Are Police the New Health Inspectors or Tax Collectors?

By Gamal Hennessy

Imagine this. You’re sitting in your favorite bar nursing a drink and wondering how you’re going to convince the waitress to give you her phone number. Without warning three cops walk in, push behind the bar and start poking around with their flashlights, making everyone in the room very nervous. As you gather up your belongings and discreetly make your way towards the door, would you assume that this was a raid? Would you guess that the cops were looking for drugs, guns or child pornography? Would you believe they were looking for fruit flies?

Fruit flies are drawn to alcoholic beverages and bar owners are required by the state law to keep them out of liquor bottles as a matter of public health. As part of the routine inspections by the Department of Health (DOH) bars are inspected for fruit flies and any venue that has fruit flies on or in the bottles is subject to a fine that could run between $700 and $1,000 per infested bottle. This is a normal part of the nightlife business and isn’t really a cause of concern among operators. The problem arises in the way the law has recently been enforced. Even if you are a nightlife native who frequents various venues, you have probably never seen a DOH inspection taking place. That’s because inspectors keep a relatively low profile while conducting their business. Patrons usually have no idea what is going on and they don’t have to. But there have been reports of layoffs at the DOH, which could mean fewer inspectors. But inspections still need to be conducted, especially since every violation can lead to fines that cash strapped city and state governments are desperately looking for. So somehow the DOH has been replaced with the NYPD who is anything but low profile when they come into the bar.

One operator commented on the climate that the NYPD creates; “By sending a uniformed officers from the NYPD behind your bar with a flashlight looking for fruit flies and whatever else they can find at the height of your business hours creates a stressful situation for you and your customers. It looks like a crime was committed in your place and they are looking for evidence. It gets people talking about your establishment in ways you don't want.”

Bar and lounge owners in various parts of the city have described this scenario happening in their bars with increasing frequency. Some operators think that the NYPD has been given a mandate to perform random inspections as a way to “find” violations and provide the city and the state with much needed revenue. Various operators have voiced opinions about the situation: “What they are thinking is that they are going to get funds for a broke state and city no matter what the consequences. No thought is given to the outcome except that those cops better come back with some violations. With cops conducting their random inspections, we are at the whim of whoever is giving these cops the orders to do these. It is much more invasive and detrimental to our businesses. “I don't think this has anything to with revenge against a particular venue. All bars are suffering this treatment. This has more to do with the city's need to collect more revenue in the shape of fines and the fact that they've laid off a number of health inspectors.”

So instead of increasing state revenue by working with the nightlife industry, local government is trying to increase state revenue by intimidating and attacking it, using the police as its instrument. We have pointed out in previous articles that ending the backlog in liquor license applications and increasing the number of venues would actually increase state revenue significantly. And as dangerous as fruit flies are to public health, the police are probably better utilized deterring and preventing crime outside of venues instead of poking around behind the bar looking for bugs. We know that the state wants to use liquor consumption as cash cow and nightlife is an economic resource that the city can use for its benefit, but only if it takes more of a cooperative stance instead of being antagonistic.

Unfortunately, some operators don’t see things getting better because they don't feel the lobbying efforts are strong enough to support their position. “With all due respect to our lobbying groups, I really don't think they have the stomach for this kind of fight. We are just going to have to put up with this intrusive behavior by our government and keep our bars as clean as possible.”

So if you see a couple of cops climb behind your favorite bar, it might not be a raid. It might just be an abusive health inspection.

Have fun.

Gamal

Balancing the Budget at the Bar

By Gamal Hennessy

Everyone knows we are in a recession. Not many people are sure how we’re going to get out of it. Many lawmakers on the state level think one of the keys to generating revenue and balancing their budgets will come from increases in so called ‘sin taxes’. This would mean that the state tax on liquor could go up. If the taxes on liquor go up, how long will it be before the cost of drinking goes up too?

Andrew Cleary of Bloomberg.com reported that state law makers across the country are planning to increase the taxes on beer, wine and spirits in an attempt to close budget gaps through increased taxation. At the same time, stocks of beverage companies have been decreasing up to 40% in the last 12 months as people tighten their belts in the face of economic uncertainty. While lobbyists for the liquor companies plan to fight against these measures, victory for them appears unlikely. If they get taxed, then the operators who serve the liquor have to pay more per bottle of liquor. If they have to pay more to buy liquor, guess who’s going to probably pay more to drink it….

I’ll give you a hint…it’s you. But before you bang your fist on the desk and curse the greedy club owner for stealing your hard earned wages, it would help to understand the economics of serving drinks.

Of course, the main source of revenue for a bar is the drinks that are served. Each drink also represents a specific cost that the bar has to pay before the bartender can throw that little napkin down on the bar and ask you what you want. The price the bar pays to serve each drink is based on the cost of the ingredients, the serving costs and the glass costs which combine to become what business plans call the cost of goods sold.

