Opening a business that requires a liquor license can be a rewarding endeavor. The City of Chicago is committed to assisting you through the process and helping you succeed. Obtaining a liquor license is a comprehensive process that involves both community input and facilities inspections. Whether you are looking to start a grocery store, restaurant, bar, nightclub, or are ready to buy or expand a business, this information will provide you with the basics you need to get started and help you make the right decisions.
The first step in applying for a liquor license is to meet with a BACP business consultant to determine what type of license is required and if there are any restrictions based on your business location. The consultant will guide you through the entire application process. You can make an appointment online or by calling 312.74.GOBIZ/ 312.744.6249.
Overview of the Liquor Licensing Process
The liquor license process is thorough to ensure that only responsible business owners are granted the privilege of obtaining a liquor license. Applicants are required to provide detailed information on ownership and business finances. Establishments must also undergo and pass inspections from several city departments, including the Departments of Health, Fire and Buildings.
Neighborhood sentiment is also taken into consideration; each legal registered voter within 250 feet of a proposed liquor license establishment is notified when an application is filed.
In some areas of the City it may not be possible to obtain a liquor license due to restrictions such as “dry precincts” or moratorium areas that prohibit the issuance of additional packaged goods and consumption on premises licenses. It is also important to note that liquor licenses can not be issued to an establishment within 100 ft. of a school, church, hospital, home for the aged, or library.
Whether you are starting a new business, interested in buying a business, or making changes to your existing business, your success is dependent on doing the proper research prior to making any commitments.
The City has developed a customer-oriented case management approach to guide applicants through the application process. A case manager works closely with applicants in filing applications and makes sure they understand all of the responsibilities of a licensed liquor establishment in the City of Chicago. Once an application has been paid for, the City is committed to making a decision on license issuance within 90 days.
Ian Adams is a big fan of BYOB restaurants. Like many Chicagoans, he started factoring in whether or not he could bring his own booze to a restaurant in his early twenties, when every little bit helped stay within his dining budget. But over time he realized there was something different about “Bring Your Own Bottle” restaurants — something beyond the lower price tag.
“They tend to be friendly, family-owned or single-proprietor restaurants who are generally really receptive to folks from the neighborhood,” he says. “Just great spots to go and eat and enjoy others’ company.”
But it wasn’t until he moved from Chicago to Washington, D.C., for a few years that he really came to appreciate BYOBs. He found just one such restaurant there and, after a while, it got a liquor license and stopped allowing the practice. When he travels he notices the same thing, too: Most cities don’t have many BYOB restaurants.
Now that Ian’s back in Chicago he wants to know:
Why does Chicago have so many BYOBs compared to other cities?
Ian’s question seems simple enough, but the basis of it — that Chicago compares favorably to other cities — requires firming up before we get to the heart of the matter: What’s made BYOB such a Chicago phenomenon?
What do we mean by BYOB?
Let’s define some terms, because — in Chicago and beyond — BYOB can mean many things.
One type involves a restaurant that actually has the ability to serve alcohol; it’s just that it chooses to also allow patrons to bring their own. In Chicago, say, a fine-dining restaurant with an extensive wine list may be BYOB, but it usually charges patrons for that privilege. These “corkage fees” sometimes hit as much as $75 per bottle. Many of these restaurants also check your label against their list to make sure it’s not a wine they stock. If they sell it, you have to buy it from them and take your BYO bottle back home.
Ian, though, is talking about the other type of BYOB experience, one where the restaurant doesn’t sell alcohol but allows patrons to bring and consume their own. The key term here is “allow,” because BYOB policies up to the owner and goals can change from day to day.
As for corkage fees at these places? The city’s Restaurant License and Zoning Reference Guide makes BYOB guidelines plain as day: “Fee: no direct or indirect fee may be charged for the allowance of alcohol consumption without a City of Chicago liquor license; this includes corkage fees.” (Of course, complaints about illegal corkage fees abound!)
How many Ian-style BYOB places are there in Chicago? Data on licensed restaurants that have no liquor license suggest the city could have as many as 5,905 BYOB restaurants, but that’s assuming every one of those spots would allow it. If we remove places unlikely to allow BYOB (think fast-food or coffee-shop chains such as McDonald’s, Burger King, Dunkin Donuts, etc.) we still have 4,797 contenders spread across the city. And not a single one is legally allowed to charge a corkage fee!
