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How To Start a Hookah Lounge In 2023

How To Start a Hookah Lounge In 2023

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How To Start a Hookah Lounge In 2023

How To Start A Hookah Lounge

The culturally-rooted tradition of smoking hookah is still alive and well in America today, and hookah lounges create places for smokers to connect over this pastime. Hookah lounges appeal to a wide variety of customers, and opening a lounge of your own can be an exciting business opportunity. With relatively moderate startup costs and the chance to build up a loyal, returning customer base, your venture into the hookah lounge industry can be a financially rewarding one.

This article provides a detailed overview of the business, breaking down the steps you need to get started, and addressing common questions.

Business Overview

Hookah lounges, also called shisha bars or hookah bars, are venues where customers come to smoke flavored tobacco from a hookah, a traditional Middle Eastern water pipe. They are known for their relaxed, often trendy atmospheres. Customers can go to these lounges to smoke hookah with their friends, often all sharing a single hookah or hooking up multiple lines to a single hookah to smoke simultaneously. Most lounges provide a variety of shisha, tobacco with flavors like mint, fruit, and molasses.

Over the past 20 years, hookah use by younger generations has increased. The social nature of hookah lounges is particularly appealing to younger audiences. These lounges also create an appealing atmosphere during winter, encouraging consumers to come in, stay awhile, and get out of the cold. Hookah lounges feature live music and some offer teas, limited food selections, and even alcohol.

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Industry Summary

Industry statistics on the hookah lounge business is very limited, however, the overall hookah tobacco market is growing. The hookah tobacco market size was valued at $824.8 million in 2020 and is estimated to reach $1.7 million by 2030, registering an annual growth rate of 6.5%

The hookah lounge industry is continually evolving, with several key trends shaping its future.

  1. Healthier alternatives: As health consciousness increases among consumers, many lounges are offering herbal shisha, which is nicotine and tar-free, and thus, considered a healthier alternative.
  2. Diversification: To enhance customer experience and differentiate from competitors, many lounges are incorporating additional elements such as themed nights, board games, and exotic food and beverage menus.
  3. Digitization: Many lounges are now leveraging technology for online reservations, digital menu selection, and social media marketing to reach a broader audience.
  4. Premium offerings: A rise in disposable income has led to increased demand for premium hookah experiences, including high-end hookah equipment and gourmet tobacco flavors.
  5. Regulations: Laws against smoking are a threat to the industry. For instance, in New York City, establishments that serve hookah be permitted and are restricted from allowing people younger than 21 to enter. While cities, towns, and states work to ban flavored tobacco products by discouraging teens from vaping, shisha is increasingly being lumped into these laws.

Target Market

The target market for a hookah lounge is generally diverse, and it can span across several demographic groups, depending on the specific location and business model. However, here are some broad categories that are typically part of a hookah lounge’s target market:

1. Young adults: Hookah bars are particularly popular among young adults, typically ranging from ages 18-35. This age group often includes college students and young professionals who appreciate the relaxed, social atmosphere of a hookah lounge.

2. Multicultural customers: Hookah is a traditional Middle Eastern practice, and as such, people from or with ties to the Indian, Persian, Egyptian, Turkish, regions may be particularly attracted to hookah lounges. Traditionally, families, relatives, friends, and even businesses used hookah to connect, relax, and strengthen social bonds. Adults from these cultures are likely part of a lounge’s target market.

3. Social smokers: Unlike typical tobacco shops, hookah lounges emphasize the social aspect of smoking. People who enjoy hookah smoking in social settings, especially those who prefer hookah to cigarettes, are another target market.

4. Nightlife seekers: Many hookah lounges operate in the evening and late-night hours, often serving as a relaxed alternative to more traditional nightlife venues like clubs or bars. People seeking a laid-back nightlife experience might therefore be drawn to hookah lounges.

5. Health-conscious smokers: With the introduction of herbal shisha that is nicotine and tar-free, a new market segment of health-conscious smokers has opened up. These individuals enjoy the social and sensory aspects of smoking hookah but prefer to avoid the health risks associated with tobacco.

Remember, the specific target market can vary significantly based on factors like location, the local culture, and the specific offerings of the hookah lounge. Successful businesses will conduct thorough market research to understand their potential customer base.

Checklist To Start A Hookah Lounge

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If you’re thinking about starting a hookah bar business, it’s important to do your research first. Here is a checklist to help you get started.