Understanding how the cost of goods sold works, we need to examine a drink and the costs associated with it. Let’s take a Vodka/ Cranberry for example because it’s simple. You go to the bar order it and the bartender charges you $8. You are shocked.

According to the Professional Bar & Beverage Manager’s Handbook, there are about 25 ounces of liquor in a 750 ml bottle. So if a bar uses a bottle of Absolut with a wholesale price of $15, then every ounce of vodka costs $.60 ($15 ÷25 ounces). If the bar puts 4 ounces of vodka in each drink, then each bottle can make about 6 drinks. So for every $15 the bar spends on liquor it pulls in $48 (6 drinks x 8 dollars).

But a vodka cranberry has more than vodka in it. Let’s say that the cranberry juice is $.20 per ounce and the ice and lime are $.05 each. When the bartender makes your drink, let’s figure a 4 to 3 ratio in a 10 ounce rocks glass. That means roughly 4 ounces of vodka ($2.40) and 3 ounces of cranberry ($.60), ice and the little lime wedge ($.10). Based on our initial prices, the bar pays $3 for the materials to serve you the drink. If the drink is $8 that means there is $5 in profit.

At this point, you might assume that you need to open a bar and make some money. Before you apply for your liquor license, you need to consider the additional costs. Drinks don’t just appear in front of you. This isn’t Star Trek. The bartender who served you the drink has to be paid. The bar back who gets the ice and cleans up the empty glasses has to get paid. Each glass that drinks are served in have to be paid for and each one has a potential to only be used once because it could chip or break completely in the hands of the drunk and clumsy. All those costs could equal an additional $.50-$.75 per drink. There is a tax on the liquor that figures into the price. If that tax goes up, then the cost of the drink goes up too.

Then you have to take a look at where you are. Unless you’re passing around a bottle of Mad Dog around a barrel fire by the highway, the space you’re drinking in has to be paid for. There is the rent for the venue and the taxes associated with that real estate (keep in mind that the cost per square foot in New York City is among the highest in the country). There are entertainment costs whether you’re talking about a satellite TV sports package, a DJ, a band or an internet jukebox. There are costs associated with the furniture you’re sitting on. There is a cost for the décor. There are costs for the security guard or hostess standing out front. The license for the computer system and touch screens that the bartenders use isn’t shareware. It costs money. Utilities like water, gas, telephone, heat, electricity and website maintenance associated with the venue also have to be paid. When you take all of that into account, you might have added another $2 to the cost of serving you that drink.

Then there are costs for things that patrons don’t see at all. There are insurance costs. There are costs for the lawyers, accountants and other professional services that a business needs. There are costs for maintenance associated with keeping things like the lights and the toilets working. You’re now talking about another $.50 to $1 cost per drink.

Finally, you have optional costs like marketing, advertising, uniforms for the staff and laundry costs for those uniforms. Or promotional deals like happy hour, two for one specials and other events designed to get people in the door by lowering the price of the drinks. If you decided to include these costs, tack on another $.20-$.50 per drink.

Now that $8 might cost the bar more than $7 to serve you. That leaves a per drink profit of less than $1. While that can be a decent return if you serve thousands of drinks per night, it doesn’t leave much room for error. If the tax goes up enough, most or all of that profit could be gone.

Of course, there are other ways a club can generate money, like covers, bottles and corporate parties. And if the state decided to let more bars open, it might not have to raise the liquor tax to generate more revenue. But this is not an argument to make you feel sorry for operators. The professional ones can keep costs down and be very successful, even in this economy. It is meant to serve as a more realistic look at the price a bar has to pay to keep the doors open. We want you to avoid sticker shock when you slide up to the bar. Just take a deep breath, pay for your drink and toast the inevitable end of the recession.

Have fun.
Gamal

Sin Taxes, Playing Together and Notorious Crimes

Nightlife News for January 21st, 2009

By Gamal Hennessy

Time for a New Sin Tax
David Kesmodel of the Wall Street Journal reported on the growing trend of lawmakers across the country to increase taxes on liquor to lower state budget deficits. While sin taxes have been used in the past for governments to get through lean economic times, New York might want to couple that tax increase with an increase in liquor licenses so that more jobs and more taxes are created at the same time.

Playing Well Together
Heather Murray of Chelsea Now found a positive story in the residents vs. nightlife situation. Cafeteria in Chelsea has been working with neighbors to install sound proof windows, police the area around the building for noise and amateur behavior and early waste removal. The situation offers good ideas to operators trying to peacefully coexist with people living near their venues.

Notorious Crimes Taint Movie Opening
The Gothamist reported that four people were stabbed at a party thrown to celebrate the hip hop film Notorious. In a separate incident, the Times reported that a teenage girl was shot and killed at a teen only party in the same weekend. If the film was supposed to be a cautionary tale about the connection between hip hop, crime and violence the message didn’t get through to every one.

What do you think? Should we support more liquor taxes? What else can venues do to work with communities? What will it take to separate hip hop from violence? Add a comment and let us know.

Have fun.
Gamal