|December 2008 • Vol. 15 • Number 5
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Liquor licenses harder to sell in chilly economy: Greater competition ahead for bars and restaurants
By Gary Hoffman
REGION They aren’t on the rocks, but the cool economy has chilled, stirred and shaken restaurants and bars selling liquor in the Grand Traverse region.
Photo by Michael Lancashire
Consumers are hanging onto their wallets, owners’ businesses may be worth less than they thought, and competition from establishments with new forms of state approval is looming, owners say.
Meanwhile, the commerce in licenses has been particularly soft in the Grand Traverse region’s more rural areas, state statistics suggest. A number of once-thriving establishments like Woody’s Settlin’ Inn in Northport have closed down and gone onto the selling block with their licenses. And they have stayed there.
Yet, there will always be entrepreneurs who dream of opening a bar or restaurant or expanding operations. For them, these liquor licenses are a key to the future. And they have greater prospects of obtaining licenses right now. Some are being held in escrow for potential sale. Others are expected to be created under a new state law promoting downtowns and redevelopment areas. That could be a minus for people with existing licenses, however. Paul “Buzz” Goebel, owner of now-shuttered Woody’s Settlin’ Inn in Northport, blames the state, saying it “flooded the market with cheap liquor licenses.”
There has been an upward trend in the number of on-premises liquor licenses placed in escrow – a form of cold storage – in Grand Traverse County over the past three years. That’s just the opposite of the recent statewide trend, according to the Michigan Restaurant Association.
Peter and Karen Bardenhagen, owners of the now shuttered Sugarfoot Saloon, have felt the chill of the economy.
“The market is pretty soft, and then you have just about every law you could have against you with a liquor license,” Peter Bardenhagen said.
Drunk driving laws are a major consideration. “Unless you are in a downtown location where people don’t have to drive, you are hurting.”
The Bardenhagens’ license is in escrow and they intend to sell the Sugarfoot Saloon in Cedar with its license as a package deal. “That’s unless someone really wants it and wants to step up to the plate” and pay a high price for the license alone, he said. Otherwise, it would be hard to sell Sugarfoot by itself, he said.
The restaurant is a poster child for the difficulty of running an establishment in a low-population area and without an active tourist destination nearby. It began to struggle after the Sugar Loaf ski resort shut down and as the state economy flattened out.
The Bardenhagens are now running Little Foots, a to-go restaurant on West Silver Lake Road.
Even thriving businesses are finding the market for restaurants and licenses a bit chilly. Stubb’s Sweetwater Grill in Northport is for sale, with its license as part of the package. Several years ago, the asking price for the restaurant was about $900,000. The price tag has come down to $690,000, according to a Chase Group, Ltd., listing. Goebel said he hasn’t had any takers for his license for Woody’s Settlin’ Inn, right across the street. He is currently asking $100,000 for it, and “I won’t get that.” He says he would probably accept as little as $80,000.
He said he thought long and hard before separating the license from the business. “I don’t see a turnaround for Northport for five to eight years,” he said. “I hung on as long as I could financially. I think my license is overkill for what we have in that area, and I don’t feel guilty about somebody buying it from outside the town.”
A special resort license dating back to the 1950s, it could be used anywhere in the state, he said. The fact that he hasn’t found a buyer is an indication of an extremely soft market, he said.
Robert “Shea” Bonhag, a business broker with the Chase Group, Ltd., said he isn’t seeing a lively trade in taverns and restaurants either. “We have had a couple for sale in northern Michigan, but everything is very slow,” he said.
The slowdown may be a worrying sign for current liquor-license owners locally. Statewide, it’s more common to have too many bar or restaurant owners chasing after too few licenses, says Andy Deloney, vice president for public affairs at the Michigan Restaurant Association.
Glass is half full in TC
While rural areas are struggling, the interest in Traverse City seems greater. A number of entrepreneurs are apparently eager to enter the crowded downtown restaurant scene.
