Off-Premise Alcohol Sales Are a Lifeline for Bars and Restaurants That Should Continue Permanently

Mark Willingham Uncategorized

Off-Premise Alcohol Sales Are a Lifeline for Bars and Restaurants That Should Continue Permanently

Source: https://vinepair.com/

TIM MCKIRDY

May 20, 2020

When the Covid-19 pandemic first took hold in the U.S., most bars and restaurants across the country were forced to close or transition their operations to delivery or takeout. As on-premise sales dropped off a cliff, state governments responded with temporary executive orders allowing bars and restaurants to sell sealed, unopened bottles of wine, beer, and spirits – and, in some cases, pre-made cocktails – to go.

In the ensuing two months, it has become clear that the provision is not a cure-all: Off-premise alcohol purchases replace just a sliver of sales at many restaurants and bars. Looking at the national picture, combined food and drinks sales across the U.S. are 68 percent lower than would normally be expected for this time of year, according to the most recent Nielsen CGA on-premise report, published April 29. VinePair spoke with cocktail and wine bar operators in four states who have been offering alcohol (and in some instances food) for curbside pickup or delivery. These operators reported revenue losses of between 75 and 96 percent since Covid-19-related closures began.

While the contribution of off-premise sales is small, operators say the continued ability to do so will be crucial for the industry’s recovery. At the same time, they acknowledge that the current to-go models present their own challenges, and are wary of the obstacles that stand in the way of making alcohol to go a permanent reality.

EVERYTHING YOU CAN ORDER ONLINE TO STOCK YOUR HOME BAR FOR THE LONG HAUL

Nationwide, 32 states plus the District of Columbia have relaxed licensing laws to allow bars and restaurants to sell sealed, unopened bottles of wine, beer, and spirits. Of those states, almost 20 are also allowing sales of pre-made cocktails to go. This is an important distinction, operators say, as mixed drinks offer exponentially greater profits than selling sealed liquor bottles.

In other states, where cocktails to go are allowed, contrasting messages from city and state officials left some bars in limbo for a period, missing out on crucial revenue. Others found themselves in a “do we or don’t we?” situation, as the initial executive orders were signed for 30- or 60-day periods, but have since been extended. Those operators that are now selling alcohol to go operate in a reality where their current business model could be taken away with little notice.

SETTING THE TREND

New York became the first state to allow bars and restaurants to sell alcohol, including cocktails, for off-premise consumption, when Gov. Andrew Cuomo signed an executive order on March 16. The only proviso set out by Cuomo was that the drinks should be accompanied by food, but that could be something as insignificant as a pack of chips.

Chris R. Swonger, president of the Distilled Spirits Council of the U.S. (DISCUS), describes the move as “an important trendsetter,” providing a template that was soon replicated to varying degrees in multiple states around the country. Crucially, he says, the provision offered valuable income for on-premise businesses during a particularly trying time.

And it’s not just businesses that are benefiting from the new landscape, Swonger adds. “Cocktails to go is a provision that consumers are embracing today and I think they’ll continue to embrace,” he says. Swonger wants bars and restaurants to be allowed this revenue stream post-Covid-19 and says it will help relieve “the crush of the economic impact” of the pandemic.

COMPETING AS AN ALCOHOL RETAILER

Not all the states that have temporarily relaxed their alcohol laws followed New York’s lead. In Illinois, bars and restaurants are allowed to sell wine, beer, and spirits in their original, unopened containers, but selling cocktails to go is not allowed.

At Kumiko, a cocktail bar in Chicago’s West Loop neighborhood, beverage director Julia Momose contends that the math of selling full bottles at retail prices doesn’t add up for an on-premise venue. Established retailers, which buy in much larger quantities, have access to larger discounts, she explains. In order to compete with these stores, her bar would have to accept profits of around $5 for every $30 bottle of liquor it sells. Even then, “no one’s going to come to the bar to buy a full bottle of gin every day,” Momose says. But, if she were instead able to use that bottle to make cocktails, Momose says she could mix 16 drinks with it and sell them for a total profit of more than $100.

