Liquor License Has Lost Luster for Restaurants

It used to be that a restaurant in Southern California with a full bar was a virtual gold mine for its owner. Alcohol sales are much more profitable than food sales, restaurateurs say.

But Californians have changed their drinking habits in recent years; fewer are ordering cocktails before or with dinner. Fewer still are lingering after dinner for more drinks. Tough new drunk-driving laws and a new emphasis on healthier eating styles are credited with the change.

The switch has seriously eroded the value of a liquor license to a restaurant operator. Such a license used to be a very valuable asset that a restaurateur could sell at a huge profit even if the restaurant failed.

According to the state Alcoholic Beverage Control Department, the estimated average selling price of an existing restaurant liquor license for hard liquor as well as beer and wine has dropped steadily in the past five years.

In 1985, the estimated average price in Los Angeles County was $37,150, according to ABC figures. The price fell to $30,000 in 1986, $28,220 in 1987, $25,777 in 1988 and $22,737 in 1989. That represents a 63% decline in the past five years.

The state issues only a handful of new liquor licenses to restaurants each year, which is why the transfer of existing licenses became such a hot business until recently. Just 25 new licenses have been awarded in Los Angeles County each year for nearly a decade--the maximum allowed by a state law that limits the number of licenses to the amount of population growth.

But even demand for new licenses, which are awarded in a lottery system, has fallen in Los Angeles. According to state figures, 314 people applied for the 25 new licenses handed out in 1985. That fell to 244 in 1986, 208 in 1987, 189 in 1988 and 161 in 1989.

“I think it’s part of the trend away from leisurely dining in Southern California,” says restaurant broker Orris Abbott. “Having a liquor license (at a restaurant) is inviting people to come in, sit down, spend some time and enjoy. Most of us rarely have time to do that any more.”

Adds Janet Lowder, a restaurant consultant at the accounting firm of Laventhol & Horwath in Los Angeles: “The trend toward healthier eating is likely to continue, with people choosing lighter food and less alcohol. That means restaurants that have full bar service are going to find it much tougher to maintain their traditional profit margins.”