How does Chicago stack up?
We can go ahead and knock Washington, D.C., San Francisco, New York City and Los Angeles off our list of cities that might rival Chicago’s number of BYOBs. That’s because in those cities, Ian-style “bringing your own” isn’t legal unless the restaurant has a liquor license. That doesn’t mean it never happens, but it’s only a matter of time before they’re shut down.
We have, however, found two major cities where BYOB regulations are on par with Chicago’s: Houston and Philadelphia.
Houston is the nation’s fourth-largest city and, like most cities in Texas, it allows BYOBs with no liquor license. But searching for BYOBs in Houston brings back scant results. That’s likely because in Texas liquor licenses are easy to come by. In some cases, applications can be started online, and there are 70 different types available to accommodate different business types and sizes. The bottom line: If a Houston restaurant is interested in allowing booze at all, it’s easy to get a license and take advantage of that revenue stream.
Philadelphia, the fifth-largest U.S. city, also allows BYOBs. In foodie circles it often comes up alongside Chicago when discussing BYOBs.
Philly treats liquor licenses like taxi medallions or casino licenses; there’s a set number based on the county’s population. A license’s current going rate is $140,000. For many new restaurant owners in Philly, there’s either no liquor license available or they can’t afford one. In either case, BYOB is their only way to go.
Why is BYOB so prominent in Chicago?
The takeaway from Philly is that tough regulations can provide fertile ground for BYOB joints. It turns out that Chicago also exerts tough regulatory pressure, but it differs in the details; Chicago doesn’t limit the number of liquor licenses, but City Hall still makes them hard to come by.
According to Chicago Tribune restaurant critic Phil Vettel, Chicago’s strict about its liquor licenses because of the city’s experience during Prohibition.
“Organized crime got into liquor distribution and liquor sales during that era in a big way,” he says, adding that when Prohibition ended in 1933, the city was “determined not to let that happen again — or at least control it.”
A Chicago liquor license might have a lower price tag than one in Philadelphia, but it involves jumping through quite a few hoops.
“Not only do you have to be inspected on this [health department] level, but a lot of other departments have to sign off before you can get close,” says Vettel. “The bureaucracy is considerable.”
Don’t worry, though; the city made a simple 93 minute video walking you through the application process.
And if that doesn’t clear things up, there’s a cottage industry of liquor license expediters eager to help.
Manny Hernandez, co-founder of The Tamale Spaceship, hired one of these for his storefront location on Damen Avenue in Wicker Park.
“We hired that person, we followed instructions, we went through the whole thing,” says Hernandez. “The disappointing part of it is just the last inspection we weren’t able to do it.”
In that final step, an inspector noticed the building next door was functioning as a church, even though it looked like a regular apartment building. Since the church’s entrance was less than 100 feet from The Tamale Spaceship’s, Hernandez wasn’t granted a liquor license.
Restrictions are not limited to land use. For a restaurant to secure a liquor license, any investor with more than a five percent stake must get fingerprinted. Same goes for their spouses. And felons are banned for life from holding a Chicago liquor license.
Beyond that, owners must submit floor plans, property surveys, menus and documentation of the restaurant’s business structure.
And if you’re deemed “a person who is not of good character and reputation in the community” the City of Chicago can say, “no.”
Again, when you add up these requirements, you wouldn’t be surprised to learn that restaurant owners do what they can to avoid a liquor license.
Consider the example of Bite Cafe, which is located adjacent to the The Empty Bottle music venue on Western Avenue. The two businesses have the same owner; Bite Cafe has no liquor license, while the Empty Bottle does. Rather than apply for a stand-alone liquor license for Bite Cafe, the owner built a hallway between the two, which allows diners to buy cocktails, beer and even bottles of wine at the Empty Bottle. Since they carry them back to Bite without using the sidewalk, there’s no issue with open container laws.
Why deal with twice the inspections, headaches and costs when you don’t have to?
A value in and of itself
In Chicago the conditions are perfect for BYOB restaurants to flourish because liquor licensing is so onerous. This theory’s a good starting point, but it doesn’t tell the whole story.
Let’s look at Yuzu Sushi and Robata Grill. It’s one of our questioner Ian Adams’ favorite places to BYOB. And the reason they allow BYOB has little to do with regulations.
