Lone Star Daiquiris Business Plan

Executive Summary

Daiquiris bars have been a staple of hot climates in the Southern United States for

dozens of years. Austin, one of the largest nightlife hubs in the world with a huge young

professional population, currently does not have a single frozen beverage bar. One of its

most popular tourist neighborhoods, South Congress, lacks venues for tourists to sit

down and enjoy a drink in a casual environment.

South Congress has high pedestrian traffic and is the home of many festivals,

including First Thursdays, which happen monthly, and the Republic of Texas Rally. It is

also home to a weekend flea market.

Lone Star Daiquiris plans to attract these tourists as well as local residents to offer

them a unique experience catered towards the Austin culture. Patrons will enjoy a wide

selection of daiquiri flavors and local menu items. The bar will also boast a take out

window, should patrons prefer to enjoy their beverage while visiting the South Congress

neighborhood. Austin ordinances currently allow open alcohol containers in this

neighborhood.

Pain Points

South Congress (SoCo) is primarily a tourist-targeted neighborhood destination in

Austin. It offers a variety of shopping and small restaurants, none of which are chains or

national brand names. The area is highly walkable with a scenic view of Downtown

Austin and the Capitol in the distance. At night, the demographic changes significantly,

still maintaining some tourists but mostly attracting locals from around South Austin.

Some locals, especially those from the 78704 ZIP code, enjoy getting a drink in South

Congress before going to Downtown for nightlife. The area, however, still has a few

market opportunities that are currently unfulfilled.

SoCo Is Mostly for Shopping and Most Shops Target Only Females

Shops in SoCo are mainly for clothing and other small baubles and antiques. With

the exception of a couple Western wear shops, a style that non-Texans may not want,

SoCo has little venues that interest men. In conducting informal interviews with male

visitors during the day, most of them were “dragged” there by their significant others

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and said that they wish there was more they could do or visit. There is only one bar,

Doc’s, in SoCo, and it is towards the southernmost end of the shopping district, far from

half of SoCo venues. All other restaurants that have bar areas focus more on their food

than they do on their drinks or bar fare-type snacks. A couple men indicated they would

like a venue with TVs and Wi-Fi for something to do if they are alone.

Summers Can Be Extremely Uncomfortable without Something Cool to Drink or Eat

Only Amy’s Ice Cream focuses on serving products to help visitors feel more

comfortable during the summer months. Other venues offer chilled drinks, but none of

them offer a multitude of frozen beverages. Market research shows only Güero’s, a Tex-

Mex restaurant, offers a frozen beverage, their house frozen margarita. Their margaritas

are small but potent, but it would make more sense to serve a larger less potent

beverage that could be enjoyed over time.

Tourists Visit Austin for Live Music, But There Is No Live Music in SoCo during the Day

The Continental Club is the only venue that focuses on music to attract customers.

Our proposed venue does not intend to compete with the Club, but the Club is only

open at night. Other venues occasionally have music during the weekends but not

always.

There Are Plenty of Bars in Austin, But None of Them Serve Daiquiris

While some bars do serve a few frozen beverages, none of them specialize in

frozen beverages or concentrate in this category. There is not a single daiquiri bar within

the Austin metro area. Bars try hard to differentiate themselves from their competitors

in Austin because there are so many choices, but none have chosen to specialize in

frozen drinks. This is surprising because Austin has a large population that was displaced

from New Orleans after Hurricane Katrina and is why the city features so many crawfish

boils in the spring at many other bars and restaurants.

The Market

As mentioned before, visitors in South Congress are primarily tourists during the

day and locals at night. Tourists generally visit the area during the day, but some also

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come at night. Research shows that the age of visitors varies substantially during the

day, but it is focused on the 25-34 age demographic at night.

Travis County alcohol sales are huge. The Austin metro area consumes more

alcohol than any other metro area in the United States, including cities that significantly

outnumber it in population. Since 2008, alcohol sales have jumped 50% to $568 million

in 2014. Austin continues to be one of the fastest growing metro areas by population in

the United States, particularly among the young professional demographic.

Over 70% of Texas’ visitors are here for leisure, although it is not uncommon for

business visitors, particularly those here for trade conventions, to imbibe and have fun.

Over 20 million people visited Austin in 2014, and that number is expected to increase

at double-digit rates.

Although Austin boasts the most bars per capita and most bars in a ZIP code

(78701, or Downtown Austin,) the market continues to expand. The Austin metro area

also has half the bar venue turnover rate. The Austin market appears to be able to

support more hospitality industry venues, but product differentiation and efficient and

friendly operations remain important to stay competitive.

