sirville , at Galleria Mall, Langata. The latter was established in 2013 and has grown to over annual revenues of Kshs.70 million. There is also talk that more micro brewers might be hitting the market soon.

Quick Statistics

According to the World Health Organization ( 2014) :

-1.2 % of Kenyans are considered to be binge drinkers. Kenya’s population is at least 42 million people.

-Alcohol consumption has been increasing constantly since 2003

-The per capita alcohol consumption in Kenya was 4.3 liters up from 4.1 liters in 2003. The per capita is calculated by taking the total amount of alcohol consumed and dividing by the total population. Of course this is used for comparison purposes. 4.3 liters is about eight bottles of Tusker, what is the quantity some consumers take in a sitting.

-On average Kenyan men consume five more times more alcohol than women

According to the 2015 EABL annual report the performance, growth or decline, of various brands of were as follows:

Mainstream (E.g. Tusker): -2%

Premium ( E.g. Tusker Malt, Tusker Light) :+ 17%

Ready to Drink Vodkas( E.g. Smirnoff guarana, snapp) : +70%

Emerging (E.g. Balozi): - 2%

Spirits:

Reserve (E.g. Sons Odyssey, Tusker Malt Whisky) : +71%

Premium (Johnnie Walker) : +31%

Mainstream ( E.g. Kenya Cane) : =9%

Jebel : +32%

EABL Revenue (2015) - 64,420,458 ,000 (2014) - 60,748,887,000

Licenses

Alcoholic Drinks Licenses

Licensing of bars is governed by the Alcoholics Drink Act, 2010. However since 2013 many county governments have come up with their own custom legislation.

The Alcoholic Drinks Act, 2010 commonly known as the Mututho Law defines the licensing requirements and fees. And although counties have passed their own laws licensing is basically governed by the Mututho Laws.

There have not been major changes in licensing in the last five years. Licensing has been devolved to the county governments. And although county governments in an effort to be on the moral right and ‘’curb excessive drinking” have come up with all manner of regulations , the need for revenue to run the counties, greed of county government official and resilience of entrepreneurs have meant that such rules are either overlooked or overcome.

For instance recently (January 2016) Kiambu county introduced a condition for those seeking liquor licenses that they must get ‘permission’ from the community where they plan to set up the bar. How this will be implemented is yet to be seen. You can’t ignore the fact that the governor had in 2015 said that no more liquor licenses will be issued by the county. Yet every month there are bars being opened.

As a matter of fact there is so much lack of consistency and many loopholes in the regulations by the county governments. The effect of this is that it has raised the indirect cost of acquiring licenses in terms of bribes and bureaucracy involved.

For a ‘local’ per se, which opening at 5pm and closing at 11pm on weekdays and 2pm to 11pm during weekends you need the General Retail Alcoholic License. The license is applicable to

sale of an alcoholic drink for consumption in the premises such as bars and related retail outlets whose core business is sale of alcoholic drinks.

Below are the fees as stipulated by law.

Type of License

Fees

 

General retail alcoholic

12 Months ( Kshs)

6 Months ( Kshs)

drink license:

 

 

Premises situated within a

50,000

30,000

City or a

 

 

municipality

 

 

Premises situated within

30,000

18,000

urban areas

 

 

other than city and

 

 

municipality

 

 

Premises situate elsewhere

15,000

9,000

than in a

 

 

city, municipality and urban

 

 

areas

 

 

Nowadays even one street town define themselves as cities so the standard fee has become Kshs. 50,000 irrespective of the location.

When the alcoholic drinks control act was operationalized some bars which wanted to sell throughout the day acquired the Club Alcoholic drink License. Members clubs are “Authorized to sell alcoholic drink to members on any day of the week at any hour.” Because they were not actual members club and to keep within the law they issued simple membership cards to customers. That was then and it no longer happens.

The other legal alternative and preferred option to sell alcohol throughout the day is to get the Restaurant Alcoholic drink License. Holders of the license are “Authorized to sell alcoholic drink on any day of the week to persons taking meals in the restaurant, for consumption with such meals.” If you want to sell alcohol all day then think of this license.

In actual sense bars which operate 24 hours or open and serve beer off hours do not

necessarily have the members’ club or restaurant alcoholic drinks license, for some the ability is

a function of their relations with the local authorities. A relation which based on monetary rewards, obviously.

 

Type of License

Club alcoholic drink

Restaurant Alcoholic drink License

 

 

 

 

license (members'

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

club)

 

 

Duration

12 Months (Kshs.)

12 Months (Kshs.)

6 Months (Kshs.)

Premises situated within

100,000

30,000

20,000

a City or a

 

 

 

Municipality

 

 

 

Premises situated within

80,000

20,000

12,000

urban areas

 

 

 

other than city and

 

 

 

municipality

 

 

 

Premises situate

50,000

10,000

6,000

elsewhere than in a

 

 

 

city, municipality and

 

 

 

urban areas

 

 

 

If you would like to sell alcohol for 24 hours consult the licensing bureaucrats in your county. There are no fast hand rules about this. Remember if you rely on the goodwill of the authorities to operate after hours; authorities change or are officials are transferred. Where possible have some legal backing of sorts in the form of an appropriate license.

Other Licenses

In addition to the alcoholic license there are others that are other licenses that are required to run a bar. These include:

 

License

Details

Cost

 

 

 

County Single Business

This is a basic necessity for all

Price will range from county to

 

 

Permit

business operating within a

county, location within the

 

 

 

county. Also you need this to

county and size of the

 

 

 

 

get the alcoholic drinks

premises. Budget at least

 

 

 

license.

Kshs.15,000

 

 

 

Public Health License

- It's also a requirement when

At least Kshs.6000

 

 

 

 

getting the alcoholic drinks

 

 

 

 

 

license, although it’s often

 

 

 

 

 

overlooked.

 

 

 

 

 

- By law all businesses selling

 

 

 

 

 

food and drinks need to have

 

 

 

 

 

this license.

 

 

 

 

 

-Issued by public health

 

 

 

 

 

officers in the area after

 

 

 

 

 

making sure the business

 

 

 

 

 

premises is fit

 

 

 

 

 

- Among the check list is

 

 

 

 

 

availability of water, toilet

 

 

 

 

 

facilities, drainage, sink,

 

 

 

 

 

smooth floor, walls and the

 

 

 

 

 

general environment.

 

 

 

 

 

- In some areas public health

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

officers are not so strict. At

 

 

 

 

 

times they ask for bribes to

 

 

 

 

 

approve your business even if

 

 

 

 

 

it does not meet all the

 

 

 

 

 

required standards.

 

 

 

 

 

- Public health officers are

 

 

 

 

 

found at the

 

 

 

 

 

government/county hospitals

 

 

 

 

 

or county government offices.

 

 

 

 

 

 

 

 

 

 

Medical Certificate

By law workers in a hotel or

Averages Kshs.500 and can

 

 

 

bar need to have a medical

be acquired at the local

 

 

 

 

certificate to ensure they do

government/ county hospital

 

 

 

not have communicable

clinic after some tests.

 

 

 

 

diseases they can spread to

 

 

 

 

 

customers. The standard

 

 

 

 

 

practice is for workers to

 

 

 

 

 

acquire the certificates on

 

 

 

 

 

their own cost since they can

 

 

 

 

 

still use it even after leaving

 

 

 

 

 

your employment.

 

 

 

 

 

 

 

 

 

 

Fire Clearance Certificate

 

The cost averages Kshs.1500

 

 

 

This is issued by the fire

per year

 

 

 

 

department of the county

 

 

 

 

 

government. The general

 

 

 

 

 

process is you go to the fire

 

 

 

 

 

department, they will ask for

 

 

 

 

 

the size of your premises in

 

 

 

 

 

square feet and based on that

 

 

 

 

 

advice on the number of fire

 

 

 

 

 

extinguishers you need.

 

 

 

 

 

Depending on the nature of

 

 

 

 

 

your business they will also

 

 

 

 

 

advice on the best kind of

 

 

 

 

 

extinguisher.

 

 

 

 

 

Once you have all in placed

 

 

 

 

 

you notify the fire officials who

 

 

 

 

 

come inspect and issue you

 

 

 

 

 

with the certificate. You need

 

 

 

 

 

to purchase the fire

 

 

 

 

 

extinguishers from authorized

 

 

 

 

 

companies, who will also be

 

 

 

 

 

inspecting the extinguishers

 

 

 

 

 

every six months and

 

 

 

 

 

stamping it.

 

 

 

 

 

 

 

 

 

 

Music Copyright of Kenya

This is required for all

MCSK fees are based on

 

 

(MCSK) License

establishments playing music.

sitting capacity:

 

 

 

 

These days MCSK officials

“Fee per room for each unit of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

are a touch aggressive and

25 persons seating capacity

 

it’s good if you have the

(or part thereof) - 2,231/=”

 

license. MCSK is more than

 

 

enthusiastic to issue the

 

 

license. There are MCSK

 

 

offices or officials all over the

 

 

country. If you can’t find a

 

 

MCSK office within your

 

 

location kindly visit their

 

 

website: www.mcsk.or.ke

 

Performers Rights Society of

This is another artist collection

Prisk license depends on the

Kenya (PRiSK )

agency. Just like MCSK they

capacity of the bar,

 

have become rather

attendance and how you are

 

aggressive in enforcing

using the music. The charges

 

payment especially in urban

are calculated per square feet

 

areas. Kindly get in touch with

starting from Kshs. 4.50 per

 

them through.

square feet. Visit their website

 

 

http://www.prisk.or.ke for

 

 

exacts. Or call them on: 0710-

 

 

309695

 

 

 

National Environment

This license is to make sure

Kshs. 3000.

Management Authority

you don’t pollute the air with

 

(NEMA)

noise from the music you are

 

 

playing from your bar. It

 

 

should be issued after NEMA

 

 

officials inspect your premises

 

 

and make sure its sound

 

 

proofed enough. There are

 

 

many bars which operate

 

 

without this license.

 

Equipment

The following are the basic items to set up any ‘local bar’. The specifics will vary with your capital at hand, how you want to set up and ‘brand’ your bar and thus the expectations of your target market.

 

Equipment

 

Purpose

Price

 

Supplier

 

 

 

Chairs & Tables

 

You need chairs and

Plastic chairs range

 

-Plastic chairs and

 

 

 

 

tables for customers

between Kshs.600

 

tables can be found in

 

 

 

 

to sit and place their

and Kshs. 800

 

supermarkets, some

 

 

 

 

drinks. The kind of

depending on where

 

hardware and plastic

 

 

 

 

furniture you chose

you are purchasing

 

items shops.

 

 

 

 

 

will depend on the

them, and whether

 

- Wooden benches

 

 

 

 

setting of your bar,

they are the kind with

and tables can be

 

 

 

 

space available and

arms or armless.