Restaurant owners Bua Bun and brother-in-law, Chef Yut Wang, use BYOB as a core marketing component. They had once worked in other restaurants but didn’t feel good about the standard mark up on alcohol, especially for wines that their customers could buy in any grocery store. When they opened their own place, they wanted it to be different.
“If we’re going to sell liquor it’s got to be something the customer cannot get or else the customer is going to feel like we cheated on them,” says Bun. “So that’s why we chose to go with BYOB.”
Asked if she would accept a liquor license if one fell into her lap — no strings attached — Bun pauses.
“I would have to think long and hard about that,” she says. “It would probably give me a month or two of no sleep.”
This adds a new wrinkle to the Chicago BYOB theory: Yes, they’ve spread around Chicago because liquor licenses are hard to get, but over the years people have come to embrace the fair deal BYOB represents.
“I think there’s a lot of BYOB because we feel how the customer feels if we were the customer,” says Bun.
It might sound optimistic or even naive, but Ian agrees. He trusts that a BYOB place gives him a good deal, and that you focus on the food — not a price tag inflated by expensive booze.
“If you have a really nice steak dinner, but it’s the most expensive meal you’ve had, you might be thinking more about how you spent too much on the meal and not the fact that it was a pretty good steak,” says Ian. “And I think that it’s almost like the flavor-enhancer of Chicago eateries where BYOBs just make the experience that much more enjoyable.”
Before signing a lease at a retail center or mixed use development, check to make sure you have some protection against potential competitors.
You are all smiles as you drive up to your restaurant. A year after the grand opening, lines are still out the door and your gourmet burger concept is the talk of the town. As you get out of your car and glance across the parking lot, your smile fades when you spot a “coming soon” sign for a new gourmet burger joint on the other side of the shopping center.
Can a competitor really open in the same complex and cash in on the same concept and your success? Upon reviewing your lease, you discover that it does not prohibit the landlord from leasing to a competitor. What could you have done differently to prevent this from happening?
One way to avoid this pitfall is to negotiate an “exclusive use provision” with the landlord prior to signing your lease. Typically, this provision in a restaurant lease is hotly negotiated because the shopping center landlord wants flexibility to lease to tenants of its choice, while the restaurant owner wants to prevent competitors from operating in the same shopping center.
In negotiating an exclusive use provision, a tenant and landlord first need to agree to the scope of the tenant’s exclusive right. Depending on a number of factors, including the size of the shopping center and the uniqueness of the concept, defining the scope can be simple or complex. For example, a restaurant that specializes in Indian cuisine may not have difficulty convincing the landlord of its exclusive right because of its unique use; however, a restaurant that has burgers as its main menu item may need to be more creative in framing its exclusive rights. Since many restaurants may include the incidental sale of hamburgers, the landlord will likely require that your exclusive use rights do not extend to a restaurant deriving less than a certain percentage of gross sales from burgers.
You can negotiate other factors to help satisfy the landlord’s desire for a narrower exclusive use. A square footage threshold can be added to exclude restaurants that fall under or above that set scope. You may also suggest limiting the restriction to the restaurant classification, such as full service, fast casual, quick service or buffet. At a larger shopping center, your restriction may be negotiated to only apply to sections of the complex within a defined proximity to you restaurant. Another consideration is nonfood items that are essential to your concept. For example, a sports bar may not be concerned about another restaurant with a similar menu as long as that restaurant does not have more than a couple of televisions.
When negotiating your exclusive use rights, be aware that the landlord will try to preserve flexibility to lease to future tenants by making the provision contingent upon continuous operation, meaning that the tenant either uses it or loses it. Bottom line: You, as the tenant, need to determine the aspects of your concept that are essential to your restaurant and warrant protection from competition so you can negotiate such protections into your restaurant lease.
In addition to defining the scope of your restaurant’s exclusive use right, it is crucial to address what happens if it is breached. You and your landlord will need to agree on remedies, such as abated rent, damages and your ability to terminate the lease should a breach occur. Typically, a landlord will insist that your remedies not be effective if the breach is the result of another tenant violating the use provisions in its own lease, as long as the landlord gives such tenant notice of the violation and uses good faith efforts to enforce its rights under such lease. For example, should the aforementioned sports bar find out that the restaurant six doors down with a similar menu expanded the number of televisions and remodels to a sports theme in violation of its lease, the landlord will not want to be held liable for that tenant’s breach; however, you’ll want to ensure that your lease requires the landlord to take good faith efforts to remedy the situation with the violating tenant.