Marketing Plan

When consulting other experts in the business, we discovered that most bars

rarely employ any sort of external resources to support marketing experts except when

a bar first opens. Often these resources are very cheap, usually ranging from creating a

Facebook page for the venue to posting ads on Facebook to establishing a social media

presence on Twitter. One expert pointed out that technology industry patrons are more

likely to follow bars on Twitter than Facebook, and he recommended keeping a Twitter

account current for technology-related events like South by Southwest. Another expert

said that posting specials regularly to Facebook could increase weekly revenues by

almost 20% per his own experimentation.

Each target demographic will have different pricing strategies. Target

demographics will change given the time of day and day of the week. See Exhibit 1 and

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Exhibit 2 for further details. Some specials will be explained later in this proposal. Prices

and specials are based on market rates in South Austin.

The Proposed Venue

Many people associate the Deep South with frozen daiquiris. (For purposes of this

business plan, the terms “frozen daiquiris” and “frozen beverages” and “frozen drinks”

are the same.) Notable areas that serve a large number of these traditional beverages

include Lowcountry South Carolina, Savannah, Floridian beach areas, the Houston-

Galveston Metro Area, and, most notably, New Orleans.

Lone Star Daiquiris will provide a venue with these beverages served properly but

with a unique Texas flair with regards to drink selection and venue décor. Current Austin

open container ordinances also currently allow alcoholic beverages to be consumed in

public areas in South Congress, a unique marketing opportunity that no venue has taken

advantage yet. The venue will have a traditional dine-in area as well as a to-go window

connecting directly to the sidewalk.

Food Menu Offerings

Traditionally, frozen drink venues focus on their drinks, keeping food offerings as

an afterthought. Food served is not necessarily of poor quality but lacks creativity with

regards to most venues’ semi-tropical theme, including pizza and cheeseburgers as

examples of menu items.

Food appears to be important to Austinites. Analysis drawn from primary research

shows that Austinites prefer an experience rather than just going to a venue for a certain

food or drink item, which is why food is so important. Offering food also increases

length of stay and average spend per patron. Lone Star Daiquiris intends to serve an

easy-to-eat menu including local favorites like tacos, tortas, and barbeque. We would

also like to serve a small selection of Creole dishes for those who expect a Cajun

experience, given the proximity of New Orleans and Southeast Texas to Austin. Several

types of Cajun food, like gumbo and jambalaya, also boast longer shelf lives and can be

reheated after cooked, allowing for a high profit margin. A third-party food truck partner

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is possible if space allows, but due to per square-foot prices in SoCo, all food will likely

have to be cooked in-house in a restaurant kitchen.

A whopping 72% of respondents to our survey indicated an interest in having

brunch at a frozen drink venue in SoCo, showing that having a brunch selection for the

weekends is extremely important to patrons. That number increased to almost 80%

when looking at only respondents aged 25-34. Respondents also showed a strong

interest in frozen bellinis, mimosas, and sangria during brunch.

Drink Menu Offerings

Lone Star Daiquiris plans on offering frozen beverages as well as beer and mixed

drinks for purchase. The beer selection will be primarily Texas brews with a couple

national brands. Most frozen beverages will use bottom- or middle-shelf liquor brands,

as the mixers added to frozen drinks often mask the quality of the alcohol and profit

margins can be kept higher with cheaper liquors. At times, a few frozen daiquiris will

feature top-shelf liquors, such as Spike Cactus Vodka or Deep Eddy Grapefruit Vodka, in

order to add a Texas emphasis to some of the flavors to contribute to the theme of the

venue. Patrons will be allowed small samples of any of the frozen drinks to help them

make their selection and bartenders will be trained to help them. Shots will also be

available, including a couple specialty recipes. Almost 58% of respondents said they

would like to see shots served at the venue, making it an important menu item.

Premium shots and premium frozen drinks will cost extra than their non-premium

counterparts to recover the loss in profit margin.

Beer will carry approximately a 20-30% profit margin. Daiquiri target profit margin

will be approximately 60-80%. Shots and mixed drinks will carry a 30-40% profit margin.

These profit margins are based on industry averages and best practices. Prices will be

reduced for happy hour and brunch for select beverages.

Nearly half of respondents said they would be interested in diet and/or sugar-free

daiquiri options. We believe that featuring a subset of drinks with this attribute could

differentiate us in the market, not only nationwide with other frozen drink bars but also

in Austin. Very few Austin bars offer any sort of unique diet cocktail, often using only

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premade mixes rather than house recipes, making most diet alcoholic drinks poor in

quality or creativity.

Most daiquiri bars carry 12-15 different frozen flavors. We plan to carry a number

of flavors within that range.