 

bought at the local

 

 

 

 

target market. You

Armless chairs cost

 

carpenter

 

 

 

 

 

need to have two to

Kshs.150 – Kshs.200

- Metallic chairs can

 

 

 

 

three varieties to suit

more.

 

be bought from local

 

 

 

 

the various tastes of

 

 

blacksmiths.

 

 

 

 

 

customers. For

Metallic chairs will

 

- In Nairobi there are

 

 

 

 

instance some plastic

range from Kshs.

 

blacksmiths who

 

 

 

 

chairs, high metallic

1000 to Kshs.1800.

 

specialize in the bar

 

 

 

 

chairs, low chairs,

Price depends on

 

stools and chairs.

 

 

 

 

high tables, high

blacksmith, quality,

 

- www.Olx.co.ke and

 

 

 

 

counter chairs/ stools

location and whether

newspaper classifieds

 

 

 

 

(sina taabu) and so

they are new or

 

have listings of

 

 

 

 

forth.

second hand. With a

 

traders dealing in bar

 

 

 

 

Plastic chairs and

high turnover in the

 

tables and chairs.

 

 

 

 

wooden tables are a

bar business there

 

- Donholm has some

 

 

 

 

safe bet. They are

are many selling their

renowned blacksmiths

 

 

 

 

used by half many of

items after closing

 

making bar chairs and

 

 

 

 

the open large bars.

down. Budget at least

tables and so is

 

 

 

 

However if you are in

Kshs. 1500 for a

 

Dagoretti Corner

 

 

 

 

a small space they

metallic chair and

 

where you can wide a

 

 

 

 

are not necessarily

Kshs.700 for plastic

 

variety of bar

 

 

 

 

 

the best option since

chairs.

 

furniture.

 

 

 

 

 

they are bulky.

Metallic tables will

 

 

 

 

 

 

 

 

range from Kshs.

 

 

 

 

 

 

 

Bars which want to

2000 to Kshs.3000.

 

 

 

 

 

 

 

look a touch modern

Wooden tables range

 

 

 

 

 

 

will use the metallic

from Kshs.1000, for

 

 

 

 

 

 

 

chairs with a wooden

very rough ones to

 

 

 

 

 

 

 

or cushioned rest. Of

Kshs. 3000 again

 

 

 

 

 

 

 

course in these days

depending on size,

 

 

 

 

 

 

 

of ‘lounges’ there are

quality, design and

 

 

 

 

 

 

 

bars with ‘lounge

carpenter.

 

 

 

 

 

 

 

seats’ which basically

 

 

 

 

 

 

 

 

are simple sofa seats

 

 

 

 

 

 

 

 

covered with some

 

 

 

 

 

 

 

 

white, red or black

 

 

 

 

 

 

 

 

resin. There are bars

 

 

 

 

 

 

 

 

with actual sofa sets.

 

 

 

 

 

 

 

 

On the upper end are

 

 

 

 

 

 

 

 

the all wooden chairs.

 

 

 

 

 

 

 

 

A mix of plastic chairs

 

 

 

 

 

 

 

 

and low and high

 

 

 

 

 

 

 

 

metallic chairs will do

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

fine. If with limited

 

 

 

 

 

 

 

 

capital you can go for

 

 

 

 

 

 

 

 

the plastic chairs and

 

 

 

 

 

 

 

 

make additions with

 

 

 

 

 

 

 

 

time. For tables,

 

 

 

 

 

 

 

 

wooden and metallic

 

 

 

 

 

 

 

 

tables to match the

 

 

 

 

 

 

 

 

chairs will work. When

 

 

 

 

 

 

 

 

in doubt go for basic

 

 

 

 

 

 

 

 

standard plastic

 

 

 

 

 

 

 

 

chairs and wooden

 

 

 

 

 

 

 

 

tables.

 

 

 

 

 

 

Television

 

Televisions have

Price will depend on

 

Electronic shops

 

 

 

 

become standard in

the dealer, size and

 

Supermarkets

 

 

 

 

 

bars of whatever

make of the

 

The website

 

 

 

 

 

caliber. If not for the

televisions. From our

www.Jumia.co.ke at

 

 

 

 

sports then for the

sampling Sony was

 

times offers lower

 

 

 

 

news which in a local

the most popular

 

prices and a wider

 

 

 

 

bar are almost a must

brand among bar

 

variety than what is

 

 

 

 

watch.

owners. A 32 inch will

found in supermarkets

 

 

 

 

Despite your setting

average Kshs.35,

 

and specialized

 

 

 

 

or possible loyalty of

000, it could be

 

electronic shops.

 

 

 

 

your customers if your

slightly more or less

 

In Nairobi you can

 

 

 

 

bar has no television

depending on the

 

check specialized

 

 

 

 

a majority your, they

brand and where you

electronics shops

 

 

 

 

will slowly move on.

are purchasing. Sony

along Luthuli avenue

 

 

 

 

It’s not necessarily

43 inches will be

 

and Kimathi Street.

 

 

 

 

that you show football

average Kshs.80,

 

Some shops in

 

 

 

 

on TV, it could be

000; 65 inches will be

Eastleigh estate also

 

 

 

 

music videos or just

about Kshs.300, 000.

offer handsome deals.

 

 

 

 

normal programming.

 

 

It’s advisable to go for

 

 

 

 

In the urban areas a

 

 

a new set rather than

 

 

 

 

TV set is a necessity.

 

 

second hand. When

 

 

 

 

In rural areas TV are

 

 

starting you needs the

 

 

 

 

also becoming crucial

 

 

peace of mind that

 

 

 

 

not just for football but

 

 

comes with new and a

 

 

 

 

music videos. It’s part

 

 

warranty.

 

 

 

 

 

of the wholesome

 

 

 

 

 

 

 

 

entertainment. Of

 

 

 

 

 

 

 

 

course a TV is not a

 

 

 

 

 

 

 

 

must but it adds so

 

 

 

 

 

 

 

 

much value to the

 

 

 

 

 

 

 

 

business. You can do

 

 

 

 

 

 

 

 

with a traditional TV

 

 

 

 

 

 

 

 

or go for a flat screen.

 

 

 

 

 

 

 

 

If you are targeting

 

 

 

 

 

 

 

 

the football crowd

 

 

 

 

 

 

 

 

then it’s advisable to

 

 

 

 

 

 

 

 

go for a flat screen.

 

 

 

 

 

 

 

 

The number of TVs

 

 

 

 

 

 

 

 

that you need will

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

depend on the size

 

 

 

 

 

 

 

 

and setting of your

 

 

 

 

 

 

 

 

bar. It should be

 

 

 

 

 

 

 

 

possible for every

 

 

 

 

 

 

 

 

customer to watch

 

 

 

 

 

 

 

 

television from

 

 

 

 

 

 

 

 

whatever position.

 

 

 

 

 

 

 

 

Some new bars use

 

 

 

 

 

 

 

 

televisions as a way

 

 

 

 

 

 

 

 

of penetrating the

 

 

 

 

 

 

 

 

market. So they go for

 

 

 

 

 

 

 

 

the biggest and

 

 

 

 

 

 

 

 

highest number of

 

 

 

 

 

 

 

 

televisions per space

 

 

 

 

 

 

 

 

when compared to the

 

 

 

 

 

 

 

 

competition. This

 

 

 

 

 

 

 

 

works at times, but if

 

 

 

 

 

 

 

 

not matched with

 

 

 

 

 

 

 

 

other aspects such as

 

 

 

 

 

 

 

 

service and friendly

 

 

 

 

 

 

 

 

prices, a television will

 

 

 

 

 

 

 

 

not keep the

 

 

 

 

 

 

 

 

customers coming.

 

 

 

 

 

 

 

 

Also if it’s the only

 

 

 

 

 

 

 

 

thing that gives you a

 

 

 

 

 

 

 

 

lead competition can

 

 

 

 

 

 

 

 

easily replicate.

 

 

 

 

 

 

 

 

If you are showing

In December 2015

 

DSTV headquarters

 

 

DSTV

 

football you need a

the DSTV decoder

 

are in Westlands,

 

 

 

 

DSTV connection. A

was priced at a

 

Nairobi, next to the

 

 

 

 

DSTV connection

special offer of

 

Sarit Center.

 

 

 

 

gives you access to

Kshs.5000 (against

 

There are also

 

 

 

 

the English Premier

the normal Kshs.11,

 

appointed dealers all

 

 

 

 

League, Movies and

000). This included

 

over the country who

 

 

 

 

tens of other

decoder, satellite

 

advertise

as such “

 

 

 

 

channels. Depending

dish, cabling and

 

DSTV APPOINTED

 

 

 

 

on your budget, size,

installation fee.

 

RESELLER”

 

 

 

 

possible returns you

Consider related

 

 

 

 

 

 

 

can go for the full

costs and your

 

 

 

 

 

 

 

package has a

location, budget at

 

 

 

 

 

 

 

monthly subscription

least Kshs. 20,000 for

 

 

 

 

 

 

fee of around 100

DSTV purchase and

 

 

 

 

 

 

 

dollars. Or select the

installation.

 

 

 

 

 

 

 

lower package

 

 

 

 

 

 

 

 

(average Kshs. 4500

 

 

 

 

 

 

 

 

per month) which is

 

 

 

 

 

 

 

 

biased towards

 

 

 

 

 

 

 

 

football.

 

 

 

 

 

 

Music System

 

By default music is

Kshs. 15,000 to Kshs.

- Electronics

 

 

 

 

part of the drinking

100,000. There is no

shops

 

 

 

 

experience. Good

a limit on this and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

music encourages

exact cost will depend

 

 

 

 

 

 

customers to drink

on your capability and

 

 

 

 

 

 

and spend more.

whether you decide to

 

 

 

 

 

 

Depending on your

hire a professional to

 

 

 

 

 

 

target customers

install the music

 

 

 

 

 

 

 

music can either be

system for you. At

 

 

 

 

 

 

 

moderate and in the

least budget Kshs.

 

 

 

 

 

 

 

background so as to

30,000 for some

 

 

 

 

 

 

 

allow conversation or

decent music system.

 

 

 

 

 

 

loud. Keep in mind

 

 

 

 

 

 

 

 

your customers when

 

 

 

 

 

 

 

 

choosing how to set

 

 

 

 

 

 

 

 

the music. Select the

 

 

 

 

 

 

 

 

music to play with

 

 

 

 

 

 

 

 

your clients in mind

 

 

 

 

 

 

 

 

and not your personal

 

 

 

 

 

 

 

 

tastes. Music can

 

 

 

 

 

 

 

 

effectively be used to

 

 

 

 

 

 

 

 

brand and develop

 

 

 

 

 

 

 

 

some identity.

 

 

 

 

 

 

Glasses , flasks,

 

Glasses are used to

Price range between

-Supermarkets

 

 

basins, jugs

 

pour the drink.

