Arz al-Lubnan Hookah Bar

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Hookah Bar Business Plan

Market Analysis Summary

The market for hookah bars in the United States has grown significantly in the past decade. Hookah-bars.com reports that, as of October 2008, there were at least 470 hookah bars in the U.S. and an average of five new hookah bars were opening every month. From these numbers, it can be estimated that between 2-5 million current hookah smokers live in the United States. Of these hookah smokers, approximately 10% are of Middle Eastern origin and the remaining groups are of American origin but have grown to embrace hookah culture.

In Trendytown, Arz al-Lubnan Hookah Bar will focus on locals in the greater Trendytown area of Middle Eastern origin and young professionals.

Market Segmentation

Arz al-Lubnan Hookah Bar has determined the following market segmentation for potential customers:

Middle Eastern Americans: Area residents who have either immigrated from the Middle East or have family origins in the Middle East. They value the connection that hookah bars provide with their culture and traditional elements. As many Muslims do not drink alcohol, they do not feel alienated in hookah bars, which they sometimes do in bars which focus on liquor. They appreciate being able to meet other Middle Eastern Americans at hookah bars, both for friendship and for dating. While this is a small market segment in Trendytown, they use hookah bars more frequently than other groups.

College Age Residents: College students who seek an alternative to bars and parties on their campuses seek out different experiences. Hookah bars provide such an experience because of their exotic ambiance, colorful atmosphere, focus on group dynamics, and the element of danger/risk provided by smoking. Furthermore, those between the ages of 18 and 21 can frequent hookah bars while they cannot go to many bars that serve alcohol.

Young Professionals: 22-35 year-old professionals who are tired with bar culture sometimes react against it by looking for other activities. They seek locations where they can congregate with friends, talk, and share a new experience. However, they are turned off by hookah bars with a high percentage of college age customers.

Market Analysis
Year 1 Year 2 Year 3 Year 4 Year 5
Potential Customers Growth CAGR
Middle-Eastern Americans 3% 500 515 530 546 562 2.97%
College Age Residents 3% 15,000 15,450 15,914 16,391 16,883 3.00%
Young Professionals 3% 30,000 30,900 31,827 32,782 33,765 3.00%
Total 3.00% 45,500 46,865 48,271 49,719 51,210 3.00%

Target Market Segment Strategy

Arz al-Lubnan Hookah Bar will target Middle Eastern Americans and young professionals, and not college age residents. By seeking the target market segments described here, Arz al-Lubnan Hookah Bar intends to establish a base of Middle Eastern devotees who will serve to give the bar credibility and authenticity. These devotees will feel comfortable bringing their non-Middle Eastern friends to Arz al-Lubnan Hookah Bar. These additional customers must be sought to prove Arz al-Lubnan Hookah Bar as a franchisable model for American consumers. Therefore, Arz al-Lubnan Hookah Bar will be positioned for young professionals as an alternative to bars where community can be developed, as well as a non-threatening fusion of American and Middle Eastern cultural aspects, rather than a total immersion in Middle Eastern culture.

These markets exist throughout the United States and the Trendytown location will serve as a proving ground for the Arz al-Lubnan Hookah Bar model.

Service Business Analysis

Over 470 hookah bars are in existence in the United States, spread throughout the country with some concentration in cities. From 2000 to 2004, at least 200-300 new hookah bars opened for business, according to the journal Smokeshop. Generally, as long as 80% of sales are derived from tobacco, smoking within hookah establishments can be permitted by law.

The hookah bar industry is highly fragmented, with most bars being independent establishments. A small percentage open a second or third location. There are currently no national hookah bar franchises.

Indirect competitors to hookah bars are coffee shops, bars that serve liquor, and cigar stores/tobacconists.

Typically, hookah tobacco is sold and pipes are provided to customers in hookah bars. Tobacco is sold in rounds which serves a group of four to six for about an hour. Food and drinks are sold via waiter or bar service while customers sit in groups and smoke. While some attend hookah bars alone, customers typically attend with groups and sit at round tables with their group.

Competition and Buying Patterns

Hookah bar customers in the United States judge between establishments based on location (they will not be willing to travel too far out of their way for a hookah bar) the variety of flavors served, the atmosphere, and the additional food and drink options served.

Specific competitors for Arz al-Lubnan Hookah Bar include Ali Baba Hookah Bar, Babylon Hookah Lounge, Desert Cafe, and Zee's Smoking Corner.

Ali Baba Hookah Bar: With DJs and dance parties on weekends, Ali Baba's serves a younger crowd who enjoy meeting others.

Babylon Hookah Lounge: Also has DJs and tends toward a young consumer base. Older customers complain that the lounge is loud, much like a rave concert.

Desert Cafe: Loved by regulars for its owner and its atmosphere, Desert Cafe has plasma TVs, outdoor seating in summer and atmospheric lighting. The location is faulted for its low quality tobacco and lack of upkeep on their hookahs.

Zee's Smoking Corner: With an extensive list of flavors, Zee's also focuses on college age residents and drives away others with its loud music and party atmosphere.