In the meantime, Kumiko is generating revenue by selling rare spirits and liqueurs, along with beer, sake, mixers, and non-alcoholic cocktails. The bar is also offering cocktail kits and meal kits but is only open for business one day a week because its entire staff is currently furloughed. Sales during the one day that Kumiko is open stand at around 20 percent of a normal, non-Covid day, Momose says.

While some bars in Chicago have flouted state laws and are offering cocktails for sale illegally, Momose is tackling the issue by lobbying for change. Along with other industry advocates, she founded Cocktails For Hope, an organization that aims to raise awareness for the cause, putting pressure on politicians to allow license-holding establishments to sell sealed, pre-mixed cocktails.

Chicago-based alcohol lawyer Sean O’Leary is helping the organization draft a bill to send to the governor. The proposal sets out a clear guideline for how to-go cocktails can be sold safely and responsibly.

Among the measures, the group believes all deliveries should be carried out by bartenders and servers rather than third-party services. This will reduce any risk of alcohol being sold to minors or those who are overly intoxicated, because bartenders and servers are educated on these factors during BASSET training. (Illinois state law requires all on-premise servers and those checking IDs for alcohol service to be BASSET-certified.) This provision also means license holders will be fully accountable for any violations. “We know the concerns and now we are bringing our solutions,” O’Leary says.

CONTINUING ALCOHOL TO GO AS BARS AND RESTAURANTS REOPEN

As of last week, on-premise establishments in some California counties are now permitted to offer limited dine-in services. But throughout the state, bars and restaurants can still act as off-premise retailers of wine, beer, and spirits.

According to John Carr, public information officer for California’s Department of Alcoholic Beverage Control (ABC), the temporary licensing laws will remain until the state determines that normal business operations can resume. “At that time, ABC would provide 10 days notice to ABC licensees that the temporary Notices of Regulatory Relief will conclude,” Carr explains.

Like New York, many operators within the state are generating revenue by selling cocktails to go. But not all license holders are enjoying this provision.

In California, two types of liquor licenses allow on-premise businesses to sell wine, beer, and spirits: Type 47 and Type 48. The former designates restaurants and bars that have fully functioning kitchens – establishments that “make actual and substantial sales of meals for consumption on the premises,” according to the ABC. The latter is typically held by nightclubs and bars that do not have kitchens.

During Covid-19, only establishments with Type 47 licenses have been able to offer cocktails to go, while those holding the Type 48 license have been limited to selling unopened bottles of alcohol. H. Joseph Ehrmann, owner of San Francisco’s Elixir, says the provision unfairly discriminates against bonafide cocktail bars such as his, which operate with the latter license. “[Elixir] is one of the original bars that brought cocktail culture back, and now the government’s telling me I can’t make cocktails,” he says.

In the early stages of the pandemic, Ehrmann generated cash by selling off a large portion of the bar’s notable whisk(e)y collection. Now he’s looking at the to-go model as something that will be much longer-lasting and has started selling cocktail kits that pair packaged mixers with unopened bottles of liquor.

Elixir’s gross revenue during the pandemic is 75 percent lower than normal. And the profit margin on sales is lower than normal because the bar is operating as a full-bottle retailer rather than a cocktail bar. As Ehrmann explains, cocktails allow for markups of between 80 and 85 percent, while selling full bottles returns a profit margin of around 30 percent.

THE CHALLENGES OF ALCOHOL DELIVERY

In Missouri, bars and restaurants can sell full bottles of liquor as well as cocktails to go. But operators are still unsure whether they’re allowed to offer delivery, which could increase their earning potential. “We are still waiting to make sure delivery is legal,” says Brock Schulte, beverage director of The Monarch, an acclaimed cocktail bar in Kansas City.

Schulte says there was similar confusion at the start of the Covid-19 pandemic over whether he could sell any form of alcohol to go. On the one hand, the Kansas City mayor’s office told businesses they would not be punished for selling bottles of unopened wines, beer, and spirits, and cocktails to go. But the state government took a further two weeks to give the green light. Not wanting to jeopardize his bar’s liquor license, Schulte waited for state approval. Based on The Monarch’s current sales of full bottles of alcohol and cocktails, along with a small selection of bar snacks, Schulte estimates the bar lost out on between $20,000 and $30,000 of sales in the two weeks before the state granted formal approval.