Kshs. 20 for towels to

-General merchandise

 

 

 

 

Standard medium

an average of

 

shops

 

 

 

 

 

sized glasses will do.

Kshs.500 for trays

 

- Household goods

 

 

 

 

You can also have

and glasses.

 

shops

 

 

 

 

 

proper larger glasses.

 

 

 

 

 

 

 

 

Basins and kitchen

 

 

 

 

 

 

 

 

towels are used for

 

 

 

 

 

 

 

 

washing the utensils

 

 

 

 

 

 

 

 

and cleaning the

 

 

 

 

 

 

 

 

tables.

 

 

 

 

 

 

Shelves and counter

 

You need a counter

Exact cost of a

 

- Local carpenter

 

 

 

 

from where to sell,

counter will depend

 

- Interior designers (

 

 

 

 

keep the cash and

on your carpenter, but

For instance

 

 

 

 

 

stock. The counter

budget Kshs.10, 000

Karlamoja who have

 

 

 

 

should have shelves

to Kshs.50, 000 for a

experience in bar

 

 

 

 

from where to display

standard counter. If

 

interiors

 

 

 

 

 

the drinks. Again the

you want something

 

0722 329544 Email :

 

 

 

 

size of the counter will

fancy and larger it will

[email protected]

 

 

 

 

depend on the setting

definitely cost more.

 

Website :

 

 

 

 

 

of your bar. Have a

 

 

www.karlamoja.co.ke

 

 

 

 

counter that can have

 

 

 

 

 

 

 

 

some room for

 

 

 

 

 

 

 

 

maneuverability, a

 

 

 

 

 

 

 

 

cash box and stock.

 

 

 

 

 

 

 

 

Good counters are

 

 

 

 

 

 

 

 

friendly rather than

 

 

 

 

 

 

 

 

intimidating

 

 

 

 

 

 

 

 

fortresses.

 

 

 

 

 

 

Signboard

 

You need to make the

Price will depend on

 

- Local

 

 

 

 

 

presence of you

size and design.

 

signboard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wines and Spirits

Range Kshs.4000 for

crafts people

 

known. A signboard

a simple LED

 

 

will help you do that.

signboard to Kshs.80,

 

 

In every major town

000 for more

 

 

there are people

advanced signboards.

 

 

making signboards.

Budgeted at least

 

 

Go round town see a

Kshs. 10,000

 

 

signboard you like,

 

 

 

and then look at the

 

 

 

bottom, you will often

 

 

 

see the contact of the

 

 

 

person or company

 

 

 

who made it. If you

 

 

 

can’t get one ask the

 

 

 

many who do rubber

 

 

 

stamps, they will likely

 

 

 

know someone who

 

 

 

makes signboards.

 

 

 

LED lights can also

 

 

 

be used though

 

 

 

sometimes they are

 

 

 

not distinct enough to

 

 

 

attract customers.

 

 

Fire Extinguisher

This is for your own

Price will depend on

There are various

 

protection and as a

the size, brand and

companies that

 

legal requirement.

supplier but ranges

supply fire

 

Many county

between Kshs.6000

extinguishers.

 

governments will

and Kshs.10,000

However to be on the

 

insist on having a fire

 

safe side ask at the

 

extinguisher in your

 

fire department from

 

premises.

 

which company to

 

 

 

purchase from. There

 

 

 

have been cases

 

 

 

where a business

 

 

 

owner has purchased

 

 

 

a fire extinguisher

 

 

 

only for the county

 

 

 

officials to say the

 

 

 

company from which

 

 

 

she purchased from is

 

 

 

not authorized.

To insist the above are basic items with which you can start a bar business. But as you will see below (under capital) there could be extra items depending on how you set the bar.

A crude rule of the thumb, don’t have a wall clock that customers can easily see despite the aesthetic temptation of having one on every wall. As cruel as it may sound you don’t want your customers to be conscious of time; you want them to let loose and indulge to your advantage. True they have phones and watches but nothing beats a wall clock that screams time.

Capital

 

Item

 

 

Breakdown

 

Total

 

 

 

 

 

 

 

(Kshs.)

 

 

 

Licenses

 

 

 

 

 

 

 

 

 

 

 

Alcoholic Drinks License

 

 

1

 

50,000

 

 

Single User Business Permit

 

 

1

 

10,000

 

 

Public Health License

 

 

1

 

3000

 

 

Signboard License

 

 

1

 

2000

 

 

Medical Certificate

 

 

1

 

500

 

 

MCSK

 

 

1

 

6000 (est)

 

 

PRISK License

 

 

1

 

6000 (est.)

 

 

Fire Inspectorate

 

 

1

 

1500

 

 

NEMA

 

 

1

 

3000

 

 

Business Registration

 

 

1

 

1500

 

 

Licenses Misc ( Bribes etc)

 

 

1

 

5000

 

 

Sub Total

 

 

 

 

88,500

 

 

 

 

 

 

 

 

 

 

 

Equipment

 

 

 

 

 

 

 

 

 

 

 

 

Chairs (Plastic)

 

 

50 @ Kshs.700

 

35,000

 

 

Tables

 

 

15 @ Kshs.3000

 

45,000

 

 

TV

 

 

1

 

40,000

 

 

DSTV

 

 

1

 

15,000

 

 

Music System

 

 

1

 

30,000

 

 

Fire Extinguisher

 

 

1

 

6000

 

 

Glasses , Trays, Flasks , Plates and other cutlery

 

All

 

20,000

 

 

Counter & Shelves

 

 

1

 

25,000

 

 

Signboard

 

 

 

 

10,000

 

 

Sub Total

 

 

 

 

226,000

 

 

 

 

 

 

 

 

 

Stock

 

 

All

 

200,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premises

 

 

 

 

Rent

2 months deposit + 1

 

105,000

 

month rent. Will depend

 

 

 

on location. (@

 

 

 

Kshs.35,000 per month)

 

 

Renovation and Remodeling

Repainting and any

 

30,000

 

branding

 

 

Sub Total

 

 

135,000

 

 

 

 

Working Capital

 

 

 

 

 

Salary

3 months @ Kshs.8000

 

120,000

 

per month for five

 

 

 

workers

 

 

Electricity

3 months @ Kshs.4000

 

12,000

 

per month

 

 

Water

3 months @ Kshs.1400

 

42,000

 

per month

 

 

Security

Kshs.15,000 per month

 

45,000

Miscellaneous ( Police/ Authorities take, transports,

3 months @ 5000 per

 

15000

airtime etc )

month

 

 

Sub Total

 

 

234,000

 

 

 

 

 

 

Grand Total ( Adding all the above sub totals)

 

 

883 500

The above are estimates based on some case studies. The figure could be higher or lower based on you sitting capacity, the type of equipment you go for, whether you decide to have working capital or not, the stock and variety you decide to start with and other such factors.

Thus there could be extra costs not captured above. These could include:

Rent – If you are leasing the space where to set up your bar you could be required to pay up to three months in advance.

Legal fees – You could need a lawyer when signing lease documents or if you decide to trade as a company and you need company registration services.

CCTV - If you decide to have CCTV then you will factor this as a cost. The exact cost will depend on the professional, how many cameras you need, the size of your building, quality and some other such factors.

Interior design – You can decide to hire a professional designer to set up your bar. The cost will vary with the designer and exactly what you want. Budget at least Kshs.30, 000 for design services only, but more if you want a whole package where the designer not only does the design but does the actual set up.

Cash Register - If you decide to have one or tax law require you to have one.

Communication and transport

Employee uniform - Not all bars require employees to have uniforms, but it is a good practice. Some bars will have employees bring their own uniform while others will purchase the uniforms for the workers. Budget at least Kshs. 2000 per employee.

Freezers and Refrigerators – Freezers are for storing food such as chicken or even beef. A freezer costs at least Kshs.40, 000. Refrigerators are for keeping the drinks cold. Though brewers and soft drink companies provide refrigerators sometimes its not immediate and you need to have your own meanwhile.

Kitchen supplies

Ventilation (Fan)

Servicing Loan

Cooking equipment (if you have kitchen)

Wi-Fi – If you decide to offer your customers free wifi.

Golden Rule of Capital – Have at least twice amount of money you budget to start a bar. This is more so for bars with larger sitting capacity. There will be incidentals, unforeseen issues. Running a bar on a shoestring budget is not only difficult but most likely to lead to failure.

Key Steps When Starting a Bar

1.Identify location : Consider – Population, Income, Competition, Trends, Local authorities ( See location pointers)

2.Identify Premises – Consider renovation you need to do, location of the building Vis a Vis competition, accessibility, visibility, lease terms, noise pollution effects and size. ( See premises pointers )

3.Apply for licenses – Make sure premises at least has toilets, water and a sink.

4.Renovation - With provisional license or assurance you will be granted one start renovations and setting the bar to the tastes of the customers you hope to attract.

5.Equipment – Purchase the necessary equipment like chairs and tables. Shop around for the supplier offering the best deal.

6.Staff – Hire waiters, cashier, security, cooks and other staff.

7.Establish Management Systems

8.Stock

9.Market

10.Open the doors

Factors To Consider When Purchasing a Bar

Security of tenure

Most large bars with over 100 people sitting capacity operate under a lease. This is the legal right that allows the business to trade, so you need to make sure it's secure. Whether it's an assigned lease or a new one, make sure a property lawyer handles the transaction. Make sure that there is a sufficient lease term for you to recover and profit from your investment and if possible additional time to allow a future purchaser to do the same.

In an assigned lease, make sure that there are no outstanding breaches and there are no clauses that can unreasonably restrict your ability to do what you plan to do. Make sure that the business also has legal rights to use public spaces like footpath dining, parking and strata/lease guaranteed access to common areas, storage and toilets.

Outstanding legal issues

Your lawyer should conduct a due diligence to uncover any legal issues that may exist against the property that could affect your ability to trade from the site. These may be

notices of planned street/footpath changes, district re-development plans, and demands to fix issues like kitchen exhaust, NEMA issues trade waste or by laws preventing you from making even minor changes to the property.

Profitability

This requires investigation into both the revenue and expenses of the business to establish a 'gut feel' about the profitability. 'Gut feel' because you aren't going to get a definitive nor guaranteed result in this area. Financial statements or tax returns for bars report past results and don't always include all the revenue earned by the business and may include expenses that you won't use (interest on loans, expenses of a personal nature), so they can only give you some guidelines as to potential future profitability.

Revenue

Ask as many questions as possible of the seller to help you better establish the metrics that make up the revenue. (i.e. average customer sales, weekly , monthly customer sales, number of customers served per day, good day's sales vs. bad day's sales, number of customers served per day, expenses such as salaries, consumer behavior total weekly goods purchases, weekly wages expense, revenue by category, revenue by category say beer, food, etc).