Step 1: Assess the Market

Conducting thorough market research before starting a hookah lounge is crucial to determine if there is sufficient demand for this type of business in your area. Understanding the market demand helps you gauge potential profitability, identify your target audience, and avoid investing in a business with low customer interest.

Here are some ways to research the potential market:

Surveys and questionnaires: These can be an inexpensive way to gather information about potential customers’ interest in a hookah lounge. You could conduct these surveys both online (using platforms like SurveyMonkey) and offline with people who enjoy hookah in your community.

Observational research: Visit areas where your target audience frequents and observe their behavior, tastes, and preferences. Visiting other local hookah lounges can also help you estimate customer volumes and preferences.

Local demographics: Review demographic data available from local government or through online resources such as the U.S. Census Bureau. Look for data on age, cultural diversity, income levels, and lifestyle factors, all of which can indicate potential demand for a hookah lounge.

Online analytics: Use tools like Google Trends to analyze search data in your area related to hookah lounges. Social media can also be a valuable source of information. Explore relevant discussions, groups, and pages to gauge interest in hookah lounges.

Networking: Engage with local businesses, community organizations, and chambers of commerce to get a sense of the potential demand for a hookah lounge.

Test your idea: Host a hookah-themed event in collaboration with a local venue to gauge interest and collect feedback from potential customers.

Conducting detailed market research is essential to minimize risk and maximize the chance of success for your hookah lounge. It not only informs you about potential demand but also provides valuable insights into customer preferences, helping you tailor your offerings to meet local market needs effectively.

Step 2: Form a Business Entity

After researching demand in your area, the next step in starting your business should be to write a business plan.  A well-crafted business serves as the foundation and roadmap of your business as it helps articulate your vision, strategy, and operational plans to potential investors, lenders, and partners.

While every section of a business plan is essential, some specific sections carry additional weight when looking for funding for a hookah lounge:

Market analysis: This section, which should reflect the results of your market research, is crucial. It should describe the target audience, their preferences, key competitors, and overall industry trends. This demonstrates to potential investors that there is a market for your hookah lounge and that you understand it well.

Marketing and sales strategy: Investors will want to see how you plan to attract and retain customers. For a hookah lounge, you could include strategies like hosting themed nights, partnering with local businesses, and leveraging social media marketing. Your sales strategy should explain how you will upsell premium offerings, memberships, and events to maximize revenue.

Menu and service offerings: This section should detail your hookah lounge’s unique selling proposition. Explain your offerings like the types of tobacco, food and beverages, other amenities, and any unique aspects such as live entertainment or premium services.

Financial projections: This section is particularly important for investors. Provide a detailed breakdown of startup costs, expected revenues, operating expenses, and profitability forecasts. Consider including a break-even analysis to show when your hookah lounge is expected to become profitable.

A good business plan does more than just secure funding; it serves as a strategic blueprint, guiding your decisions and helping ensure the success of your hookah lounge.

Related: How to write a business plan

Step 3: Secure Funding

Securing adequate financing is the next step we will cover. This step may be the most difficult, especially if the concept of a hookah lounge is not very common in your area. A few common sources include personal savings, loans or investment from friends and family, and bank loans.

While the owners may have enough cash on hand to get started, the cost of renovations will often require other sources of funding. If personal savings are not enough to cover the startup costs, loans or investment will be needed.

One outside source can be through borrowing from family and friends. It’s important to realize that getting funding this way has the potential to damage relationships, so be sure to have clear repayment terms to avoid misunderstandings.

Banks and credit unions are common sources of funding for small businesses. These loans typically have lower interest rates compared to personal loans, and their repayment terms can be spread over several years. The Small Business Administration (SBA) is another lending option that banks can use. Many people associate the SBA as a source of funds, but instead, they provide a loan guarantee to the bank, so if the lender defaults, the SBA reimburses the bank a percentage of the borrowed funds.

A good credit history, a solid business plan, personal investment of typically between 15% and 25%, and sufficient collateral are all needed for a bank loan.

Related: Finding the money to start a business

Step 4: Choose a Location

Selecting and preparing the perfect location for a hookah lounge is the next step to tackle in the startup process. The ambiance of a hookah lounge significantly contributes to its allure, making the choice of location and its setup extremely important.

