Many entrepeneurs intent on opening a bar, nightclub, pub, cocktail lounge, live entertainment, or similar business in California, which will include the availability of wine, beer, or spirits, are surprised to learn that their business plan is simply not allowed. It may be particularly confusing for them because they may see other businesses in the area that engage, or seemingly engage, in just such a business. They are told by the Department of Alcoholic Beverage Control (ABC) or local authorities that their only option is to become a full service restaurant, with a full service kitchen, and which sells regular meals (not just sandwiches, salads, and “victuals”). With so many other businesses seemingly selling alcoholic beverages without being restaurants, how can this be? ABC licenses are categorized, sub-categorized, and sub-sub-categorized in many different ways. First of all, there are retail, distributor, manufacturer, private club, and special event licences and permits. For retail licenses, licenses involving sales to the public end consumer, there are “on-sale” licenses and “off-sale” licenses. On-sale licenses involve sales for consumption of alcoholic beverages on the premises where the beverage is sold, e.g., restaurants and bars. Off-sale licenses involve sales for consumption off the premises where sold, e.g., stores. Obviously, it is the former that is at issue here. On-sale licenses can be further can be further divided between “public premises” licenses and “bona fide eating place” licenses. Public premises are licenses in which the business may serve a serve a type of alcholic beverage (a further license sub-category) without meals. In fact, meals and substantial food sales are prohibited in these types of licenses. In contrast, bona fide eating place licenses, which also allow specified alcohol beverage sales, require an on-site kitchen, meals and substantial food service.
Both types of retail on-sale licenses are subject to state law limits, which prescribe the maximum number of licenses in a geographic area. These limits are based on the population in a census tract – the higher the population, the more licenses are allowed. Most commercial areas in urbanized areas have already reached the maximum number of licenses for the census tracts. However, additional licenses can be added over the numerical limit if the applicant can prove that it’s license serves “public convenience or necessity” (PCN). Crime rate can also trigger this more difficult process, i.e., if the rate of crime is more that 20% above the average for all crime reporting districts in the city or other region in the jurisdiction of the relevant law enforcement agency.
So why is it that in a maxed out area, you can open a restaurant but not a bar, even though there seem to be many new bars? This really comes down to how the ABC and local authorities view “public premises” versus “bona fide eating places.” Generally speaking, in such maxed out census tracts, these agencies view bona fide eating places as serving PCN and public premises as not serving PCN. This view becomes essentially inflexible policy. In many municipalities, such a policy becomes “hard coded” into their municipal codes.
The bars and public premises that you see in these areas maybe “grandfathered.” That is, they are old licenses that were issued before the area became maxed out, and have been sold, and resold, in the same location over several decades. Typically, such licenses cannot be moved or expanded (with very limited exceptions). Other businesses you see maybe licensed as restaurants, with a full service kitchen and serving full meals, but have a bar on premises or live entertainment (which may require additional local permits). Some of these latter businesses end up being unable to comply with their license restrictions. E.g. the ABC and local authorities often require that businesses with bona fide eating place licenses sell at least 50% food. Sometimes, such businesses are audited by the ABC, end up being fined, having their license suspended or revoked, and having to change their business.
So the answer to the question posed in the title is simple but the solution is not easy. In the difficult areas described above, the only option maybe to buy a grandfathered license, which may not be available or may be very expensive. Alternatively, the applicant may have to modify their business model to include a substantial restaurant component.