Industry Description
The Bars and Nightclubs industry in the U.S. contains establishments known as bars, taverns, nightclubs or drinking places primarily engaged in preparing and serving alcoholic beverages for immediate consumption (NAICS 722410). They can also have limited food services and admissions to special events.
The following are some basic characteristics of the Bars and Nightclubs industry:
- Bars and Nightclubs industry have a combined revenue of $26.7 billion, with a growth rate of 1.6% in 2022-2027
- There are approximately 72,000 businesses as of 2022
- Bars and Nightclubs industry employs approximately 307,000 people
Industry Trends
Bars and Nightclubs industry is highly dependent on factors that influence the overall economy and consumer drinking patters. The key external factors that influence this industry are (i) the premiumization of consumer tastes, (iii) shifts in alcohol consumption locations and, (iii) consumers conforming to healthy dietary recommendations. Each of these is described in further detail below.
Drinking habits have evolved over recent years as consumers prefer higher-quality or premium foods and beverages, called premiumization. This shift in consumer preferences has created specialized gastropubs, brewpubs, and wine bars that focus on niche markets. In addition, the growing popularity of craft beer, cider and specialty cocktails and wine has boosted industry revenue. Establishments can replace bottom shelf house liquors with higher products and subsequently increase average drink prices.
COVID-19 pandemic had an impact on nearly every industry, but the broader hospitality industry was especially disrupted because they were forced to temporarily close or reduce service in 2020. The industry revenue declined 40.5% in 2020 alone. However, with the hospitality industry reopening, industry revenue and per capita spending is expected to recover to pre-pandemic levels. Despite increased consumer spending and premiumization, consumers are more likely to drink alcoholic beverages at home, rather than visit a drinking establishment. This is likely a reflection of changing prices in drinks depending on the source location. Between 2004 and 2019, the price of alcohol purchased at retail stores increased 23.4%, compared with an increase of 55.4% in the price of alcohol purchased at bars, according to the Bureau of Labor Statistics.
The US Department of Agriculture (USDA) currently recommends dietary guideline that women do not consume more than one alcoholic drink per day and that men do not consume more than two alcoholic drinks per day. Alcohol is listed by USDA as one of the highest-calorie beverages consumed by adults. As a result, demand for industry products is inversely correlated with the healthy eating index (HEI). The HEI is an overall diet quality measurement of the American population conforming to recommended dietary guidelines. The HEI is expected to increase in 2022, posing a potential threat to the industry.
Key Performance Metrics
In evaluating the Bars and Nightclubs industry the following metrics can provide useful information in comparing a subject company to guideline companies and transactions.
- Revenue per available seat (RevPASH)
- Guests Served by Hour
- Time per Table turn
- Inventory Turnover by product
- Holding Costs
- Food Costs, estimate 28-40%
- Labor Costs, 20-25% of restaurants total revenue
- Beverage Costs, by alcoholic type
- Customer Retention Rate
- Employee Labor Percentage
Industry Organizations & Publications
The Hospitality industry, which encompasses the Bar and Nightclub industry, combines the sectors food/ beverage, accommodations, travel/ tourism, and entertainment/recreation. There are minimal resources specific to the Bar and Nightclub industry. However, the following organizations publish useful information:
- Hospitality Alliance
- Bar and Restaurant
- American Nightlife Association
- U.S. Department of Agriculture (USDA)
Guideline Information: Private Purchase Transactions
Most bars and nightclubs are privately owned. There are limited publicly traded companies, so data regarding the sale of 100% of closely held bars and nightclubs is generally the best source of information to appraise a subject company.
The following are typical appraisal multiples from sale of bars and nightclubs:
- Revenue multiples between 0.17 and 0.85 times
- Gross Profit multiples between 0.25 and 1.4 times
- EBITDA multiples between 0.9 and 10.6 times
In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.
Guideline Information: Publicly Traded Companies
The majority of operators in this industry are private small businesses that are domestically owned. There are no significant or major international operators that exist in this industry. There is one operator that is publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to use publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company.
The largest (and only) publicly traded U.S. Bars and Nightclubs is RCI Hospitality (NASDAQ: RICK), with $478.0 million market capitalization.
Appraisal Rules of Thumb
Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.
Bars and nightclubs are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.