May 11, 2020
The COVID-19 crisis is a game changer and has thrown even smooth operating businesses up for grabs! Restaurants that were once packed are empty, and delivery and carry out services are their only option. However, the revenue from carry out and delivery will never match the dine-in revenue. Restaurants and bars are in dire need of revenue streams, without these revenue streams they may not survive the COVID-19 crisis and more importantly its lingering after effects.
There is one assumption anyone can agree on, liquor is paramount to the profit of any restaurant. Even when a restaurant is packed, it needs liquor to enhance its profits. It is hard to see a restaurant surviving in Chicago’s high rent districts without significant liquor sales.
Obviously for any bar, it is impossible to survive without liquor sales.
The Illinois Liquor Control Commission (ILCC) has enacted positive changes to help restaurants and bars during this crisis such as the return of wine and spirits and allowing the sale of packaged goods to-go. The return of wine and spirits will reduce indebtedness but will not bring in cash flow.
Packaged goods will increase revenue but eventually it is not a solution. Restaurants and bars cannot make the profit necessary to maintain their business from packaged liquor sales. Why, because they can’t compete with Binny’s and even small packaged goods stores on price. Based on Illinois’ liquor system, distributors can provide discounts based on the volume of liquor purchased, and there is no possible way that a restaurant could purchase the amount to receive the discounts that a packaged goods retailer would receive. And a packaged goods retailer as large as Binny’s would receive an even larger discount.
When I was Grand Knight of the Knight of Columbus, I would discuss liquor issues with my bar manager. He indicated to me that because we could not purchase by the case, we paid a higher price by paying for individual bottles. To his frustration it was cheaper to buy a bottle at the Jewel than it was to pay the distributor their price. As we followed the law, we paid the higher price. But it goes to show that many bars and restaurants cannot compete on price with a packaged goods store.
So, let’s ask the question, if it is so much cheaper to purchase alcohol from Binny’s, why would one go to an iconic cocktail place like Kumiko or their other favorite establishment to purchase alcohol?
There are several reasons such as: 1. patrons enjoy the ambiance of the location; 2. they want to eat the food right out of the kitchen at the location and great cocktails are part of the package; 3. they want to meet their friends for a night out; and 4. the restaurant or bar makes a great cocktail that Binny’s or any other packaged goods store cannot compete with.
When you look at this list of why customers would pay a premium price for alcohol, the first three reasons are destroyed by the COVID-19 crisis.
That leaves only one reason why one would pay a premium price for alcohol at a bar or restaurant, the bar or restaurant can make a great cocktail that Binny’s cannot.
Unfortunately, cocktails to-go is not available right now, so the sole reason to pay a premium price for alcohol is presently outside the grasp of the restaurant or bar.
There is the argument that even if there are no cocktails to-go, that selling a cocktail kit will help. But according to Julia Momose, partner at Kumiko, co-founder of Cocktails For Hope, and an expert in top shelf cocktails, the difference in selling an Old Fashioned Cocktail Kit versus Old Fashioned Cocktails is around $145 a bottle. “Struggling Bar Owners Want To Deliver Pre-Mixed Cocktails, But It’s Illegal For Now”, Block Club Chicago, Apr. 29, 2020.
Further, on the consumer side of things, cocktails you make at home from a cocktail kit, cannot match the high quality of cocktails that an expert makes. So, there is less incentive for paying a premium for a cocktail kit versus cocktails-to-go.
This significant revenue increase from cocktails-to-go could be the difference between survival and closing its doors for many restaurants.
If cocktails to-go is not allowed, a bar or restaurant is deprived of its only attractive reason for a customer buying their product over a significantly less expensive alternative.
Cocktails For Hope, is pushing for a change to ILCC policy on this issue, because they want to bring back the only profitable alternative available for restaurants or bars. Fittingly, Cocktails For Hope is no misnomer, it demonstrates the need for a lifeline to the restaurant industry. For full disclosure purposes, I am aiding Cocktails For Hope with their cause.
We are working with the ILCC on this issue and had positive discussions with them.
We hope in the near future Cocktails For Hope’s purpose is achieved. The economics don’t lie and a sound positive policy will provide restaurants and bars more than just hope.