Take the figures to someone with experience in the business or an accountant experienced in this industry and they should be able to estimate the current revenue of the business and advice appropriately. Make sure you also conduct a 2 weeks due diligence to verify the revenue claimed by the seller

Expenses

The two big expenses to identify are rent and salaries. Rent is identified on the lease agreement. Divide this amount by the revenue for a corresponding period to establish the rent as a % of revenue.

A rule of the thumb is that in a busy bar this % could be as high as 14% and should be closer to 8% in slow revenue locations.

Ask about the payroll and work roster to see the hours worked and the positions filled. Make sure the working owner/manager's hours are included to establish the true labour costs. Divide this total labour costs by the revenue for a corresponding period to establish the wages as a % of revenue. In a very busy location this could be in the 20- 25% bracket and in the 30-35% in the slower owner operator locations. Please note this is just a rule of the thumb and use the information you gather to judge and make a decision.

Asking price

First ask the current owner why they are selling. Maybe they know something about the business prospects that you don't or are doing so for personal reasons. Now if the tenure is long and secure, there are no legal impediments and the profitability looks sound, then check that the price asked by the seller reflects the profit potential of the business.

Another rule of the thumb is that you should be looking for a minimum of 40% annual return on the asking price without factoring in labour costs. So divide the asking price by

2.5and see if that equates to the annual budgeted profit calculated by your accountant or experienced operator. If it doesn't, then start your negotiations, otherwise proceed.

Equipment

Check the current state of all the equipment and ensure that it is in good working order, otherwise negotiate the asking price. Check service records and ask about the age and past problems with equipment. Check the operation of the expensive items like the air- conditioning and kitchen ventilation system if applicable. Verify the ownership of all equipment (i.e. owned, leased or landlord's). Here you are looking for potential areas of costly repair in the future and to make sure you get what you paid for.

Staffing

It may be good business to keep existing staff if they are fundamental to the goodwill of the business. Changing a well established and well liked barman or waiter may cause you to lose the very business you paid for in the goodwill. On the other hand, a change in this area may be what is required to restore profitability to the business. You need to engage with the staff as a 'silent customer' in the early days and in face to face discussions as the buying day approaches to make this important decision.

In summary consider:

Why are they selling

Is this a sale of the entire business, or is it a sale of assets?

Is the liquor license included?

If you plan to remodel, what are you allowed to do?

What are the financials, customer base, foot traffic, sales history? What are the customer demographics? This is all very important if you plan to continue. If you plan a new concept, it is still useful to know the nearby customer base

Are there any known problems with crime, landlord disputes, flooding, noise, neighborhood nuisances, reliable utilities, pests, neighbor complaints? Unlicensed improvements? Any outstanding government issues, investigations, or inspection issues? Any repairs needed? Known disputes and lawsuits? Upcoming compliance requirements?

Is the bar in bankruptcy?

Do all of the owners agree to the sale? Are there currently any disputes among owners?

What assets are included in the sale: equipment? Furniture? stock? smallware? Goodwill? Customer lists? Are there any liabilities, claims, or known defects or issues with these assets? Are any under warranty (and is that transferable)?

What debts if any, go with the sale? Is any money owed on the lease, equipment, vendor debts, tax debts, and payroll? What debts are not included in the sale and what provisions is the seller making to cover them?

What leasehold improvements have been made, including constructions and fixtures? Who is responsible for keeping them up? Does the landlord own them? Do they have to be removed on lease termination?

Has the landlord agreed to the sale / transfer? What kind of approval process will be required? Are there any other agreements or permits that will require transfer?

Revenue

As we look at revenue here are some average wholesale and retail prices the most consumed beers. Though we focus on beer there are other alcoholic drinks like wines and a variety of spirits.

Every year since 2013 there are two to three price revisions.

Sample Wholesale and Retail Beer Prices (December 2015)

The prices below are from a distributor in Nairobi after new excise tax rates were gazetted towards the end of November, 2015. Please note both the wholesale and retail prices could differ slightly depending on the location, distributor and bar. Retail prices are based on one of the bars we used as a case study.

 

Alcohol (Beer)

Category

Pack size

Number of

Buying

Selling price

 

 

Brand

 

(ml)

units in a

price per

per bottle

 

 

 

 

 

case

case (Kshs)

(Kshs)

 

 

 

 

 

 

 

 

 

 

 

Tusker Lager

Mainstream

500

25

3,165

 

180

 

 

 

 

 

 

 

(170 – 200)

 

 

 

 

 

 

 

 

 

 

 

Pilsner Lager

Mainstream

500

25

3,165

 

180

 

 

 

 

 

 

 

(170 – 200)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Guinness

Premium

500

25

3,615

200

 

 

 

 

 

 

Whitecap

Premium

500

25

3,390

200

 

 

 

 

 

 

Whitecap Light

Premium

300

25

3,165

170

 

 

 

 

 

 

Balozi

Mainstream

500

25

2,940

150

 

 

 

 

 

 

Allsops

Mainstream

500

25

2,512

130 -150

 

 

 

 

 

 

Tusker Malt

Premium

330

25

3,068

200

 

 

 

 

 

 

Tusker Lite

Premium

330

25

3,068

200

 

 

 

 

 

 

Guinness Small

Premium

300

25

2,940

180

 

 

 

 

 

 

Alvaro

Non –

330

25

1,305

80

 

Alcoholic

 

 

 

 

 

 

 

 

 

 

Tusker Malt Can

Premium

500

24

4,120

200

 

 

 

 

 

 

Tusker Lite Can

Premium

500

24

4,120

200

 

 

 

 

 

 

Whitecap Can

Premium

500

24

3,471

200

 

 

 

 

 

 

Guinness Can

Premium

500

24

3,687

200

 

 

 

 

 

 

Tusker Can

Mainstream

500

24

3,255

200

 

 

 

 

 

 

Pilsner Can

Mainstream

500

24

3,255

200

 

 

 

 

 

 

Windhoek

Premium

330

24

4,120

200

 

 

 

 

 

 

Smirnoff Ice

Premium

330

25

4,120

200

 

 

 

 

 

 

Smirnoff

Premium

500

24

4,120

200

Guarana

 

 

 

 

 

 

 

 

 

 

 

Snapp

Premium

330

25

4,120

200

 

 

 

 

 

 

Summit

Mainstream

500

25

2500

170

 

 

 

 

 

 

Soda

Non -

500

24

900

80

 

Alcoholic

 

 

 

 

 

 

 

 

 

 

Soda

Non -

300

24

480

50

 

Alcoholic

 

 

 

 

 

 

 

 

 

 

Retail prices vary from one local bar to another with prices differences of between Kshs. 10 and Kshs. 30. Certainly there are bars which charge much more but such now do not fall exactly in the realm of local. It an obvious fact that no urban bar follows brewers recommended prices.

For instance in December, 2015 EABL adjusted prices upwards after the government revised excise duty rates. After the amendment the recommended price of a Tusker as given by EABL was Kshs.140, but even before December the average price of a Tusker was Kshs.150. After the adjustment the price ranges between Kshs. 170 and Kshs. 200.

The recommended prize of Balozi is Kshs.130 but no bar sells below Kshs.150. Snapp is supposed to sell for Kshs.130 but was selling at Kshs.170 even before December, after which it averages Kshs.200.

Brewers supply alcohol to bars at more or less the same wholesale price. However pricing of beer at the retail level is unregulated. Realistically pricing is determined by:

Competition – Where several bars are located in the same neighborhood and none is particularly differentiated then the bars will tend to charge the same price.

Branding – Does the bar brand as an upscale outlet? Does it want to attract and keep away a certain class of consumers and thus charge a higher or lower price to do this?

Location – Bars in the central business districts and urban centers tend to charge more when compared to bars on the outskirts and peri-urban areas. Partially this is because expenses such as rent are relatively higher. Again urban bars have realized that even with slightly higher prices there is a pool big enough of consumers who could be willing to pay, unlike in peri urban estates and rural areas.

Demographics – The income of a majority of the residents in an area could determine how a bar prices. If the income is high price could be above average and vice versa.

Target margins – The profits that you are targeting and how fast will also influence how you price.

The Value You Attach to Your Bar - People aren't just buying the drinks, they're buying the experience and the entire atmosphere. If you feel you are attaching a higher value, and most important customers appreciate the value then you can charge a premium.

So how much should you price your products? As a rule of the thumb when starting a new bar in the neighborhood price average where average means the standard price among equivalent bars in the location. Consumers in the estates are reluctant to pay a premium unless there is a good reason for it. Newness is not a reason good enough, at least nowadays where there are options and novelty is no longer an attraction like it used to before.

Still if as stated above you are offering a higher value either in terms of the atmosphere, setting, facilities, such as televisions, entertainment, company and such. Value customers appreciate then you can charge a small premium. Don’t make the premium so high. An alternative is to

offer higher value but at the standard prices. One of the rather successful bar chains in, Signature has been aiming at decent service and décor but a relatively small premium above standard prices.

Revenue Scenarios

To get an idea of revenue in the bar business we give some case studies based on actual sales and averages in several bars.

 

Revenue Scenario One

Location

 

Along the Northern By-pass, on the

 

 

31kilometers stretch from Ruiru to Kahawa

 

 

with bars largely distributed and

 

 

concentrated all through to the Eastern By-

 

 

pass.

Sitting Capacity

 

150 People

 

 

 

Date Started

 

October 2014

New Bars

 

Between August 2014 and December 2015

 

 

up to seven 100 plus sitting capacity bars

 

 

have been opened within about 300 meters

 

 

radius.

 

 

 

Offering

 

The bar sells alcohol and food, with the main

 

 

item being beef and goat meat.

Parking

 

Space for about 60 cars

 

 

 

Staff

 

Main staff manager, bar supervisor, food

 

 

supervisor, 8 waiters in a single shift, 2

 

 

security guards, one DJ and a cashier.

Target Customers

 

Consumers 30 years and above. Actual: 27

 

 

– 50 years.

Hours of Operation

 

24 hours, everyday of the week. At night it

 

 

closes when there are no more customers.

 

 

 

Rent

 

Kshs. 40,000 per month, on a 5 year lease.

 

 

 

 

 

 

 

 

Sales ( Beer)

 

 

 

 

 

Actual Sales on a Tuesday, second week

231 Beers

 

 

 

 

of November 2015

 

 

 

 

 

 

Average Sales

 

Monday to Thursday: Average 8 beer

 

 

 

 

crates per day. Range 4-10 crates. Soda - 6

 

 

 

 

crates.

 

 

 

 

 

 

Friday to Sunday: Average 24 crates every

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

day. Range 19 to 35.

Soda: 25 crates. Range 20 to 30

Average Revenue

From the price table above you will see beer prices vary. The bar sells mainstream beer at Kshs.180.