In the near future, Rob Bacigalupi, deputy director of the Traverse City Downtown Development Authority (DDA), expects four or five business people to apply for a new kind of liquor license designed to promote economic development. The city has approved downtown as a development district eligible for the licenses.
In mid-November, the DDA was waiting to hear back from the Michigan Liquor Control Commission (MLCC) on the city’s proposal. The licenses cost just $20,000 – a bargain in the high stakes world of liquor licenses.
The number of new licenses is based in part on the amount of investment in a downtown or other district. Under the law, a community can pursue one new license for its downtown for every $200,000 in investment over the past five years. For a newly-defined development district, the total investment has to be $50 million or more.
State Sen. Jason Allen of Traverse City sponsored the law creating the new opportunity in 2006. According to the MLCC, 27 have been issued across Michigan so far.
While establishments with the new licenses will assuredly compete with existing businesses, they won’t enter the state’s normally lively trade in liquor licenses. They can’t be sold, they have to be used in an approved district, and must be returned to the state if a business is shut down.
Lobbying for licenses
Fortunately for business owners, reinvestment liquor licenses aren’t the only way to get a brand-new liquor license today.
On Sept. 18, Martha Ryan, owner of Martha’s Leelanau Table Café in Suttons Bay, received one of the rarer licenses – a Class C resort type. She had earlier tried to buy an existing license. But the three available in Leelanau County were either too expensive or were not available without purchasing the existing business, she said.
As the MLCC wasn’t ready to issue more standard on-premises licenses for Leelanau County, she applied for a resort license. Licenses of this type can be a granted in resort communities, although the commission rarely authorizes new ones and has kept its total number to about 500 statewide. When the commission held its normal session in June, it gave its sole new resort license to someone else. But Ryan kept at it.
“I had quite a lot of lobbying going on. My town really supported me, and that’s a big deal.”
She put together documentation to prove that Suttons Bay and Leelanau County were vacation destinations that experienced huge increases in population during tourist season.
“Much to my amazement, they (commissioners) met again in July and looked at a couple of applicants, and awarded me a resort license,” she said.
In the end, the commission made allowances for the realities of running her business, Ryan said. Her application wasn’t marked down for not buying licenses available at a higher price than she felt she could pay.
An establishment doesn’t need to be a resort with lodging to get a resort license, she noted. But it helps to be in a resort community. The licenses are designed to help communities meet higher seasonal demand for alcoholic beverages.
But the state’s Restaurant Association’s Deloney says they don’t go far enough. Northern Michigan isn’t well served by the state’s rigid population-based system for allocating licenses, he said. Historically, the MLCC has apportioned too few to resort areas, he contends. “Especially in northern Michigan – and other of parts of Michigan where there is a small year-round population – there are very few licenses but a big demand for alcohol during the tourist season.
“The problem with the licensing is that it creates inefficiency and inconsistency, since the government essentially decides who and where and what sort of alcohol can be sold.”
Still, some bureaucratic obstacles have been smoothed out, he said. About seven years ago, the state made it easier to transfer on-premises licenses within a county, not just a local community. That brought licenses out of escrow and into the overall supply available to businesses.
“Since then, we know that the number of licenses in escrow has continued to dwindle across the state,” he said.
Licenses typically go into escrow when an establishment goes out of business, is sold, is closed for the season, or undergoes renovation. Escrows, likewise, enable owners to preserve their license for a later sale.
“Selling a license is a main reason that people put it into escrow,” Deloney said.
Buyers often pay $75,000, $100,000 or more to buy one from another business. They also need to be ready to deal with a formidable state liquor control bureaucracy and with their local government to gain final approval.
MLCC offers an array of licenses, ranging from Class C for beer, wine and liquor on-premises, all the way to Class G for golf courses and H for hotels, among many others.
There are also licenses for brew pubs and small brandy manufacturers. BN
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