Amenities

The top-requested amenities by respondents included an outdoor patio (88%),

dog-friendliness (70%), and TVs/sports viewing events (53%). Live music, surprisingly,

served as a deterrent for almost half of respondents, saying they would deliberately

avoid the venue with live music. We believe this is because many patrons would go to

the bar with their friends, but those during the day, namely tourists, are more likely to

be attracted to live music. Public Wi-Fi will be offered. In the future, gaming amenities,

like pool tables and arcade games, will be considered based on average table utilization.

Each seat in a bar or restaurant is worth tens of thousands a year in revenue, so it is

important to consider the positives and negatives of removing tables from floor space.

Parking was a concern of some potential patrons in informal interviews. However,

none of them drove to South Congress that day. We believe that dedicated parking

would be helpful to have but not impossible to deal without. Free public parking is

available throughout the neighborhood and a few low-cost garages exist.

Emphasis on Cleanliness, Service, and Upkeep

Bar experts agree that cleanliness and service are consistently important for bar

patrons to revisit. In particular, bar areas should be deep cleaned weekly (eg. Beer taps

flushed, sinks scrubbed, soda guns cleaned, etc.) Female patrons expect extremely clean

restrooms to give repeat business. Currently, there are few public restrooms available in

South Congress, providing us a possible business advantage to bring visitors to the

neighborhood back if they know there is one available while visiting the venue. The

return and reputation of female patrons is extremely important to bring back male

patrons as well, because males tend to follow female patrons to bars.

Poor service can completely sink a bar business. Often angry patrons complain

about service via social media (most commonly Facebook and Yelp.) This decreases the

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likelihood of new visitors since so many people, particularly tourists, rely on social media

to find a place to eat or drink. Staff should be experienced and well trained to serve

patrons; unsatisfactory performance should result in immediate termination. Staff

should never serve intoxicated patrons and be recognized by shift managers for turning

away drunken patrons.

Upkeep and outward appearance of bar venues still remains one of the best ways

to attract passerby potential patrons. Outside signs should be highly visible and well lit,

and any damaged furniture or décor should be immediately repaired or replaced. An

interior designer will be hired to furnish and decorate the venue. The higher the

perceived value of the interior, the more willing patrons are likely to spend per item

ordered. A clean appearance matching a Western/Austin/Central Texas theme will also

keep undesirable, low-revenue patrons out; we cannot allow our venue to be associated

with “low-class” venues that many have seen in New Orleans on Bourbon Street. See

Exhibits 3 and 4 for examples.

Souvenir Cup

A trademark item seen from many daiquiri bars is a customized souvenir cup.

Creating a souvenir cup not only ensures some return visitors, but also allows for street-

level advertising by patrons themselves. We want people on the street to ask our

patrons, “Where did you get that?” Patrons who purchase the souvenir cup for a special

upcharge will be permitted discounts in the future if they return with the same souvenir

cup. Discounted daiquiris will only receive a small additional discount (50¢ to $1, for

example) on top of current drink specials. Returning customers during times without

drink specials will receive a more substantial discount.

We would like to create the cup in the shape of a cowboy boot to reflect the

Western décor of Lone Star Daiquiris. When taking our survey, respondents were asked

if they were interested in purchasing the souvenir cup. About a third indicated yes if

they were discounted drinks in the future. Nearly three-quarters of those who said if

they purchased the cup, they would return to the bar in the future. Very few

respondents cared whether the cup would fit in a conventional vehicle cup holder.

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Texas Alcoholic Beverage Commission Licensing

Lone Star Daiquiris will require separate licenses and egresses for the dine-in area

and carry out window, conforming to Texas law. We believe this will be the first “hybrid”

bar in Texas to utilize both features, apart from brewpubs, which are permitted to sell

carry out growlers. The to-go window will only be a service window for frozen drinks;

due to Texas law, beverages connected to this window cannot be carried into the dine-

in area until patrons have emptied their cup. During hot days or high traffic times, only

frozen beverages may be purchased from this window to avoid sidewalk crowding. Carry

out beverages require a “seal” and lid on top of the cup. This seal need only be a piece

of scotch tape or similar easily removable seal.

Financials

There exist a lot of unknowns at this time for the possible venue. In particular,

prices will vary on how many units of each item are purchased and any volume

discounts from restaurant equipment dealers and manufacturers and alcohol retailers.

Food prices are often seasonal. More research into financials can be completed once a

potential rental unit is identified. Startup costs are highly dependent on the actual size

and layout of the bar.

An estimated breakdown is available in Exhibit 5. These values are based on very

conservative estimates, allowing for a more pessimistic case of revenues and costs. They

do not account for food sales. The number of patrons per day is highly variable, but new

bars in Austin often see a huge initial surge of visitors in their first three months. For

example, Craft Pride, a bar on Rainey Street in Austin, saw almost 300 patrons per day

during weekends (Thursday through Sunday) in its first few months. We believe that this

business venture can breakeven just past its first year at 61 months.