Keep in mind that exclusive use provisions only apply to the shopping center where your restaurant resides. They will not protect you from competitors opening in the shopping center across the street. Before signing a lease, be sure to conduct due diligence on the surrounding area to determine the proximity of existing competitors and the potential for new ones.
Many factors go into determining what exclusive use rights and remedies are appropriate for a restaurant tenant. Exclusive use provisions do not come in a one-size-fits-all and they should be carefully thought out and negotiated with the assistance of capable legal counsel.
Alan Christenson is a member of Jennings, Strouss & Salmon’s real estate practice group. His practice focuses on all aspects of real estate law.
(H/T restaurant-hospitality.com)
Wallace B. Doolin, chairman and founder of TDn2K, predicts big trends coming for the restaurant industry:
Several years ago, I drove around the Phoenix market with a franchise owner who had successfully navigated the build-and-bust cycles in the telecom industry. As we approached busy trade areas, he would point to a bank and say, “There are too many banks.” Next would be car lots, phone stores and, yes, restaurants. Finally, the comment that has rung in my ears for years: “There is too much of everything!”
As I have experienced the ups and downs of the restaurant industry’s growth, that foretelling comment has always ticked in the back of my mind.
Now fast forward to January 2016. As I enjoyed a beautiful morning in Key Biscayne, Fla., with a great cup of coffee and the rare read of a print newspaper, a Miami Herald headline caught my attention: “Record breaking year in Dade County (Miami) for new restaurant openings”.
In my line of work, who needs cream in their coffee with a story to read like this? In fact, Dade County had 627 new restaurant openings in 2015, an all-time high. It was the most of any county in Florida, including the approximately 424 openings in Orange County (which includes Orlando) and 336 in Broward County (home of Fort Lauderdale). In other words, last year almost 1,400 new restaurants opened in just three Florida counties.
This leads me to suggest three big potential trends occurring in the U.S. restaurant industry:
1. Consumers and our restaurant guests
We have been discussing for several years that after the Great Recession the industry would return to pre-recession growth rates. I now question if that will be true. I’m afraid my franchise partner’s vision may be right both from a restaurant industry perspective (too many restaurants) and the consumer mindset of “What else do I need?”
The economy has improved, but industry average same-store sales are still in what we suggested in Black Box Intelligence four years ago, a “1.0 percent world.” Seldom up more than 1 percent or down more than 1 percent in same-store sales, notwithstanding a continual 2-percent to 3-percent increase in average check. More alarming are the negative traffic numbers for the past seven years.
2. Independents and regional operations
Who opened all those restaurants in three counties of Florida? I assure you it wasn’t just the 130+ great chains that TDn2K tracks domestically, representing more than 24,000 restaurant units. It has to be a predominance of independents and regional restaurants that are tapping into the consumer quest — often fueled by Millennials — for the local, the new and the unique.
Like most of you reading this, I grew up in an industry where chain restaurants took share from the independents year after year. Has that changed in the largest and urban markets? My hunch is yes.
The executives of TDn2K’s member companies constantly ask about the growth of independents and regional restaurants and how they impact sales and traffic. Just the initial trial of all those new restaurants has to create a ripple for established competitors. Of course, we know there is a high failure rate, usually in the first year or two, but in the meantime these new entrants steal occasions and share.
3. Workforce and wages
We hear a lot about workforce shortages and wage pressures. Our own People Report data shows increasing difficulty in recruiting and hiring qualified employees and managers, and increasing wages. In fact, turnover rates have returned to pre-recession levels in all segments.
Again, feedback from our members reveals frustration in the quality and quantity of applicants. About wages, several leading restaurant executives have told me that they are becoming more aggressive in their compensation to ensure they can retain their own talent, and steal the top of the market from their competitors. Is this only a function of supply, or are we back to the “too much demand” scenario?
When we review data from Black Box Intelligence, People Report and White Box Social Intelligence, we can’t help but wonder if this is our own canary in the coal mine. Consumers continue to express their frustration with service in White Box Social Intelligence. People Report data records higher turnover and vacancy rates. Both trends correlate with sluggish Black Box Intelligence sales.
