Local Bar Business Guide
Local Bar Business Guide
Local Bar Business Guide
©2016
www.kenyaknowhow.com
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’.
- 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. There had been efforts to capture the Keg and Spirits customers by promotion of
low end beers but there has been any significant shift of the consumers.
- 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:
Spirits:
Reserve (E.g. Sons Odyssey, Tusker Malt Whisky) : +71%
Premium (Johnnie Walker) : +31%
Licenses
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
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.
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:
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
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.
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.
Capital
Equipment
Working Capital
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.
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
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.
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.
8. Stock
9. Market
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.
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
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).
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.
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
2.5 and 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:
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.
(170 – 200)
(170 – 200)
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
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.
Offering The bar sells alcohol and food, with the main
item being beef and goat meat.
Parking Space for about 60 cars
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.
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
DJ 1 Ksh2,000 24,000
(Friday and
Saturday and
Sunday )
Total 338200
Salaries 338200
Rent 40,000
Electricity 5,000
Charcoal 7,200
Authorities 5000
Electricity 5,000
Water 1200
Miscellaneous 12000
Total 429800
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
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.
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
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)
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.
Sales ( Beer)
Actual Sales in November 2015 Kshs.187,300
Average Revenue
Total expenses – Kshs.11, 000 (Rent) + Kshs.7000 (Waiter) + Kshs (700) +Electricity
(Kshs.1200) + Miscellaneous (6500) – (Includes police, occasional casual work) =
Kshs.23400
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
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.
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
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.
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
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.
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
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.
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?
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?
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.
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
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.
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.
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
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
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
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.
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 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.
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.
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
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.
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.
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.
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.
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.
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.
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)
32. Bookkeeper writes and cashes checks to themselves but records as tax (or some other
frequently paid but seldom reviewed account like utilities expense)
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.
41. Revisit the restaurant during closed hours and steal whatever is available.