For others, the quandary of alcohol delivery is a question of financial, rather than legal, viability. Washington D.C. wine bar The Eastern is offering wine, cocktails, and food – ranging from charcuterie to full family meals – for curbside pickup. General manager Robert Morin expects to be allowed to do so until at least November. While his bar can technically also offer delivery, Morin says the numbers don’t add up.

The Eastern’s sales are currently less than 10 percent of what they were prior to Covid-19. Morin says he can’t afford to pay the fees associated with working with third-party delivery apps, which typically amount to between 20 and 30 percent of each order total, according to Eater. Rehiring a staff member to carry out delivery also isn’t viable, Morin says, because of the cost of the courier insurance required to cover them. “The insurance alone is about a week of sales,” he explains. “Spread that out from here until November and then past that, it does not make sense.” Either way, the additional costs negate the value of offering delivery.

LOOKING TO THE FUTURE

All the professionals interviewed for this piece – from the bar operators in four different states to beverage lawyers to the president of a national trade organization – agree that on-premise businesses should be allowed to offer alcohol and cocktails to go permanently. On that front, there appears to be some hope on the horizon, with the governors of Florida and Texas recently publicly stating their support for continuing alcohol to go once Covid restrictions are lifted.

As part of its response to Covid-19, Florida has allowed the sale of unopened bottles of alcohol, as well as cocktails to go. Florida Gov. Ron DeSantis recently stated to a local news organization: “I allowed (restaurants) to deliver alcohol, I think that’s been pretty popular. We’re probably going to keep that going, maybe we’ll have the legislature change the law on that, but I think that that’s been good.”

Meanwhile, Texas Gov. Greg Abbott announced alcohol-to-go sales will continue indefinitely, even as restaurants in the state are now allowed to operate at 25 percent capacity. “Alcohol-to-go sales can continue after May 1,” Abbott tweeted on April 28. “From what I hear from Texans, we may just let this keep on going forever.”

(In Texas, alcohol-to-go orders must be accompanied with food, and all bottles must be sold in their original, sealed packaging. Operators are not allowed to sell cocktails to go, and distilled spirits can be sold in formats no larger than 375 milliliters.)

Other positive signals for the movement? Some states are gearing up to allow cocktails to go, even as the national conversation for bars and restaurants shifts toward reopening with capacity caps.

On Friday, New Jersey Gov. Phil Murphy signed legislation allowing restaurants, bars, and taverns to sell cocktails to go. (Bars and restaurants were previously limited to selling unopened bottles of wine, beer, and spirits.) The temporary legislation will not expire until six months after the end of the state of emergency, or six months after Covid-related occupancy restrictions have been lifted – whichever falls later. In Pennsylvania, the Senate passed a similar bill last week. All that’s now required before cocktails to go become a reality in the Keystone State is the signature of Gov. Tom Wolf.

While the words and actions of governors show a positive signal of intent, the executive orders do not mean selling alcohol to go will continue permanently.

“Typically, an executive order will remain in place during the emergency and remain in place through its expiration, unless extended,” explains Miami-based beverage lawyer Ryan Malkin. “In the case of cocktails to go, some governors have suggested that this will continue after the pandemic, meaning after the executive order expires. To do so, the likely path will be through legislative action.”

That process will require a member of a state legislature to propose a bill, which will then need to be voted on and approved by the legislature, and finally signed into law by the governor. Many of the operators VinePair spoke with predicted strong opposition for these potential bills from alcohol retailers, signaling a potential roadblock to permanent change.

Some operators, including Schulte and Ehrmann, are in contact with lobbyists who plan to write and propose bills. They’re also communicating with fellow bar owners in their cities to gain traction for the movement. Through its organization Spirits United, DISCUS has provided a platform for consumers to petition for such causes like allowing cocktails to go in New Jersey. Spirits United is now running a similar campaign for Oregon.

Selling alcohol to go has given bars and restaurants a lifeline during Covid-19. The temporary orders have also shown that selling wine, beer, spirits, and cocktails to go can be done responsibly. That opportunity might never have been available in many states otherwise – and certainly not at this scale. If potential legislation is met with opposition down the line, evidence of the measures bars implemented to sell responsibly during the Covid-19 crisis will be crucial in making their case.