When it comes to choosing the right location for your hookah lounge, consider factors such as visibility, accessibility, and proximity to your target market. The ideal location would be in a high-traffic area frequented by your target demographic. After securing a suitable location, the next step is to set it up for business.

One major hurdle will be to ensure the space is in line with local zoning laws for a hookah lounge. As the owner of a hookah lounge, you should be prepared to field questions from residents, other store owners, and zoning administrators about the health risks of hookah. Gaining approval to start up a lounge can be a challenge, especially in a more conservative area, so be prepared with facts and figures. Highlighting hookah’s cultural importance can also help, but the public may question your business’s safety both when you start it up and once it’s established.

Once the zoning is confirmed, you can proceed with renovation work if needed. This may involve working with an architect or interior designer experienced in designing hospitality or entertainment venues.

Layout design is essential as it impacts the flow and overall customer experience. The seating arrangement should encourage relaxation and conversation. Privacy is another factor to consider; while some guests prefer open, social spaces, others might want more private, secluded areas.

For the interior design, the theme should cater to your target market’s preferences. The use of lighting, color, and décor elements can greatly influence the atmosphere of your lounge. Also, ensure there is adequate ventilation and air filtration systems installed as this is crucial for the comfort of your guests and employees.

Step 5: Register the Business

Starting a hookah lounge involves several legal steps to ensure your business is properly registered and compliant with local, state, and federal regulations. Each state has its own requirements, so it’s crucial to research local laws before opening.

To help get you started, here are the common legal requirements for a hookah lounge to take care of.

Choose a business structure: The first step is choosing the right business structure. The structure you choose affects your personal liability, tax obligations, and the way you operate your business. There are four main types of structures to choose from, which include, the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Many small businesses, including hookah lounges, choose to form an LLC as it provides personal liability protection and has potential tax advantages over the sole proprietorship.

Related: Comparison of business structures

Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.

During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.

Related: Finding a domain name for your business

Obtain business licenses and permits: As a hookah lounge, you’ll need to secure several licenses and permits. The general business registrations to be aware of may be include a local business license, sales tax permit, Employer Identification Number (EIN), and Occupancy Permit.

In addition to standard business permits, a hookah lounge may be required to obtain additional permits from the town, county, or state, giving it permission to provide and sell nicotine products. Verywell Mind notes that these lounges may need to obtain indoor smoking permits to operate and a state tobacco license. Tobacco is regulated by the Food and Drug Administration (FDA) and is subject to both federal and state laws. Tobacco sales laws vary from state to state and, in some cases, from city to city.

If a lounge serves food and drinks, then the business owner will need to hold a food service license, which may require the completion of a food safety training certification course and approval from the health department. If the location serves alcohol, then the business will need to obtain a liquor license as well.

The specific requirements vary by state and even by city, so check with your local and state government to understand the necessary permits and licenses for your area.

Related: Common business licenses, permits, and registrations by state

Step 6: Purchase Equipment and Supplies

With many of the tasks for setting up the business out of the way, we now move to purchasing equipment and supplies. Acquiring the right equipment and supplies is a fundamental part of launching your hookah lounge. Not only does this facilitate the running of your lounge but it also sets the tone for the atmosphere and the customer experience.

To start with, you’ll need to list all the equipment and supplies necessary for your lounge. Essential items include hookahs, hoses, mouthpieces, charcoal, diverse flavors of shisha tobacco, bowls, tongs, ashtrays, and cleaning supplies for maintaining your hookahs.

For lounges serving food and drinks, you’ll need an array of kitchen and bar equipment. This includes refrigerators, ovens, mixers, glassware, dishware, and more.

Working closely with your suppliers can provide a wealth of knowledge when it comes to selecting your menu items and setting the right prices. Suppliers often have insights into what products are popular or emerging in the market, and they can guide you on pricing based on their own cost structures and industry trends.

Also, invest in safety equipment such as fire extinguishers and first-aid kits, which are usually mandated by local safety regulations. Comfortable and durable furniture that aligns with your lounge’s aesthetic is also necessary, as it significantly impacts your customers’ comfort and overall experience, which means they will stay longer.

Step 7: Finalize the Marketing Plan

Marketing your hookah lounge effectively is an important component for establishing a successful business. Here are a few ways to market a new hookah bar.