Taking the price, Kshs.180, as the mean, and an average sales of 8 crates Monday to Thursday then that amounts to beer revenues of 8 *25*180 = Kshs.36,000 every week day. ( 8 Crates, 25 beers per crate and Kshs.180 per beer)

With the average of 24 crates per day Friday to Sunday that averages 24*25*180 = Kshs.108, 000 for every weekend.

Keeping everything constant the total beer revenue per month will be 36,000 *4 (Four days – Mon – Thu) *4 Weeks + 108,000 * 3 (Fri to Sun) * 4 weeks =

Kshs.576, 000 + Kshs.1,296,000 = Kshs.1,872,000

At a price of Kshs.180 the average margin say for a Tusker is 42 %. Using this for illustrative purposes, on revenue of Kshs.2, 460,000 the monthly gross profits from beer alone is Kshs786, 240. Too good? Let’s explore further.

Below are staff costs of the bar. The costs are within the average in Nairobi for such bars. In the county headquarters a waiter is paid between Kshs. 8000 and Kshs.10, 000

 

Employee

 

Number

 

Salary (Kshs)

Monthly Total

 

 

 

 

 

 

 

(Kshs.)

 

 

 

 

 

 

 

 

 

 

 

Manager

 

1

 

22,000 per

22,000

 

 

 

 

 

 

month

 

 

 

 

Supervisor

 

1

 

16,000 per

16,000

 

 

 

 

 

 

month

 

 

 

 

 

 

 

 

 

 

 

 

Waiter

 

8 per shift

 

Kshs

192000

 

 

 

 

 

 

Ksh400 per

 

 

 

 

 

 

 

 

day

 

 

 

 

 

 

 

 

 

 

 

 

Security guard

 

2

 

Ksh500 per

30,000

 

 

 

 

 

 

day

 

 

 

 

 

 

 

 

 

 

 

 

Cashier

 

1

 

Ksh14,000 per

14,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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month

 

 

 

 

 

Accountant

1

Ksh21,000 a

21,000

 

 

month

 

 

 

 

 

Bouncer

1

Ksh800 during

19200

 

 

weekend,

 

 

 

Kshs.600

 

 

 

other days.

 

 

 

 

 

DJ

1

Ksh2,000

24,000

 

 

(Friday and

 

 

 

Saturday and

 

 

 

Sunday )

 

 

 

 

 

Total

 

 

338200

 

 

 

 

Item

Cost (Kshs)

 

 

Salaries

338200

 

 

Rent

40,000

 

 

DSTV subscription

10,000

 

 

Electricity

5,000

 

 

Charcoal

7,200

 

 

Maintenance and Repair

6200

 

 

Authorities

5000

 

 

Electricity

5,000

 

 

Water

1200

 

 

Miscellaneous

12000

 

 

Total

429800

 

 

Gross Profit = Kshs.786240 - Kshs.429800 = Kshs.356440

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There could be other expenses such as:

Taxes (See our small business tax guide to get a good idea of how much you are likely to pay in taxes)

Loan repayments

Maintenance

And other costs that could vary from month to month.

In reality the bar made Kshs. 318,670 in net revenue (excluding tax) from beer in November 2015.

Please also note we have only included revenue from beer. This particular bar keeps different accounts for beer, spirits and wine, soft drinks and food.

 

 

Revenue Scenario Two

 

 

 

 

 

 

 

 

 

Location

 

Embu town, along the main street.

 

 

 

 

 

 

 

 

Sitting Capacity

 

120 people - The bar is on the first floor of

 

 

 

 

building but set in such a way that there is an

 

 

 

 

enclosed area, a balcony and a verandah

 

 

 

 

where there are tents. During the day the

 

 

 

 

verandah area is more of a general hotel, but

 

 

 

 

at night it serves as part of the bar.

 

 

 

Date Started

 

The bar was opened in 2012, and though

 

 

 

 

the ownership has remained the same there

 

 

 

 

have been two drastic changes in the

 

 

 

 

 

management of the bar. At first the bar

 

 

 

 

branded itself as an everyone local pub, then

 

 

 

 

shifted to a more higher end, at least by

 

 

 

 

price

above average bar, before shifting

 

 

 

 

back to a mid level bar with average prices.

 

 

 

 

Present management has also been keener

 

 

 

 

on service and rather than letting employing

 

 

 

 

anyone as a waiter despite academic

 

 

 

 

 

qualifications they has been a bias towards

 

 

 

 

those professionally trained in hospitality.

 

 

 

 

This aimed at improve service.

 

 

 

 

 

 

 

 

New Bars

 

The nearest bar is about 30 meters away.

 

 

 

 

And there are six bars within a 100 meters

 

 

 

 

radius, all with a capacity of at least 70

 

 

 

 

people. The bar has ten self contained

 

 

 

 

lodging rooms charging Kshs.800 per day.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Offering

 

The bar largely sells alcohol. It has also has

 

 

 

 

a food section with the trademark meal being

 

 

 

 

chicken and ugali. There is also the usual

 

 

 

 

chai and mandazi, and pilau.

 

 

 

 

 

 

 

 

Parking

 

There is no designated car park for the bar.

 

 

 

 

However there are enough parking spaces at

 

 

 

 

night in the section of the town where the bar

 

 

 

 

is located.

 

 

 

 

Staff

 

Main staff manager, bar supervisor, food

 

 

 

 

supervisor, 8 waiters in a single shift, 2

 

 

 

 

security guards, one DJ and a cashier.

 

 

Target Customers

 

27 years to 45 years. They are the actual

 

 

 

 

customers.

 

 

 

 

Hours of Operation

 

The bar essentially operates for 24 hours but

 

 

 

 

in reality closes when there are no more

 

 

 

 

customers, which is usually around 1AM in

 

 

 

 

such a case the bar opens the following

 

 

 

 

morning at 6 AM.

 

 

 

 

 

 

 

 

 

Rent

 

The building belongs to the owner of the bar.

 

 

 

 

 

 

 

Staff

 

8 waiters, 4 cooks, 1 manager, 2 cashiers, 1

 

 

 

 

store keeper ,1Accountant , 2 counter

 

 

 

 

bartenders, -2 watchmen , 2 Cleaners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales ( Beer)

 

 

 

 

 

Actual Sales on a Tuesday, second week

133 Beers

 

 

 

 

of November 2015

 

 

 

 

 

 

Average Sales

 

Monday to Thursday – Average 5 crates

 

 

 

 

per day. Range 2 -6 crates

 

 

 

 

 

Friday to Sunday: Average 11 crates every

 

 

 

 

day. Range – 8 to 15 crates

 

 

 

 

 

In December, 2015 the bar was selling

 

 

 

 

Tusker at Kshs.170, Tusker Lite at Kshs.200,

 

 

 

 

and Snapp at Kshs.170.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Revenue

 

 

 

 

From the table above you will see beer prices vary. The bar sells mainstream beer at

 

 

Kshs.170.

 

 

 

 

 

 

Taking the price, Kshs.170, as the mean, and an average sales of 5 crates Monday to

 

 

Thursday then that amounts to beer revenues of 5 *25*170 = Kshs.21,250 every week

 

 

day. ( 5 Crates, 25 beers per crate and Kshs.170 per beer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With the average of 11 crates per day Friday to Sunday that averages 11*25*170 = Kshs.46750 for every weekend day.

Keeping everything constant the total beer revenue per month will be Kshs.21,250 *4 (Four days – Mon – Thu) *4 Weeks + Kshs.46750 * 3 (Fri to Sun) * 4 weeks = Kshs.340, 000 + Kshs.561, 000 = Kshs.901, 000.

At a price of Kshs.170 the average margin say for a Tusker is 32 %. Using this for illustrative purposes, on revenue of Kshs.901, 000 the monthly gross profits from beer alone is Kshs.306, 340.

The bar’s monthly wage bill is Kshs.230, 000. Please note we have not included revenue from food and accommodation.

 

Revenue Scenario Three

 

 

 

 

 

 

 

 

 

 

Location

 

Residential area in Machakos town

 

 

 

Sitting Capacity

 

19 people

 

 

 

 

 

 

 

 

 

 

 

Date Started

 

2013

 

 

 

 

Other Bars

 

The bar is located on the ground floor in a

 

 

 

 

residential area. There are 8 small and

 

 

 

 

midsized bars within a radius of about 150

 

 

 

 

meters. The residential area is a mix of low

 

 

 

 

income eaters, hostels, mid class, one

 

 

 

 

rooms serving students of a nearby college

 

 

 

 

with over 2000 students.

 

 

 

 

 

.

 

 

 

 

 

 

 

 

 

 

 

Offering

 

Alcohol only

 

 

 

 

 

 

 

 

 

Parking

 

The bar has no reserved parking space. Also

 

 

 

 

most customers come on foot.

 

 

 

Staff

 

Owner plus one waitress

 

 

 

Target Customers

 

25 years and above

 

 

 

Hours of Operation

 

5PM to 11PM

 

 

 

 

Rent

 

Kshs.11, 000.

 

 

 

 

 

 

 

 

 

 

Salary

 

1 Waitress @ Kshs.7000

 

 

 

 

 

 

 

 

 

Sales ( Beer)

 

 

 

 

Actual Sales in November 2015

 

Kshs.187,300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Sales

 

2 crates (Sometimes the sales are just

 

 

slightly over a crate, but at least a crate

 

 

is sold every day)

 

 

Sales on weekends – 4 crates (from

 

 

Friday to Sunday there are at least two

 

 

crates each day)

 

 

The bar sells Tusker at Kshs.160

 

 

 

 

 

 

Total Expenses

 

Kshs.11, 000 (Rent) + Kshs.7000 (Waiter) +

 

 

Kshs (700) +Electricity (Kshs.1200) +

 

 

Miscellaneous (6500) – (Includes police,

 

 

occasional casual work) = Kshs.23400

 

 

 

 

Average Revenue

Actual Revenue in November – Kshs.187,300

Gross profits – Kshs.54, 317

Total expenses – Kshs.11, 000 (Rent) + Kshs.7000 (Waiter) + Kshs (700) +Electricity (Kshs.1200) + Miscellaneous (6500) – (Includes police, occasional casual work) = Kshs.23400

Net profit – 54317-26400 = Ksh.19917

Revenue - Observations

The margins in the alcohol business range between 25 % and 45 % depending on the kind of drink and the pricing of the particular bar. (Refer to the prices table above) A bottle of beer will make at least Kshs.20 in gross margins, while the average intake per customer at a sitting is four beers.

Despite the attractive margins bar business fail, get into debt, struggle to survive and eventually close down. There is an average of four bars advertised for sale in newspapers every week, and an average of 9 in online forums such as OLX and Facebook business groups.

There are various reasons why bar business fail and this will become clear below.

From the above figures it would seem that the possibilities of losses in a bar business are minimal if at least you proportionately sell a crate for every 20 people sitting capacity. But

you have to keep in mind the scale and costs of the bar. Also note that sometimes there are extreme peaks in the business. To illustrate the Embu bar above sometimes sells just a crate or slightly less in a day. And the weekends sometimes do not peak fully until the end and start of the month.

