The Lehigh Valley has been fortunate enough to experience growth over the last decade, and that success has made liquor licenses a valuable commodity. Restaurant liquor licenses in Pennsylvania operate on the “quota” system. Generally, new or existing operators seeking to open a new location with alcohol must buy a license from an existing licensee. This includes both traditional bars and restaurants that are mainly concerned with on-premises consumption and those primarily focused on to-go sales of beer and wine.
Since Pennsylvania has yet to have a specialized class of licenses for grocery or convenience stores, restauranteurs are competing for the same licenses as Wawa and Wegmans, who may have deeper pockets and more appetite to acquire available licenses. As these types of retail stores have continued to acquire licenses, there are even less available for bar and restaurant use pushing prices higher. In fact, at the most recent auction conducted by the Pennsylvania Liquor Control Board, a restaurant license in Northampton County was bought for $400,000 – the highest price in the entire 2023 auction and more in line with the price of licenses in the suburbs of Philadelphia.
Restaurants “Expanding” Their Options
Restaurants have a variety of options to maximize the value of their liquor licenses, such as participating in offsite events and other catered functions which, due to recent changes in Pennsylvania law, can now be conducted for an unlimited number of times (up from 52 per year) or by using a “wine expanded permit” to allow for a form of curated private beer and wine store. Restaurants adding these shops have been able to add to their operations and provide a convenient amenity to their communities (see Pa Rye Co’s “Bottle Shop” in downtown Allentown and Bolete’s B-side Bottle + Larder in Bethlehem).
The Rise of Beverage Companies
Additionally, while restaurant licenses are limited by quotas, manufacturers such as wineries, distilleries, and breweries can establish and open satellite tasting rooms without buying the right from an existing licensee. Some restauranteurs and entertainment businesses find the appeal of opening their own brewery or winery or partnering with an existing manufacturer to be worth the effort and a way to save the inflated costs of purchasing a liquor license on the open market.
With a manufacturing license, a restaurant can get many of the same benefits of alcohol service but with a focus on alcoholic beverages produced under a Pennsylvania license. In fact, depending on the type of license obtained, a restaurant can get the automatic right to make deliveries of their products, sell online, and sell products to go in addition to serving on their premises. These options allow for unique branding and marketing opportunities and, in many cases, offer their operations a better fit and benefits.
There are, of course, production and regulatory requirements and hoops to jump through. Any business should carefully evaluate its unique needs and offerings to determine the best path forward and ensure it can safely and legally operate with the license it chooses.
Ready-To-Drink Cocktails on the Horizon?
One ongoing legislative battle with the potential to change the landscape is the ability to sell spirit-based “ready to drink” cocktails. Currently, only licensed distilleries and the Pennsylvania Fine Wine and Spirits stores are permitted to sell distilled spirit products to go. While malt-based seltzers and related products are produced, consumers have been gravitating to the spirit-based versions, which are not fermented and are often perceived as a “cleaner” tasting beverage. While Pennsylvania and out-of-state distilleries offer many such options for consumers, the practical problem of selling these products through the state stores is that their brick-and-mortar locations are not well designed to shelve a wide variety of lower-proof products, which inherently take up significant retail space but don’t typically command high price points.
While selling such products through beer distributors offers a potential solution, doing so may hurt brewers by pulling distributor’s attention (and shelf space) away from brewers. One alternative suggested by some legislators and industry members is to allow spirit-based “ready-to-drink” products to be sold through restaurant liquor licenses, similar to how wine is sold through the “wine expanded permit.” This would allow consumers to purchase directly through “R” restaurant licensees and be an additional revenue source. The Commonwealth does not typically leave tax dollars on the table. The legislature will need to work out how to capture the liquor taxes that would normally be charged by the state stores to make the option feasible (state store products carry a significant tax in addition to sales tax).
Creative Paths Forward
For many businesses, the service and hospitality industry still operates in a difficult environment with increased costs and changing consumer preferences. Whether you are trying to make the best use of your existing license, considering buying one or thinking about charting your own path as a manufacturer, it is important to remain flexible and creative. Knowing all your options, the potential changes in our liquor laws and planning accordingly not only helps serve your customers and clients in unique ways but will help secure your business’s future for years to come.
Anthony M. Brichta is an attorney at Norris McLaughlin, P.A. in the Allentown office, where his practice includes Food and Beverage Law and General Business Law. In addition, Anthony serves as General Counsel to the Pennsylvania Distiller’s Guild, teaches distillation at Northampton Community College, and owns and operates County Seat Spirits with locations in Allentown, Easton, and Hellertown.