We believe that $175,000 in startup capital will be acceptable. The industry range

varies between $100,000 and $500,000 for bars, and the smaller size of this bar,

combined with low Austin cost-of-business rates and high traffic in South Congress,

makes this number appropriate. Exhibit 6 shows the approximate breakdown after the

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first month of business. Note that kitchen equipment, food costs, and food revenues are

not in this equation, and commercial kitchens in bars require around $50,000 of capital.

The remainder of cash left after the first month is to serve as ”padding” for

unexpected costs, such as purchasing new additional equipment to optimize operations

or patron experience (eg. Pool table, arcade games, etc.)

Risks

Risks are described in Exhibit 7. The venue will hold at least $1 million in liability

insurance. The average settlement against alcohol providers was $500,000 in 2006 in

Texas, although they are relatively rare. The average premium for a bar is less than

$2,000 per year for such a large liability limit, and all policies include alcohol-related

incidents caused by patrons (eg. Drunk driving accidents and medical expenses.)

Leadership

Monty Johns is a candidate for a Masters in Business Administration at the

University of Texas at Austin for the Class of 2015. He received his Bachelors of Science

in Computer Engineering at the University of Virginia in 2010 and served as a network

engineer at Freddie Mac and Rackspace Hosting before returning for his MBA education.

He is specializing his MBA in Operations and Supply Chain Management and plans to use

these new skills at Lone Star Daiquiris.

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Exhibits

Day(s) of the Week Hours Target Demographic StrategyMonday through Wednesday 4-8pm Happy Hour Crowd, all ages Happy Hour SpecialsThursday 4-close Thirsty Thursday Crowd, 25-34 years Happy Hour Specials 4-8pm, drink specials after 8pmFriday 4-7pm Weekend Kickstarters, all ages Happy Hour SpecialsFriday through Saturday 7-close Party Crowd, 25-34 Regular PricingSaturday through Sunday 10am-4pm Brunch Crowd, all ages Brunch Specials, drink-related specials end at 3pm(Major Sports Games) Varies Sports Crowd, all ages Reduced drink profit margin 20-30% specials, Happy Hour food specials(All Other Times) Varies Tourist Crowd, all ages Regular PricingExhibit 1: Pricing Strategies

Exhibit 2: Major Pricing Strategy Details

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Exhibit 3: Décor Example (Michael’s Wine Bar, Humble, TX) Exhibit 4: Décor Example (La Condesa, Austin, TX)

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Exhibit 5: Approximate Breakeven Data

Exhibit 6: Approximate First Month’s Balance Breakdown

Risk MitigationTheme and/or location not attracting patrons.

Research was already conducted to prove the viability of this bar. South Congress visitors expect an upscale, clean, hip venue for social activities. This bar is appropriate for this neighborhood, but it is not suitable for a heavy drinking neighborhood (eg. Dirty Sixth in Downtown Austin) due to risks associated with drinking large amounts of daiquiris with high alcohol content. Respondents to the survey showed overall very positive reaction to the potential venue

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Security-related incidents. The safety of patrons is paramount to any bar or restaurant. However, given South Congress’ stellar crime record (or lack thereof,) this is an unlikely risk.

Austin City Council is unhappy about open containers and threatens to classify South Congress into a no open container designated area.

We intend to approach Austin City Council prior to opening the venue. We believe working directly with SoCo’s district representative will alleviate problems and concerns. Older residents, during the survey, as well as shop owners are concerned of rampant drunkenness in the streets. We want to reassure them of our stringent “no overserving patrons” policy and our strict adherence to Texas law.

At the worst-case scenario, whereby Austin City Council does make the neighborhood open container-free, Lone Star Daiquiris will only lose the capital invested in the to-go liquor license and the capital invested in making the to-go window. It will still be permitted to operate as a typical dine-in establishment.

Alcohol, food, safety, or fire laws are violated.

All employees who serve alcohol will be required to be TABC-certified. We intend to fully cooperate with health and fire department authorities to ensure consistent excellent compliance. An experienced general manager will be hired prior to opening the venue to enforce these high standards. Employees caught overserving will be warned once then terminated on second violation. A possible “no overserving” incentive program could be put in place.

In the event an overserved patron is identified, the general manager will be required to offer the patron a cab or safe ride home.

ABSOLUTELY ALL PATRON AGES MUST BE VERIFIED AS OVER 21 BY GOVERNMENT ID.

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A patron becomes violent. Occasionally, security personnel will be required to escort out a patron, though this typically happens only on weekends.

A security staff member will be hired for peak times during the bar, particularly for weekend nights or during sporting events.

Exhibit 7: Risks and Mitigation Strategies

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Lone Star Daiquiris Business Plan

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