In Nairobi and bigger urban centers the population is higher, income sources diverse and thus keeping everything constant bars are able to hit the average daily sales.

Using the above first case study we can work in reverse to see what is needed monthly to meet all costs.

The total monthly costs are Kshs.429, 800. The owner needs to at least make gross profits of Kshs.429, 800 every month to meet costs. Taking lower margins of 35%, then to make Kshs.416, 000 you need to make sales of Kshs. 1,228,000 per month just to break even. Assuming an average price of a beer at Kshs. 180 then he will need to sell 6822 bottles of beer, this amounts to about 273 crates, or an average of 9 crates daily, which is at least 40 customers daily. Of course we haven’t taken food into account.

The bar does not consistently sell 9 crates a day sometimes they sell as low as 5 and or hit extreme peaks during the weekends. To mitigate against unexpected staff costs when there are low sales the bar does not employ waitresses on a permanent salary basis, rather they treat them as casual workers, paying them daily and calling them when need be.

A minimum of 8 crates in a day could seem low but it’s not automatic. There are bars which struggle to get to the minimum break even sales. Although the margins are attractive you have to work hard to achieve the minimum.

Breakeven Point

The breakeven point of a bar averages 11 months. Of course it could take slightly shorter or longer depending on other factors such as location, competition, service, pricing and the overall state of the economy.

For example if there exists a general ennui with the bars in a location, you know where people feel a little bored with what is on offer not because it’s terrible but they have been used to it for so long, a new bar will pull in customers .

Or if your bar has something exceptional say in entertainment, service, food or any other such factor. Don’t expect to make money in the first three months , so have enough working capital to run for at least three months, and if need be up to six months.

Those who have been in the bar business for long, advice that you should aim to make hay when the sun shines. Try to squeeze as much from your bar business within the first two to four years. The reason is that consumers are somehow fickle. Consumers could shift almost enmasse to another bar after certain duration without any very particular reason. This is more so for the bigger of the bars without the camaraderie of a local.

This does not mean that after the bar starts fading you can’t make money; you can but it requires more effort. On the whole bars rise to a high, get into a flat mode, and then start declining before selling out or closing down totally.

Some factors affecting revenue (and thus success or failure of your business)

The reasons that hold back the bar business cut across the board despite the size. These include:

Lack of enough capital to sustain until breakeven point – A bar will take an average of 9 months year to break even with some taking as long as 15 months. Though you could be making some money you need to have cash to meet fixed costs in case you don’t make enough sales. You need to be able pay rent, salaries and continue restocking.

Some bars close down because they struggle to pay workers and rent. Others use money meant for stock to pay rent and salaries which results in either a limited variety of drinks or stock runs out while customers are waiting. Such a bar acquires a bad reputation which is a big step to failure.

Even with the popularity of football some are not able to pay the monthly DSTV subscription meaning they are at a disadvantage compared to the neighborhood bars showing sports.

It takes just a few missteps for the bar to get a bad reputation. At the minimum have enough money to sustain the bar for at least three months. Remember there will also be many unexpected costs even when the bar starts to run. Guard against cash flow problems especially in the first few months.

No need / Opportunity – A cliché sayings is that Kenyans drink and eat a lot so there is no way that a bar or hotel business will fail. But that assumes there is no competition or other factors influencing success of the business. Success of a bar business will be influenced by the location, income, perceptions in the area and available alternatives in terms of competition.

Success will be a function of filling a need. Customers have to have a reason beyond

“testing out the new place” that will make people come to your bar.

When looking at the possibility of an opportunity in an area consider things like; the need, what exists in the market, what lacks in the market relative to other areas but is needed, strengths and weakness of existing players, where we will you come in? How

will you be different? Will it work in the location, is the timing right? (See attached feasibility guide which also applies in the bar business)

Props at the expense of service – Some entrepreneurs spend much on the setting, props like TV, trendy chairs, décor and such. The plan is to get into the market ahead of the rivals in terms of facilities. This is supposed to attract customers, which it does at times. Still some entrepreneurs will invest so much in the props and forget to invest in staff.

However good the facilities are if the service is not up to standard customers won’t keep coming back, and word spreads fast. Although you might attract initial walk in customers, and continually do so if you are located in a strategic place. But local bars grow and survive on repeat customers. A new bar will attract some customers because of its newness (“Let's try this new place”) but when then novelty fades the bar has to be sustained d by a reputation of what it actually is.

Keeping up with trends – Trends in the bar business keep changing. If you start a bar which revolves around a particular trend only and the trend goes out of fashion then customers move to the next big thing. One way to beat this is to keep the local simple, relevant and not at any extremes of trends; good music, sports if need be, and great service; those will not go out of fashion any time soon.

Poor food – First if you don’t have food you will be at a disadvantage. You don’t have to have a fully fledged kitchen if resources and space don’t allow. But think of it this way people get hungry as they drink especially if they got into the bar early or are staying till late. If they don’t have something to bite even simple snacks then the hunger will overwhelm and they will reduce the quantity of alcohol they drink or go out looking for food, and once they leave they are not likely to come back.

If the bar next door has food, drinks and service as good or better than yours then they may never return to your bar unless for that late night drink.

On the other hand if you decide to have food make it average or above average. Whereas the main purpose customers will come to your bar is to drink if you serve them shoddy food your business becomes “the bar with bad food”, gradually this status makes existing and potential customers avoid your bar as much as they may enjoy drinking there.

You can use food to differentiate and attract customers. It has been done very successfully. Coming up with something unique and tasty relative to the competition. There was a bar in Ongata Rongai which gained fame for its matumbo fry, which was not only delicious but no one in the vicinity was selling. There is the bar in Kahawa Wendani which serves specially cooked arrow roots with beef and another in Ruaka with masala pork of sorts. Don’t underestimate the power of food in

- Mismanagement , Poor supervision, Employee theft – As straightforward as a bar business looks there are several variables which if not managed well lead to theft, poor services and losses. This is more so for large bars. Due to relatively poor pay when compared to the work involved some bar employees are always on the lookout for an opportunity to swindle the owner. Some are just greedy and dishonest. (Please note there are good workers in the bar business)

It gets worse if a first time inexperienced owner decides to manage the bar himself or leaves it to a dishonest manager. Possibility of theft includes falsified stock, understating sales, over pricing, under measuring tots (See Theft Section below)

If you are not practiced get an experienced manager you can trust. Some bar owners install CCTV cameras at the counter, store and other cash points. In reality an owner can’t review all the footage, but these acts as deterrents. On the flip side the cameras could be de-motivating to the employees if they feel mistrusted. Thus they actually become dishonest and look for ingenious ways to beat the surveillance system.

Random stock taking also helps. You need to supervise and motivate waiters. There are times when left on their own some waiters become sloppy. The best way is not to totally instill fear but use a carrot and stick sort of management. Have some non bureaucratic structures in terms of stock taking, restocking, ordering, accounting, processes and supervision. Review the structures as need be. Deterring is the best way to prevent theft.

No clear Target Market – Ideally a bar is open to all who want and can afford to buy a drink. But you should have a core customer base, and seek to meet the needs of those customers. For instance if you expect most of your customers to be driving then think of where they will park.

If you are expect many of your customers to be of a particular tribe then think in terms of music and any particular cultural habits. Be sure who your target customer whether in terms of age, income, habits etc and fit your club to their needs.

During this research we observed a number of small and midsized urban bars which are going against the trend to play loud ‘latest’ music, rather opting to play country music in

the background giving room for patrons to have conversations. Thus they attract a very particular kind of customer. One bar, in Embu, has been doing that for years and for that simple reason ahs managed to keep a loyal older clientele.

Mediocre DJ – A poor DJ who doesn’t understand the tastes of the customers is enough to drive customers away. This is actually underestimated but it has happened. It happens gradually. A customer comes today, the music is lousy and he hopes it will be better tomorrow, the next day it’s worse and slowly you lose him and his friends. Get a DJ who understands your target customers and who is not just playing personal favorites which might be at odds with the majority of customers.

Hotel Mismanagement - If you have a fully fledged food section make sure it’s properly managed as much as you may view it as an aside in the business. Losses in the hotel section could be as a result of spoilage, purchasing and accepting bad deliveries, inexperience and food preparations that lead to wastage. Also make sure there is a good relationship between the front which receives orders and the back which prepares the food. Have an experienced and level headed person to manage the kitchen.

Things to Keep In Mind

Bar patrons will have a favorite bar, you know the real local in the mtaa where they feel at home, but their loyalty is not absolute. They could shift for a variety of reasons. If a friend introduces to some much ‘better’ place. People also shift from a local if service is poor; waiters become greedy and start overcharging, being rude, or other such silly reason.

Consumers don’t just drink at one bar however good it is, they will oscillate between two or so bars. Often during weekends they are likely to move to where they think they will have the most fun either because of friends, music or whatever else. Never ever think you have even your most loyal customers under key and lock. Always keep them happy and coming back.

The larger the bar the more impersonal it is, and the more erratic the customers are. You need to work harder to keep them loyal. More so if the patrons have to travel some significant distance to the bar.

If you start an ‘it’ back in the neighborhood you are most likely to last only for a certain limited duration before the next ‘it’ bar opens up and your customers move there. The duration could be as short as five months to as long as three years. An’ it’ bar also means you have to invest a lot in terms of ambience, facilities and so forth. If low on capital or not very sure how to brand, start a bare knuckles but decent bar with good service, fairly priced drinks , televisions and good music. Sometimes an ‘it’ bar becomes nothing more than the place to ‘top up’, that is where consumers , especially the younger ones, will go to have one beer after drinking almost enough of hard liquor in

other ‘kawaida’ bars in the neighbourhood. An ‘it’ bar is also likely to attract the crowd that sips one 300ml Krest for two football matches.

Don’t underestimate the importance of having a good relationship with the police or other local authorities. You don’t have to bribe them daily or at all but at least have a good relationship with them. Police in various locations have different systems with which they deal with bars. Some will ask for a daily fee, say Kshs. 200. Others will ask for a weekend fee: Friday, Saturday, and Sunday.

Others you have to occasionally spoil the police boss and his girlfriend or colleagues with beers and some nyama. In return for all this you get “protection “. Your customers won’t be harassed or arrested, robbers are warned to keep off and your place is not marked as a favorite den for criminals which should be shut down.

The fact is that as much as you follow all the rules, if senior police authorities’ wants to shut down your bar or make it hard for you operate it won’t matter, they can. Of course this does not mean you should allow them to extort and intimidate you.