These observations bring several questions to mind:
• Does someone have to fail for me to grow?
• What does that mean for my restaurant and my company?
• What could I recommend to readers and restaurant operators?
Timing is everything when you own a restaurant. When do you add seating? Is it time to hire new employees? Does it make sense to extend hours? Is there a need to launch a new marketing campaign?
Managing growth is a challenge for many small business owners—particularly for owners trying to decide whether they should finance that growth. Ian Bramson, owner of Eclectic Kitchen in Portland, OR, suggests asking yourself two questions to determine if it’s time to add staff, additional seating, or otherwise grow:
Do you really know how busy you are?
Like many restaurant owners, Bramson spends a lot of time in the kitchen making sure the food served at his restaurant keeps his diners coming back. He opened Eclectic Kitchen in 2009 with 32 seats and a focus on breakfast and lunch. “We rely on our regulars to keep us busy,” he says.
With that in mind, he adds, “it’s important to step out of the kitchen to get a feel for what’s really happening in the dining room. You can learn a lot from talking to your customers and giving the servers a hand.”
Ian suggests paying attention to how many people you have waiting, and how long they need to wait. “If people are waiting for food, it’s not a good thing,” he said. “If they’re waiting to be seated, that isn’t good, either,” he added.
While waiting is often just part of the restaurant experience, how your restaurant grows can be an important part of how you manage the wait and will likely influence your decisions about whether it’s time to hire a new server or an additional cook. It might also be an indicator of the right time to expand seating or stay open more hours.
He also suggests noting the seasonal nature of your restaurant. “We get really busy in the fall,” he says. “But our sales are up for this time of year, so we’re expecting to be busy this fall.”
Do you have a strategy to accommodate growth?
“We’re planning to increase seating with an outdoor dining area as well as adding more seating inside the restaurant to prepare for the fall,” Bramson says. “We’re also thinking about adding dinner to our menu.”
Bramson has an expansion plan for the next few months and knows that he not only wants to increase the number of tables he can serve, but will need additional staff and refrigeration to accommodate growth in the kitchen, too. “Growth in the dining room impacts everything else in the restaurant,” he says. “You need to plan for that.”
“We really depend on word-of-mouth advertising,” he says. “We focus on really good food and great coffee to make our new customers happy, keep our regular customers coming back and give them all a reason to tell their friends. In addition to food made with fresh, local ingredients, we even use a local coffee roaster our customers seem to like, Trailhead Coffee, to help set the tone for a great breakfast.”
Bramson suggests it’s important for independent restaurant owners to keep your finger on the pulse of what’s happening in the dining room, as well as the kitchen, to know when the time is right to hire new staff or otherwise expand. With that said, you need to plan for how you’re going to accommodate growth when the timing’s right.
Third-party booking sites could pave the way for acceptance of reservation fees, says new study.
Would you ever dream of charging your guests for a reservation? Few restaurants are in demand enough to get away with it. But a study by Cornell University found that while most guests would find the practice “unfair,” a segment of the dining public would accept a fee for reserving a table.
But Kimes (professor of operations management at Cornell’s School of Hotel Administration) and Wirtz (professor of marketing at the National University of Singapore) observe that the reservation itself “becomes particularly valuable at popular restaurants where tables are hard to get.”
Moreover, they say, it didn’t take long for third-party tech startups to recognize this value and make a business of “selling hard-to-get reservations in popular restaurants.”
Kimes and Wirtz surveyed about 300 U.S. residents to gauge attitudes on the topic. They found that “a substantial minority” of restaurant guests would be willing to pay separately for a restaurant reservation.
“We see some acceptance of the idea of paying separately for a restaurant reservation through third-party firms, especially among respondents who said they were familiar with the practice. So far, though, we are not aware of any restaurant that is charging for reservations,” says Kimes. “That said, we anticipate that we may see restaurants adopt this practice as restaurant guests become more familiar with it. This is a logical extension of the revenue management principle of pricing a service to match demand.”
Wirtz says Singapore’s taxi system provides an analogy to paying for tables. “Like restaurants, taxis usually include the value of the reservation as part of the fare that a customer pays. But customers in Singapore are willing to pay an extra reservation fee to ensure that the taxi arrives when they need it. We could see this rationale extending to similar businesses, including restaurants.”