Consider partnering with local businesses or community events to tap into local clientele. These partnerships can provide co-promotion opportunities and help increase your visibility in the community. Additionally, hosting themed nights or special events at your lounge, like live music, open-mic nights, or cultural events, can create buzz and attract diverse crowds.

Leveraging online platforms is also key. Begin by creating a strong online presence through a professional website showcasing your lounge’s ambiance, menu, events, and unique features. Search engine optimization (SEO) is necessary to ensure your website shows up in local search results when someone is looking for a hookah lounge or similar entertainment venues.

Another online strategy is to create a Google Business Profile for your hookah lounge. It’s a powerful tool that allows your business to show up in local search results and provides potential customers with necessary information like your address, hours, and even customer reviews. Encourage satisfied customers to leave positive reviews on your Google Business Profile, Yelp, or other review platforms as this enhances your reputation and attracts more customers.

Social media marketing, particularly on platforms popular with your target demographic, is also worth considering. Regularly post engaging content and interact with your followers to build a strong online community. Photos and videos showcasing your hookah lounge’s ambiance, events, and special offers can be particularly effective in attracting attention.

Finally, traditional advertising methods, such as print ads in local newspapers or magazines, or outdoor advertising like billboards or posters in high-traffic areas that your market will see, can also be effective depending on your location and costs.

Related: Low-cost ideas to market a new business

Step 8: Hire and Train Employees

Starting a hookah lounge involves various critical steps, one of which may include assembling a team of dedicated and competent employees. A typical hookah lounge will require various types of employees, including hookah servers, bartenders, chefs (if offering food), cleaning staff, and potentially managers to oversee operations.

Before diving into the hiring process, it’s crucial to thoroughly understand your obligations as an employer. These tasks include registering as an employer, being familiar with federal, state, and local labor laws, covering areas such as minimum wage, overtime, and anti-discrimination policies. Violating these laws can lead to legal complications and fines.

Related: Hiring your first employee

Step 9: Prepare to Open

Even after the major hurdles we covered are cleared, there are still a number of significant tasks that will likely still need to be completed. While this list covers many of the common tasks, every situation is unique. Here is a list of final tasks to consider.

Business insurance: Having the right insurance is vital for protecting your business from potential losses. General Liability Insurance and Property Insurance are commonly used, but you may also need specific policies such as Liquor Liability Insurance if you plan on serving alcohol.

Related: What types of insurance does a hookah lounge need?

Bookkeeping setup: Proper bookkeeping is critical for managing your finances effectively. You can choose to handle this yourself using software like Wave Accounting (FREE) or Quickbooks, hire an in-house accountant, or outsource to a professional accounting service.

Business bank account: It’s important to separate your personal finances from your business ones, and opening a business bank account is the first step in achieving this.

Credit card processing: Accepting credit cards is a basic necessity for modern businesses. Choose a reliable payment processing system like  Square or Stripe that suits your needs and budget.

Grand opening preparation: Plan for a grand opening that makes a splash. This could include special promotions, inviting local media, or hosting live entertainment to draw in crowds.

This material is property of StartingYourBusiness.com

Common Questions When Starting A Hookah Lounge

How much does it cost to start a hookah lounge?

Starting a hookah lounge can be a substantial investment, with costs varying greatly depending on a number of factors like location, size, and the specific services offered.

On average, expect starting a small to medium-sized hookah lounge to cost anywhere between $40,000 to $100,000. Below are some of the main expenses associated with starting a hookah lounge.

Lease or property purchase: The initial cost of leasing a commercial space for your lounge can range from a few thousand dollars to tens of thousands per month, depending on the location, size, and condition of the property. If you choose to purchase a property, the cost can significantly increase.

Renovations and decorations: The cost to renovate the space and decorate it to fit the ambiance of a hookah lounge can range between $5,000 to $30,000.

Equipment and supplies: Initial purchases of hookahs, tobacco, charcoal, hoses, and other related supplies can range between $2,000 to $10,000, depending on the size of your lounge and the variety of products you plan to offer.

Furniture and fixtures: Tables, chairs, lighting, and other necessary furniture can cost anywhere between $3,000 to $15,000.

Initial inventory: Initial stock of food and beverages, if you plan to serve them, can add an extra $1,000 to $5,000 to your startup costs.

Licenses and permits: Licensing fees vary greatly by location, but can range from $500 to several thousand dollars.