Don’t underestimate the power of good employee training. Have some standards on service and waiter – customer dispute resolutions. . One incident of lousy service is enough to drive customers away. Still be conscious that there will always be sumbua; customers who for no good reason other that they are drunk will dispute bills and throw insults. Handle such customers in a firm and calm manner. In such cases it’s always advisable for the supervisor or manager to come in. The customer’s ego will be massaged, and he or she is likely to calm down. If such a situation escalates and starts interfering with the comfort of other patrons then escort the customer out. Avoid violence as much as possible.

While you must not necessarily invest in expensive décor and items, keep them to reasonable standards... Neither do you have to go for the cheapest nor the most expensive. Some bars are just open spaces with a roof above and chairs below. Just make the environment enticing for people to come, stick and spend.

Keep the toilets clean and decent no matter how simple and basic the bar is. At least have flushing toilets, a working urinal where the urine drains rather than blocks and air fresheners. This is also important if you hope to attract female patrons.

Be consistent. The quality of service or food should be the same or even better tomorrow as it is today. Even if staff changes the service should not go down, because you should have a philosophy you stick to as a business; the thing which makes customers subconsciously trust you and view you as dependable. This is what makes customers come back and your business to grow.

Location and Premises Pointers

Some of the relatively successful locals have established in estates and town centers with enough of the traditional small and midsized bars, and which are growing, attracting a relatively young working population (think of a 35 year bank manager), who doesn’t feel at home in the existing bars but is looking for something not very high but slightly above the local. This in terms of the crowd, space and entertainment.

Locations like malls have captive customers and are good keeping everything constant. But consider such in terms of the premium rent you will be paying and customers you are likely to attract. Such locations will also have more stringent conditions pertaining standards, noise pollution and customers you should allow in.

A successful bar already existing in the same neighborhood you want to set up is not a bad sign and should not discourage you. Take it as a good sign. Two to three bars next to each other are only partly in competition; they complement each other and turn a street or road into a destination. However this works if there is a good density of target consumers at the right time: a growing residential area full of the consumers you are looking for. ( For example Roysambu for relatively young working population who have been in employment for 1 -5 years )

In addition to proximity to the intended customer think of how easy it to get there, visibility and parking if necessary.

Keep in mind factors like traffic jams, construction, security and what an area is known for.

Location and premises quick checklist:

Local Trends - Different estates have hourly, daily, and seasonal trends. It helps to know them and to be familiar with a neighborhood.

Does it flood when it rains?

What is crime like?

What is the reputation of the estate – hip, low, high , middle class, college etc

What are the demographics?

Which is the dominate tribe?

Which are the significant minority tribes?

Should you brand your bar to attract the majority tribe or go for the niche in the small tribes?

For rental premises think:

How much freedom do you have to remodel the premises? What kind is possible and allowed by the owner?

Do you have access to facilities like toilet and water?

What does it look during the day and night? Is that what suits your target customers?

Does it leak when it rains?

Is it cold inside say by virtue of surrounding building or being in a basement?

Is it too hot? Say by virtue of location or being next to businesses generating a lot of heat (or smoke)... How will you correct that if that’s not what your customers want?

Is there room to set aside a smoking zone?

Are the lease terms good and landlord reliable?

Look at all possibilities before you commit yourself.

Differentiation in the bar business is not based on the products: A Tusker at bar J is the

same Tusker at Bar G. Differentiation is based on the experience that the bar offers: the service, the customers who come there, the food, the music, the setting and other factors like those.

Factors Influencing Revenue:

Location

Pricing

Branding – Target Market

Management

Cost Management

Operations

Service levels

Marketing

Older customers are regular but take almost the same number of drinks everyday (Say 4 or 5 beers everyday). Younger customers are not as regular and can go extreme lows or highs when drinking.Think of a chap who pops in and drinks 8 beers, but you don’t see him again for two weeks. He will come back and take Kenya Cane, then disappear for a week, and come back and take three beers.

Manpower

Average no of waiters

Capacity >30 – 2

 

30 -50 – 4

 

<100 – 7

Average Salary of waiter

8000

 

Range 6000 to 15,000

Average qualification

KCSE

 

 

Highest Qualification

Diploma

 

 

(Do also see the attached sample bar staff manual)

Certainly waiters are not the only employees in a bar. But we have used waiters because they are standard in every bar. When determining the number of waiters that you need consider the capacity of your bar and the actual number of customers that you are receiving.

When starting you won’t fill all the seats so hire a minimum efficient number of waiters and increase the numbers gradually as you win more customers. This way you won’t run a high wage bill relative to your revenue.

Often in the bar business labour laws are disregarded or not taken seriously enough. You will find bars where employees work for more than 8 hours in a day and with no overtime compensation, others are given only a day off in a month, others work with minimum wage and verbal contracts. In some places statutory fees such as NHIF, NSSF are deducted but not remitted to and other such issues.

There are no fast rules about this. But at the very least keep your employees happy without necessary hurting your bottom line. There are some common good (not best) practices. Give your employees at least one day off in a week. Though people can work for 12 hours and above continuously naturally they get exhausted and sloppy. This affects service. A common practice among bars which operate from morning till late, where late means when there are no more customers is to give waiters three hour breaks distributed throughout the day so that by the time business picks in the evening waiters are well rested. If there are not many customers some waiters are allowed to leave early.

Larger busier bars operating for 24 hours have waiters reporting in shifts. There will be the morning and night shift. This ensures the waiters are fresh as they serve customers.

Bars which operate within the actual Mututho hours 5pm to 11pm will have waiters reporting within those hours or slightly earlier so as to clean up and restock.

There are cases where waiters are paid the minimum and told to fend for themselves from the customers. Owners of such bars reason that with the right tactics a waiter will get enough tips from the customers to compensate for the low salary. It’s like they tell the waiters: By employing you here we have given you an opportunity, so seize it.

This does not work so well. Waiters become unnecessarily aggressive asking for soda, beer or “transport”. This aggression is one of the easiest ways to drive customers away; it’s more of a nuisance. Such waiters will also be generally de-motivated and biased towards those customers who give tips or seem to have the potential to do so.

As noted in Case Study One there are bars which employ waiters on a casual basis; paying them every day. Thus if business is low the bar owner doesn’t have salary commitments, she simply tells them not to come. It also frees her from statutory commitments and all related payroll expenses. The down side of this is as we pin pointed is the insecurity of the waiters could affect service; there is also the risk of the waiters not being available at short notice.

There are bars which used to pay waiters on commission, a practice which seemed to have gone out of fashion. The cashier at the counter would record every sale from a waiter, then at the end of the week calculate the commission at a rate of Kshs. 2 to Kshs. 4 per bottle. In one bar the waiters were given special chips to correspond with each bottle they sold. It was common to find waiters seated in one corner counting the chips.

The advantage of the system is that the owner controlled costs, and didn’t have to pay when no sale was made. On the flip side the system is hectic to manage especially when the bar is busy thus leading to disputes on what is exactly owned. And when business is low say in months like January there is always the risk of losing the waiter as they go looking for greener pastures.

You should get waiters who are nice but distant and fast. Speed is very important. But even if you have a swift waiter but slow barman or cashier at the counter service will be slow. To solve these problem busy bars will have at least two cashiers manning a counter or two or three counters in different corners of the bar. The cashier needs to be fast and keen to keep track of the cash.

Ideally you should have a mixed gender staff. A number of male and female staff. In reality most bars tend to prefer female waitress. As sexist as it could sound pretty female waitress tend to consciously or subs consciously attract a certain group of male clients. And male clients are the majority of bar customers. Some clubs will have the male waiters during the day and the female at night when they are likely to be more customers and sales... Best practice is to have mixed gender not necessarily in equal proportions.

Beyond the waitress there are other staff like cashiers, managers, cooks, bouncers, security and other such as need be. For the manager look for a person with some experience in the business or who displays good understanding of the bar business. You as the owner should have great people skills, but more important your manager should have them. He or she will be dealing with tens if not hundreds of people and he should be able to make them feel warm, welcome and wanting to come again. A manager without great people skills will not enjoy his work, it will be an unpleasant experience, and of course this will reflect on the productivity.

Trust and the ability to manage both staff and waitress are important considerations. Salaries are negotiable. In some cases managers are paid a basic salary and bonus tied to sales. This is a way of motivating them to think of ways to generate more revenue. Dishonest and incompetent managers can easily run your business down. If there is evidence of dishonesty on the part of the manager don’t hesitate to let them go.

Educate yourself as much as possible on the bar business. It is a recipe for failure to manage a bar as an absentee owner especially if you don’t have a competent and trustworthy manager. Without being eccentric always remembers a manger who has not put their own money in the business cannot be trusted 100%. In the bar business there is always the temptation of alcohol, sex, suppliers and suppliers who can corrupt quickly. So insist on some best practices and keep your eyes open and ears on the ground.

To deter theft some bars owners use security cameras and the threat of severe punishment. More important have proper systems, accounting audits, controls and an eye on the inventory. If you are not there personally, and you can only physically visit after few weeks or month you can have a close friend or family member who you trust as a trustee to oversee the operation.

When hiring a manager dig into his character and ability. Remember there are so many appearances in the bar business. Just because a bar is busy, famous, or looks successful does not mean it is honest, well run, or making money.

Though it is common for bars to keep two sets of books for tax purposes if a manager candidate suggest you do so even before he starts the job, be cautious. He will most likely steal from you. In larger bars there are also supervisors who are on the floor making sure the waiters are serving the customers as required. Supervisors are important when the bar is large and busy.

In most cases bars with 50 plus sitting capacity have watchmen in addition to bouncers. A watchman can be local or attached to a security company. Security companies will charge you between KSHS.15, 000 AND KSHS.25000 monthly per watchman. For bouncers look for firm but friendly staff. They should not be a hindrance to accessing your club rather they should reassure patrons and be on the lookout for thieves who mix with customers in order to steal from them. Try getting bouncers who are discreet but effective. A mix of brain and brawn, and not just the latter. They should have a good understanding of the customers they are dealing with.

Golden Rule: Don’t get intimate with your staff whether male or female, despite the temptation to do so. Once you start getting intimate with the staff then a certain barrier is broken and it becomes difficult to manage not only the staff member you are intimate with but even the rest. Such staff could develop a wrong big headed attitude and start disrespecting supervisors or managers after all they are sleeping with the owner. If the affair leak petty jealously starts developing, you lose the staffs respect; this is reflected in their performance. Gradually the business starts going down. If you have to do it keep it discreet an in such a way that it won’t compromise the performance of the business.

As an owner or manager remember waiters sometime fall sick just before their shifts. Sometimes they refuse to come to work with an excuse or another on the busiest of nights. You need to have a backup plan. Have its important to have a list of on call back ups. Create a list in advance of reliable workers (who could be off but easily available (part timers such as hospitality students or any other workers. People you can find within 30 minutes. It is common for bars to hire staff on temporary basis during busy periods like festivities.

