Nightclub Business models in Latin America

I love nightclubs and in particular in Latin America. Everyone is dancing, drinking and flirting. Besides all of that the economics of how they survive and market themselves is also quite interesting.

I will cover Panama and Argentina here as I have just been to both of them and done a fair amount of research ;-).

Panama

In Panama nightclubs follow several tried and true methods of filling the shop. There in a “regular” night club a drink with local spirits costs $3-4 and a bottle of rum, vodka or seco costs between $30-$35 when there aren’t promotions. Beer is normally reserved for foreigners unless their is a promotion.

In Panama people normally go to the clubs from 11pm-1am. The clubs are normally packed from Tuesday to Saturday. Most clubs close or quiet down around 5am, where the more active people go on to after hours clubs that generally close around 9am.

If a couple goes out on a date in Panama, the guy always pays everything. Guys are generally very generous and buy drinks for single girls. Many girls make it a principle to pay their own drinks unless they are on a date to maintain their independence. Often a group of friends will buy and share a bottle of rum, seco or vodka.

Bottle promotions

These promotions are often advertised on the radio to get people in. They are often done together with the distillery or importer. Mostly these offers will be $20-25 for a bottle of rum or 2 for 1 deals on beer. There will generally speaking be girls running around in tiny or tight clothes by the sponsoring distillery pushing the promotions.

The economics of these promotions are pretty straightforward. They do bring people into the club who are spending money.

Open Bar

Open Bar allow their patrons to drink all night for the price of the cover to get into the place. In Panama the price is typically $5-$10 depending on the quality of the place. Normally the booze offered is limited to local Rum, Seco and Vodka. Sometimes they also allow local draft beer.

Each of these places have their little tricks to make sure that people don’t drink to fast. The most popular of course being the slow bar. It is all important to befriend a bar tender in these circumstances. Many foreigners tend to tip heavily to get service, although this might actually turn the night into an even more expensive night than going to a regular club.

Drinks are normally served in plastic glasses filled with ice, 2/3 full with booze and then some sort of soda.

Many of these places also have special offers on bottles, where you get a table. A bottle might be relatively cheap say $15. This allows you to skip the hassle of running to the bar every five minutes.

People might wonder how these clubs can survive, but my guess is that the economics works out just fine, just like in all you can eat buffets. There is probably a hardcore group that drinks more than 5 drinks and a large group that drink below this. Given that salaries and booze is cheap and remembering that places have been offering this for years, I’m guessing that they do alright for themselves.

Ladies Night

Ladies Night was always a loss leader, but no where is it quite as developed as in Panama this is a variation on the open bar concept. I think the only place still offering it in grand style is Rock Cafe on Tuesdays. Here no guys are allowed into the club until 11pm. Before 11pm it’s girls night out they enter for free and receive with free ‘novelty’ drinks like margaritas, shots etc., contests and male strippers.

At 11pm there is a long queue of guys outside waiting to get in, who happily pay their $10 for open bar and a club filled with girls who have already “warmed up”. It’s a stroke of marketing brilliance even though I am not quite sure how the economics of the thing works out. The bar in Rock Cafe is notoriously slow and it does get unbelievably packed at times, so it might be that simple. Although the paying patrons (ie. the guys) are generally outnumbered at least 2-1, so it’s still quite uncertain to me how it works out.

Price as an entry barrier

Panama used to have no restrictions on who clubs could or couldn’t deny entry to. Many places in particular above mentioned Rock Cafe had very blatantly racist door policies. This finally caused the passing of a law banning the practise. So now Rock Cafe is probably the club where you see most black people.

What did the club owners do to avoid the disturbing fate (heavy sarcasm here) of Rock Cafe? They started hiking the cover charges and upping the price of drinks. Cover was probably never more than $5 before but now $10 is not unusual. Some places like Next even cover $15 a head. Did this work? Well more or less. But it started a new trend where high cost became a marketing method. The more expensive a place, the more exclusive it was and the more people wanted to be seen there.

The downside to this strategy is that it is very difficult to remain the “hip” place for a long time. After 3-6 months many new exclusive places start down the slippery slope of bottle promotions and end up in the world of open bar.

The funny thing is that Rock Cafe at the moment is one of the longest operating clubs in Panama. While they probably don’t make as much money on a saturday night as one of the hip clubs do, they make a steady stream of money 4 nights a week year in year out.

Argentina

Argentina is a Latin American country, but with a very European feel. The locals like to go out, but they seem to have less of a disposable income than in Panama. This means things are a little bit different than in Panama. Heavy drinking also seems less common than in Panama, whether this is related to their low disposable income or not I’m not sure.

The night in Argentina starts in the resto-bars where people arrive at 11pm-1am. They move on to the night clubs afterwards. These clubs are normally open to 9am, when the more active revellers go to after hours clubs that sometimes stay open to the afternoon.

In an average place a drink costs around AR$10 ($3.33) or roughly the same as Panama. Beer is a bit cheeper and seem very popular. We didn’t see people with bottles of booze, so it seems like this is not very popular there.

Again probably due to the lower disposable income, we saw many groups of friends sharing drinks or beers. This was a bit strange to me, but was very common in almost all the places we went.

It also seemed common that couples paid for each their own drink. This is normal here in Denmark, but to me unheard of elsewhere in Latin America.

Cover includes a drink

Almost all clubs charge a cover of between AR$15-35 (US$5-12). This generally gives you a ticket for a drink. It is almost always cheaper for girls but the girls only get to drink beer where guys can normally pick mixed drinks for their ticket.

I believe this is also kind of strange, in Panama with Ladies Night, the club owners realize the importance to their business of having a club filled with slightly inebriated girls. You would have thought that they would encourage mixed drinks for the girls in Argentina as well.

Tickets, tickets

In many but thankfully not all bars you can not pay a bar tender directly. You must go to a cash register, order your drink and receive a ticket. You then proceed to the bar tender, give him your ticket and repeat your order. This is highly annoying and indicates a lack of trust in the bar tenders. Maybe they used to give free drinks to people?

Alternatives

One club Shamrock in Recoleta does thing a bit differently and seems to be doing well. The owner is Irish and was probably frustrated seeing people not drinking. When you pay the cover you get 4 tickets each worth AR$5. With this you can buy what you like. Beers are AR$5 and drinks AR$8. So they are already relatively cheap. The benefit is that people seem to be a bit more lively than in other clubs. My guess is that his place is more profitable than an average Buenos Aires night club.

Profit?

Judging by the sharing of drinks and the ticket system it appears that for many club owners the cover is all they make. Very few people appear to be buying drinks besides the one that comes with the cover. Some of the clubs are very large so I’m sure they make good money anyway, but it is a very different business model than in Panama.