A 2nd Location - Fool's Gold, or the Real Article?

Hello again!

Forgive the two week interval - there’s no great excuse, though brewing and classwork have had me quite distracted, and my initial belief that this may lead to more business opportunities has eroded entirely, so I’m still thinking about how to move forward with this! Opportunity Cost, my friends, opportunity cost…

In any case, there was, to my point actually, a lone response to my “what should I write about?” poll - the economics of a 2nd location, which I strongly suspect to be a troll from my family. But hey, it’s a good topic! So this week, I’ll set it up, and next week we’ll get our hands dirty and work out some numbers

But first, the why:

Pros of a second location

  • The margin is higher than in distro, possibly way higher. A relatively small, $50k/mo bar stands to make more than, say, a quarter-of-a-million per month distro operation (here using, roughly, 10% and 50% as margins)

  • There’s no or little duplication of pesky location one fixed costs, like brewers and administrative costs. It’s a slimmer business - basically a bar, minus administration and with cheaper beer, plus the cache of the brand

  • A 2nd location allows you to test the general market performance of both your brand and beers; with distro, without a reference point (i.e. a control in drug trial terms), and without access to distributor's data, it may be unclear how you'd fare away from home (and good luck getting a distribution firm’s data!)

Cons of a second location

  • Risk! Distro can be packed up quickly and at low cost; a second location could take months or longer to disassemble, and chances are you took out a loan or something like that to raise the capital which, if you have to throw in the towel, you presumably never recouped. I worked briefly for a great LA chain (two locations, and not MacLeod!), that attempted to break into Denver or some such place, and were set back a few years as a result of the failed attempt. Ouch!

  • If you don't have your home in order, the added complexity means the small interpersonal issues you usually band aid over may become unfixable breaches

  • Similarly, if this is a Hail Mary for cash, chances are you'd be better off cleaning up your core business as opposed to praying that a new one will solve your problems

in short, I see a sea of negatives unless you are so successful, and run such a beautifully tight ship, that you're just trying to add fudge to the sundae and not trying to add expensive, untested bilge pumps to your leaky ship

The Numbers, Broadly

The setup for the sheet we’ll see next week is fairly straightforward: copy and paste your costs, and see what a range of revenues do to your bottom line

Chiefly:

  • Beer cost, and for that, estimated beer consumption

    • this will be related to revenue expectations

    • we’ll use the average per-BBL cost, which we may adjust down

  • Rent (location dependent)

  • Labor

    • we’ll normalize this probably to the ratio of square footage from location A to B

  • General COGS and expenses from your first location

    • subscriptions are null, but things like cleaning supplies and even merch are fair game

We'll get into this next time, but you may want to adjust those based on

  • Size - if your 2nd location is 40% as big, your costs, labor, and max revenue will be smaller

  • Ramp-up time - your costs and revenue will slowly ramp up as you obviously sell more, and thus need to hire more bartenders and potentially servers

  • Some sort of inefficiency factor - if you shrink your business to half its size, what are the odds your costs are cut exactly in half? 0% - you’ll pick up some inefficiency, which I honestly of this writing have no idea how to quantify!

    • We may use this, we may not - I kind of did in my original spreadsheet, and if I keep that in I’ll at least address it

So there you go! I’ve learned from a similar voice in the industry to leave your readers more often than not with semi-useless fluff/filler content, so while this is interesting, it sure isn’t directly helpful or useful beyond my opinion! Alas, I had an Econ quiz today, so you’ll have to wait til next week for the juicy stuff!

Cheers,

Adrian