Competition - Observations

After Mututho laws were initially introduced I 2010 the barriers to entry in the bar business were raised. But almost five years later things have cooled down and the licensing is no longer a barrier. And so is capital ; there is more money circulating in the economy; it doesn’t matter if the money is owned by a handful of people, legal or illegal; the fact is there are more people

with the capital to invest in business. Again there are now more of the urban aspirational customer who value entertainment and a sense of belonging eve if it means blowing his salary and getting into debt; the drinking culture is a notch higher. And the margins in the alcohol business have continued to rise.

All this means that competition in the business will continue to increase. Bar business is becoming one of the easiest and popular businesses to start. So competition will continue being intense. Presently when you start a bar majority of your customers will not be teenagers who have just started to drink, rather customers shifting from another bar. You need to attract, keep them and make them spend more.

Though there are locations with few bars, overall the bar business is so crowded; there is no doubt about that. You can just be another bar and make enough money to open for a year or two. Or have a sort of differentiation that sets you apart from the rest, wins more customers and earns you enough profits to grow. The attribute you decide to differentiate with will depend on the immediate competition and your target market. Still this could include:

Food

Setting e.g. sections

Ambience and props like TV - People often like to go to the bars to watch sports. It is similar in a sense to going to the game itself because there is a crowd to cheer and boo with and drinks and food to buy.

Service

Music

Entertainment

Variety of drinks

You have to go beyond gimmicks and build a certain reputation. This will be the thing that will keep people coming and even travel distances just to your bar.

As you start your bar it helps to reflect on the psychology of the alcohol consumer who is likely to pop into your local:

Bars serve the function of entertainment in order to trigger escapism. In fact the main purpose of a bar is to offer adults an alternative to a night or afternoon spent at home; somewhere fun and exciting and where they can let go inhibitions. A place they can listen to good music and hang out with friends... Everything in a good bar is geared toward making socializing easier

There are two main reasons why men will go to a club, spend more and possibly pay a premium for the drinks

Peer pressure. People spend more in the presence of their friends, and straight men spend more in the presence of attractive women. We all want to fit in. So make your bar conducive both for men and women. More so think of making existing customers come with their friends. Like the bar which would offer a discount for those who purchased a crate...

Confidence and Sex: Bars are also seen as a place to hook up in a romantic or sexual sense. This is a place where you're going to see people in a social setting, relaxing. It's generally easier to pick someone up when they're relaxed. So it helps to have a diverse clientele in terms of gender. The hard truth is if by hook or crook if you are able to attract a substantial number of women, men are willing to pay a premium for the alcohol. It’s sexist, debatable in terms of respect but unfortunately it’s the truth. Women are a big draw.

And the more females in the environment and the more comfortable the women who are in the actual venue feel whether they on their own or having company. And of course, where the women go, the men will try to follow.

High end hip clubs know this and try to use it all the time. By inviting socialites and giving them free drinks. The bouncers make sure there are many pretty women as opposed to men. And they could even discriminate against not so pretty women or men who don’t look cool enough. Still they don’t want boys who jus dress up but have empty wallets. They balance between the pretty boys who make the place lovely and the men with cash, and who will spend large amounts on those beautiful women

Other psychological factors to think about:

Foot-in-the-door: You might go in planning to buy one drink, but one thing leads to another, and you spend more and more. Design your bar to encourage this for instance by music, service or some other entertainment.

Barriers to Entry

After the gazzeting of the Mututho laws in 2010 the biggest barrier to the business was license since it became more expensive in terms of bureaucracy and bribes. However almost five years later entrepreneurs have learnt to beat or work with system. Licenses are no longer the major barrier to entry. It’s still bureaucratic to obtain the licenses and different counties have come up with different conditions beyond those set in the law. Still it does not dissuade entrepreneurs determined to open a bar. On the other hand bureaucrats have continued to become greedy, and alcoholic licenses have become another avenue from which to milk money.

For an entrepreneur with capital the biggest barrier is the ability to find ideal premises in a good location. This is more so if you want to open a higher capacity bar. A good premises is a balance between reasonable rent, size, facilities, zoning issues (not setting up in a residential area or near schools), freedom to remodel, lease long enough to recoup investment, understanding landlord, visible and easy to access,

Despite the boom in construction happening getting such locations is a big challenge in many locations. One way round this is to purchase failing, closing down bars or those being sold for a reason or another. The cons of this are to remove any stigma associated with the bar just in case it was viewed negatively. Sometimes not even a complete remodeling and rebranding does the trick. And as many entrepreneurs competent for space this will remain a big barrier.

Opportunities, Survival & Critical Success Factor

Opportunities exist in the bar business. But the exact opportunities that exist depend on a particular location. Opportunities in the business are based on satisfying unmet demand for instance in areas where the population is increasing, new residential areas or where due to some economic activity the income of the local population increases (e.g. a factory employing many people, compensation to vacate land etc) or cultural based; for instance where there is a minority community in a location dominated by another community; nay luo in Kerugoya and you start a luo themed bar.

Opportunities are also based on differentiation.

Targeting particular demographics

Setting – E.g. open air bar

Facilities

Location economics – opening a bar in an area that is known as a bar or nyama location.

Food

Critical Success Factors

Honest and competent staff

Good location

Great service

Identity / branding/ differentiation

Good management

Right customer target

Appropriate pricing

Simplicity – If it does not look complex and intimidating

Speed of service

Friendliness ( How nice and friendly staff are)

Attention to detail

Market entry strategies

Shock and awe – Getting into the market with facilities that you quickly attract attention and intimidate the competition. These could be such things as big and numerous televisions compared to the competition.

Location Economies – Establishing where there already exist other bars, taking advantage of the foot traffic of potential customers and reputation of the area as a drinking destination.

Setup – Have a unique design that attracts attention

Marketing – Using various methods like advertising to attract attention

Events – Hosting events such as music shows or competitions in order to create buzz

Special Offer – Having special offers such as Happy Hours or Discount on particular drinks in order to attract the first batch of customers

Psychology of lighting in a bar

When debating whether to go for a well lit bar or one with dimmer light take these facts about light into consideration.

Strong lighting like in an office makes a place feel less crowded and more business like

Low lighting provides a more intimate atmosphere that lets you focus on the people you're out with rather than the rest of the venue.

Psychologically, we find darkness to be more alluring/romantic/exciting. Balance the lighting.

41 Ways In Which Money Is Stolen In A Bar

CASH REGISTER:

This will apply if you have a cash register.

1.Serve the drinks and/or food and collect the money while the cash register is being closed out at the end of a shift or at night or when the ribbon or tape is being changed.

2.Phony walk out - keep the cash and claim that the customer left without paying.

3.Short ring - charge the customer the actual price, under ring the sale on the cash register, and pocket the difference. For instance if say a Smirnoff Ice is costing Kshs.200, and a Tusker Kshs.170, someone purchases a Tusker Malt but the cashier enters it as Tusker Lager.

4.No sale - charges the customer the actual price but don’t ring up the sale. Though there is the possibility of checking the inventory such a cashier will have observed keenly your lethargy in actual inventory taking or be in cahoots with the entrusted manager.

5.Short tape - some old cash registers do not have cumulative cash register readings. In those cases, the cashier can total the cash register at a point before the end of the shift and use a new tape until it is time to close out. Then the cashier can keep the new tape and the cash generated during that period.

6.Over-rings - the cashier records an "over-ring" to reverse an actual sale. For instance if a Tusker is Kshs.170, the cashier rings Kshs.200 and keep the Kshs.30 extra.

7.Fictitious payment (paid outs are amounts taken from the till to pay for beer and food deliveries and other miscellaneous charges. It’s easy to fake receipts and collude with suppliers.)

8.Some cash registers have a training key, which does not feed into the cash register's daily. A cashier could use the training key mode and not record actual sales.

9.Cumulative sales total. Some crafty cashiers will use the training key to record some sales.

10.Jam the cash drawer during critical hours so that the drawer must be left open.

11.Customer Is the Victim

12.Shortchange the customer when the waiter notices they are drunk and not keen (for example, by giving change for a Kshs.50 instead a Kshs.100)

13.Alter amounts on bills and add extra drinks hoping the customer won’t notice and will just pay up. The waiter pockets the extra amount.

14.Returned drinks – Waiter or cashier claims that a drink was returned when in fact it was sold.

15.Cashier tops off clear spirits or wines with water so he under declares sales.

16.For tots pour higher quality liquor than ordered and mention it to the customer in anticipation of receiving a big tip.

17.Misreport how many drinks have been sold from a keg. (Generally, there are lax controls over kegs because of the level of waste involved and the difficulty of inventorying the amount on hand)

18.Owner brings own liquor – waiter, cashier or barman brings his or her own bottle of liquor and pockets the cash earned from its sale. You lose the sales and margins.

19.Barter – Cashier / Barman trades the cook free drinks for free meals.

20.Collision with alcohol distributors. For instance if there is poor inventory management the distributor can supply 9 crates of beers but charge for ten. He will share the money from the extra with the manager or whoever is in charge of purchasing.

21.Steal bottles of spirits, wine or even beer.

CUSTOMER

22.Short-pour - barman pours less than a shot to cover up drinks sold on the side. Some do this by using a small tot glass so it appears that they are pouring a full measure when, in fact, they are short-pouring.

23.Charge the customer the regular price but record the happy hour price.

24.Pour a lesser quality liquor after the first few drinks and charge for the more expensive brand. This is more common than you think.

25.Charge the customer for more drinks than actually served.

26.Add two customer's drinks together, charge both customers and (if caught) claim to have misunderstood who was purchasing the round.

FOOD SERVICE

27.Steal food or liquor. (Walk-in freezers and liquor storage areas are especially vulnerable to theft). Employees sometimes claim that missing inventory was returned to the vendor or spoiled.

28.Produce surplus food so that it can be taken home.

29.Wrap food and drop it into a box in the back or a trash can for later retrieval.

30.Kickbacks from vendors. (Generally, the kitchen staff takes a commission and accepts a lesser quality of meat or produce)

BOOKKEEPER

31.Bookkeeper steals cash and records it as "cash short."

32.Bookkeeper writes and cashes checks to themselves but records as tax (or some other frequently paid but seldom reviewed account like utilities expense)

33.Bookkeeper/manager creates fictitious vendors.

34.Bookkeeper holds the daily bank deposit for some number of days and uses the cash for their personal benefit.

PAYROLL

35.Ghost employees-manager adds ghost employees to the payroll and gets their pay.

36.Manager adds fictitious hours to the employees' paychecks and splits the difference with the employee.

37.Employees overstate their hours. (For example, employees who work the lunch shift go home for a few hours and come back for the dinner shift, but may not sign out when they leave.

38.Steal silverware, glassware, napkins, tablecloths, etc.

39.Fake a burglary.

40.Steal bar supplies (such as detergent, linens, and shakers)

41.Revisit the restaurant during closed hours and steal whatever is available.