Why that cocktail is so expensive
The exorbitant cost of liquor licenses holds back L.A.’s dining scene.
When I dine out in Los Angeles, I sometimes think of the editor Robert Messenger, who observed that a good cocktail “whets the appetite, pleases the eye, and stimulates the mind. It is one of our conspicuous contributions to cultured living.” Or the writer Adam Gopnik, who said that “meeting someplace with old and new friends, ordering wine, eating food, surrounded by strangers, I think is the core of what it means to live a civilised life.”
This is my way of saying that I like to order drinks at restaurants. But the price tag often stops me. Though California is home to many distillers and some of the world’s most productive vineyards, a cocktail and a glass of wine while dining out can easily top $30. Why?
The law of supply and demand explains why wealthy Californians have access to, say, better real estate than poor Californians. There are only so many houses perched above the shores of Malibu, only so many courtside seats at Staples Center, and they go to the highest bidders. But the high cost of ordering a Negroni or a glass or Chianti is largely our creation, the result of a manufactured scarcity in licenses to sell liquor. A restaurateur must incur thousands of dollars in direct costs just to be in the drink business. And the process is so complicated that consultants and lawyers are hired to help navigate it.
Say you want to open a family taqueria that offers margaritas.
At minimum, you’ll need to pay roughly $13,000 to the state to be considered for a liquor license, initiating a review process that takes 90 days on average — though as the official website warns, “circumstances often result in a longer waiting period.” You’ll also need to pay a fee to local authorities to be considered for a conditional-use permit. In Los Angeles that costs about $8,000 if you’re in no hurry. Expedited review costs closer to $15,000. Did I mention that you need to have your location established before you submit these applications, or that signing a lease without a liquor license requires a leap of faith? (If you can’t sell liquor, you probably can’t stay in business.)
But that summary radically understates the costs. As noted, California artificially limits the number of liquor licenses it grants through a complicated process that involves the population size in different census tracts and counties.
What’s important for our aspiring taqueria owner is that the regulations create a secondary market, which fluctuates according to supply and demand and can make the effective cost of a liquor license for a new restaurant soar well into six figures.
Hence stories like this one, from the owners of AQ on Mission Street in San Francisco. “When we opened AQ in 2011,” they explain on their blog, “we purchased our license from a closing Chinese restaurant for $85,000. It seemed like a huge cost at the time.” But less than five years later, they added, “many licenses are being sold in the $250,000 to $325,000 range!”
Big industry players can thrive in spite of those eye-popping upfront costs, knowing they’ll pass them along to consumers over time.
But as Jim Saksa observed in Slate after surveying the 16 states with similar laws, “the quota system creates barriers to entry stiffer than a shot of cheap tequila, forcing aspiring restaura-
teurs to take on more debt, or surrender more of their business to equity investors, just to get off the ground.” The status quo favors corporate partnerships backed by hedge funds. Meanwhile it’s brutal for aspiring restaurateurs who happen to be culinary school graduates with student debt –– and more brutal still for recent immigrants with a dream, a family recipe and a language barrier that makes navigating a complex alcohol bureaucracy even harder.
Most Californians are blind to the costs. They don’t notice when the would-be owners of a small taqueria never open because the business doesn’t make sense without the margaritas; nor do they lament the lost pleasures of the meals uneaten, even as they complain that all the new dining spots are too expensive.
The restaurant scenes of many neighborhoods are increasingly geared to diners who can afford $15 or $16 for the pleasure of a cocktail before ordering a pricey Merlot. Want other kinds of restaurants to thrive? Make liquor licenses cheaper. Doing so hardly invites a dystopia. In Oregon, our looser, more egalitarian neighbor to the north, restaurateurs pay $400 for a state liquor license plus $100 to the city of Portland for a municipal license, if that’s where they want to open. Portland’s culinary scene is more creative, delicious and fair by virtue of the fact that anyone from the biggest restaurant group to the aspiring chef to the refugee family with a flair for cooking can plausibly execute any concept they want without prohibitive licensing costs.
Shouldn’t everyone in our restaurant industry have a shot?
Conor Friedersdorf isa contributing writer to Opinion, a staff writer at the Atlantic and founding editor of the Best of Journalism, a newsletter that curates exceptional nonfiction.