Insurance: The cost of insurance varies, but you should budget for at least $1,000 to $3,000 for the first year’s premium.

Marketing: Initial marketing efforts to promote your grand opening could range from $500 to $3,000, depending on the scale of your promotional activities.

Operating expenses: Lastly, it’s a good idea to have a buffer of operating expenses on hand to cover costs like utilities, salaries, and ongoing supply costs. For a small to medium-sized hookah lounge, these costs could be $5,000 to $15,000 per month.

Please note that these are rough estimates, and actual costs can vary greatly depending on various factors, including your location, the size of your lounge, and your specific business model. It’s also important to account for unexpected expenses, as there are often unanticipated costs that arise when starting a new business.

How profitable is a hookah lounge?

Hookah lounge profits will vary depending on the location and local demographics. A lounge in an area with a large Middle Eastern customer base and no competitors may bring in a larger number of customers than a lounge in a location where fewer residents come from a culture that embraces hookah. A lounge owner who strategically chooses the lounge’s location and designs the business to appeal to a broad customer base can maximize their profits and position their business for success.

To get a rough estimate on the profitability of a hookah lounge, let’s start by looking at revenues. On average, a hookah session can be priced anywhere between $15 to $25 per hour. If a lounge were to serve, for instance, 40 customers a day at an average price of $20, that would amount to about $800 in daily revenue, or about $288,000 annually assuming the lounge is open 360 days a year.

In terms of expenses, running a hookah lounge comes with a significant list of ongoing costs. The biggest expense is typically rent, which can range from a few thousand dollars to tens of thousands per month depending on location and size.

Salaries for employees, utilities, insurance, licensing, maintenance, supplies, and other costs can easily add up to several thousand dollars a month. For the sake of estimation, let’s assume these costs add up to $10,000 a month or $120,000 annually.

Using these rough estimates, and subtracting the total annual expenses from the total annual revenue ($288,000 – $120,000), would yield a net profit of around $168,000 a year.

Please note that these figures are only estimates, and the actual profit could be higher or lower based on the factors listed above, as well as other unforeseen variables. It’s always recommended to conduct a detailed financial analysis and create a comprehensive business plan before starting a hookah lounge.

The bulk of sales will come from hookah and shisha, and a lounge will either charge by the hour or by the size of the bowl. To increase profits more, consider offering additional options, like oxygen, food or snacks, and teas, enhancing a customer’s experience. This improved experience can encourage customers to stay longer and increase per-customer sales. The same is true of offering some retail items, like shisha and hookah supplies, that customers can purchase to take home.

What skills are needed to run a hookah lounge?

Starting a hookah lounge doesn’t require a business degree, but certain skills and advantages can help the lounge succeed.

Hookah knowledge: Knowledge of hookah can help a lounge owner choose quality products and offer lounge visitors an enjoyable experience.

Awareness of trends: A lounge owner who stays on top of current hookah industry trends, like using oxygen with a hookah, can ensure that the lounge offers the experiences and products that are in demand.

Cultural familiarity: Because hookah is rooted in many Middle Eastern cultures, awareness of the nuances and an overall sensitivity to these cultures can help a lounge owner create a spot inclusive of each culture. This can encourage potential customers to visit and provide them with an experience where they feel welcomed and appreciated.

Customer service skills: Experience providing great customer service can help a lounge owner ensure that customers have positive visits and build the foundation for a returning customer base.

Lounge or restaurant management experience: Previous experience working in or managing a lounge or restaurant is valuable. This experience makes a lounge owner aware of processes like inventory management and ordering, and the familiarity with food service regulations and precautions can be an advantage.

Staff management experience: Experience in hiring, training, and managing staff can help a lounge owner find staff who best represents the business.

What is the NAICS code for a hookah lounge?

The NAICS code for a hookah lounge is 713990.

The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.

Related: What is a NAICS code?

Resources:
National Association of Tobacco Outlets
Tobacconists Association of America

Author

  • Greg Bouhl

    With over two decades as an entrepreneur, educator, and business advisor, Greg Bouhl has worked with over 2,000 entrepreneurs to help them start and grow their businesses. Fed up with clients finding and acting on inaccurate and outdated information online, Greg launched StartUp101.com to be a trusted resource for people starting a business.

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How To Start a Hookah Lounge In 2023

How To Start a Hookah Lounge In 2023

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