Buying a pub in Australia can be a great business opportunity if it’s done right, but in this article I outline some of the most common mistakes to avoid along the way.
The Australian hospitality industry is a big contributor to the economy with pubs and bars generating an estimated $17 billion in 2021 according to IBISWorld. But success in this industry requires planning and avoiding the common mistakes. It is crucial to gain a well-informed picture of the pub before making a purchase, considering factors like staff happiness, service efficiency, and overall management. Here are 7 mistakes to watch out for when buying a pub in Australia.
1. Underestimating the Costs
One of the biggest mistakes prospective pub owners make is underestimating the costs of buying and running a pub. According to the Australian Hotels Association the average cost of buying a pub in Australia is between $1 million and over $10 million depending on location, size and current profitability.
On top of the purchase price you’ll need to consider:
-
Ongoing running costs
-
Renovation and refurbishment costs
-
Licensing fees
-
Insurance
-
Staff wages
-
Laundry services, especially if the pub offers accommodation
To avoid this mistake make sure you have a full financial plan in place. If you need a business loan to buy a pub consult with a business finance broker and industry experts to get a realistic picture of the costs.
2. Not doing your Due Diligence with a Business Broker
Not doing your due diligence is a big mistake that can come back to bite you. Before buying a pub you should:
-
Review financial statements and tax records
-
Inspect the property and equipment
-
Check for any outstanding debts or legal issues
-
Review the current customer base and local competition
-
Check compliance with local regulations and licensing requirements
-
Conduct a thorough building inspection to understand the condition of the property and any potential council zoning changes
According to a Savills Australia report 20% of pub sales fall through due to issues found during due diligence. Don’t rush this step – take your time to investigate every aspect of the business before you commit.
3. Not considering Location and Demographics
The success of a pub is often based on its location and demographics. A big mistake is buying a pub without considering these factors. According to the Australian Bureau of Statistics, areas with higher population density and a younger demographic have more successful pubs. Similar to purchasing residential property, the location is a critical factor when selecting a pub, indicating that strategic location choices can significantly impact the success of any property investment.
When buying a pub consider:
-
Foot traffic in the area
-
Nearby businesses and attractions
-
Local demographics
-
Future development plans for the area
Research from JLL Australia shows pubs in inner-city areas and tourist hotspots have higher profit margins. But that doesn’t mean rural pubs can’t be successful – it’s about finding the right fit for your business model and target market. Your business plan should include your marketing analysis and how you plan on taking advantage of trends.
4. Not checking Licensing, Regulations, and Lease Agreement Carefully
The Australian pub industry is heavily regulated and not complying with licensing and regulatory requirements can result in big fines or even closure. Each state and territory has its own set of rules and regulations around the sale and service of alcohol.
Common regulatory requirements include:
-
Liquor licensing
-
RSA certification for staff
-
Food safety regulations
-
Noise control measures
-
Trading hour restrictions
According to the Foundation for Alcohol Research and Education 5% of pubs in Australia are facing regulatory action each year due to non-compliance. To avoid this mistake make sure you know all the regulations and have systems in place to maintain compliance.
5. Underestimating Staff
Your staff can make or break your pub. A big mistake new pub owners make is underestimating the importance of staff. The Australian hospitality industry has had significant staffing shortages in recent years with the Australian Hotels Association reporting 85% of businesses were struggling to find staff in 2022.
To avoid this:
-
Develop a staff recruitment strategy
-
Invest in staff training and development
-
Create a positive work culture
-
Offer competitive wages and benefits
Additionally, evaluating the efficiency of service in your pub is crucial to gauge its operational quality and overall performance. Observing the happiness of the staff and the overall efficiency of service can provide valuable insights into the business’s performance.
Remember high staff turnover can be expensive and impact customer experience. Investing in your team is key to long term success.
6. Not adapting to changing consumer trends and multiple income streams
The pub industry is always changing and not adapting to changing consumer trends can result in declining patronage. According to Roy Morgan research there’s been a shift in Australian drinking habits with a growing preference for craft beer, premium spirits and non-alcoholic options.
To stay ahead of the game consider:
-
Regularly updating your menu and drinks
-
Introducing events or entertainment to attract customers
-
Embracing technology for ordering and payment systems
-
Building a social media presence
-
Monitoring online reviews on platforms like Google, Facebook, and TripAdvisor to understand customer preferences and feedback
Pubs that don’t innovate will lose market share to more agile competitors. Stay informed about industry trends and be willing to adjust your business model as needed.
7. Not marketing and community engagement
A big mistake new pub owners make is assuming that just opening the doors will be enough to get customers. In reality, marketing and community engagement is key to success. Research from Deloitte Access Economics shows pubs contribute an average of $100,000 per year to their local community through sponsorships and donations. Additionally, having a good reputation is crucial. Potential buyers should thoroughly check online reviews on industry-related websites like TripAdvisor, Google, and Facebook to assess the pub’s standing before making a decision.
To avoid this:
-
Develop a marketing strategy
-
Engage with local community groups and sports teams
-
Host events that appeal to your target market
-
Build a social media following
-
Maintain a good reputation through positive online reviews and community engagement
By being part of the local community you can build a loyal customer base and differentiate your pub from the competition.
FAQs
How much does it cost to buy a pub in Australia?
A: It can cost anywhere from $1 million to over $10 million. Location, size, current profitability and condition of the property and equipment will affect the price.
Do I need any qualifications to own a pub in Australia?
A: No, you don’t need qualifications to own a pub but you will need to get the appropriate liquor licence. Requirements vary by state but generally you will need to pass a fit and proper person test and complete a Responsible Service of Alcohol (RSA) course.
How long does it take to buy a pub?
A: 3-6 months depending on the complexity of the sale, licensing requirements and due diligence.
What are the most profitable pubs in Australia?
Profitability can vary greatly but generally pubs in high foot traffic areas that offer food, drinks and entertainment tend to be the most profitable. Pubs with a good reputation, as evidenced by positive online reviews, also tend to be more profitable. Gastro pubs in urban areas and pubs in tourist hotspots tend to have higher profit margins.
How has COVID affected the pub industry in Australia?
A: COVID has had a big impact on the pub industry with many businesses forced to close temporarily and reduce capacity. But the industry has shown resilience with many pubs adapting to the new normal by introducing takeaway and delivery. As of 2023 the industry is starting to recover with consumer confidence and spending on the rise. Cost of living pressures in 2024 however are impacting consumer spending.
Ready to go?
So there you go, avoid these 7 mistakes and you’ll be good to go when buying a pub in Australia. Remember to research, plan and be agile.
Our team has helped a lot of Australians accomplish their dream of owning a pub, if we can help you too just reach out!
