When I was in college in Pennsylvania, many restaurants were BYO (“bring your own”) alcohol. I had always heard that it was due to strict liquor licensing laws in Pennsylvania, but had never dug into it further. Having heard from a variety of folks throughout the course on the challenges of licensing in the US, my interest was piqued and I decided to look into the policies and licensing costs in Pennsylvania.
Pennsylvania is one of 17 states that controls the sale of wholesale alcohol at a state level and one of 13 jurisdictions that also controls retail sales for off-premise consumption. [1] In practice, this means that to buy alcohol for off-premise retail consumption, you have to go to a state owned liquor store (similar to the structure in Canada), with the exception of some purchases of beer and wine below a certain percentage of alcohol content.
Philadelphia has a thriving food scene, with some estimates of 3.8 restaurants per 1000 people in Philadelphia (versus 2.8 in New York and DC, and 2.5 in Chicago). [2] Of those restaurants, more than 300 are BYOs. [3] But are licensing costs for restaurants the true driver of the flourishing BYO scene?
Liquor licenses in Pennsylvania are issued on a quota system, based on census statistics. [4] This scarcity leads to a significant secondary market for the limited number of on-premise licenses available. The Pennsylvania Liquor Control Board also periodically holds an auction for liquor licenses (limited to a single license per county or approximately 20 licenses per auction). At the recent September 2019 auction, the average cost of a license was more than $82,000 and the highest winning bid was for more than $256,000. [5] These prices aren’t anomalies -- in the March 2019 auction, the average winning bid was $95,000+ and the highest winning bid was $276,000+. [6] While I had initially assumed that licenses would be more expensive in urban areas because of demand, the quota system drives up prices in both urban and suburban areas. The highest selling licenses in both auctions in 2019 were for suburban counties because of their lower population density from the census limits the supply of available licenses.
Based on this research, the limited supply and high cost of liquor licenses for restaurants is undeniably a driver of the unique BYO scene in Philadelphia.
Another quirk I learned while researching this post? Pennsylvania has a carve out for restaurants and hotels without a “Sunday Sales Permit” to serve alcoholic beverages on Super Bowl Sunday, St. Patrick's Day and December 31st (if they fall on a Sunday). Cheers!
As a fellow Quaker, I have such fond memories of the Philly BYO scene... I remember hearing that a liquor license was very expensive, but hadn't quite realized that it was that high! This has huge implications for the restaurant business model, where many establishments make high margins on their drinks (especially now that we have learned that the price of a glass of wine is the same as the restaurant's wholesale cost). Some restaurants tried to make up for it by selling add-ons where they could take liquor and make it into a cocktail for you, but that wouldn't work for something like wine. I would be curious to know what other offsets they rely on to make the business model work, or otherwise if they operate at lower margins / go out of business more frequently. Unfortunately a few of my favorite BYOs from my college days are now gone...
ReplyDeleteWhat would you two Pennsylvania natives recommend that the state does to overhaul its liquor laws?
ReplyDeleteWhen we were in Philadelphia, it was very common for people to drive over to New Jersey (<30 minutes) and buy alcohol. According to this article (https://www.forbes.com/sites/kellyphillipserb/2014/05/04/union-privatizing-the-sale-of-alcohol-will-kill-children-lower-tax-revenue/#42ad3db7549c), Pennsylvania consumers buy nearly a quarter of their alcohol from other states.
ReplyDeleteHowever, the Pennsylvania Liquor Control Board contributes its annual profits (up to $185 million per year) to the state's overall budget, and changing the system would require convincing legislators that the additional revenues from capturing / taxing out-of-state sales would offset the profits that the state makes from being a monopoly. Unfortunately, I don't think many monopolies want to give up their business!
I agree with Lisa, I don't see a world where Pennsylvania gives up those revenues. I didn't realize that a quarter of the alcohol consumed in Pennsylvania came from other states, but even at that ratio Pennsylvania is making a lot off alcohol sales.
ReplyDelete