Special Subcommittees of the House Committee on General Laws and Senate Committee on Rehabilitation & Social Services Studying Certain ABC Issues

November 14, 2008

Delegate Albo called the meeting to order and provided a quick review of the three main study priorities of the 2008 Interim, which are characterizing the proliferation of new classes of retail licenses, determining the need for a bar vs. restaurant distinction for mixed beverage licensees, and studying certain issues associated with the food ratio for mixed beverage restaurant licensees.

Staff Review of Issues

Maria Everett reviewed the committees' discussion of the proliferation of non-restaurant retail licenses. Although the committee discussed the possibility of creating a "limited service" or "personal service" license with a new food sale requirement, the committee determined that the best approach was to limit the creation of any new classes of retail licenses. She also reviewed the committees' ongoing discussion on the potential for distinguishing between a bar and restaurant in the Code of Virginia. There was ultimately very little support for this concept.

Ms. Everett reviewed potential alternatives to the food/beverage ratio and discussed one option that would permit licensees to petition the ABC Board for leniency if the licensee has had difficulty meeting the food/beverage ratio due to increased purchases of high-end mixed beverages. This potential regulatory fix was ultimately rejected by the committees as well.

Ms. Everett also discussed the option of creating Class A, B, and C licenses that would allow greater flexibility in distinguishing between bars and restaurants. Delegate Albo noted that the restaurant industry opposed creating a bar license. There was discussion on some of the problems associated with limiting the Class C licenses, which would essentially be bar licenses, as well as how the committee eventually began to focus on the idea of moving to a volume based ratio calculation for mixed beverage restaurant licensees.

Presentation

Curtis Coleburn, ABC Board
Curtis Coleburn discussed his study of licensees and potential problems meeting the food/beverage ratio requirements. Mr. Coleburn randomly sampled 4% of mixed beverage restaurant licensees. He revealed that the average ratio for each region was between 77% and 92%. Mr. Coleburn pointed out that many of the restaurants in the sample were family restaurants. He then looked at a region with a high concentration of entertainment-type establishments. Delegate Gear asked whether it was simple to separate entertainment-type establishments. Mr. Coleburn responded that the only way to do that would be to select establishments by recognizable names. He was able to identify the area of Shockoe Bottom, which had 32 licensees with an average ratio of 71.4 %; six reported a ratio below 50%; and one did not meet the ratio requirements. Delegate Dance asked if there was an outside review of this information. Mr. Coleburn stated that by law he is prohibited from sharing information related to the licensees outside of the Department. Delegate Dance stated that she had a problem using a 4% sample size and questioned whether the sample size was statistically significant.

Mr. Coleburn also spoke about potential trends in eating and drinking habits. He examined about half of the licensees in the sample, looked at the past five years of records, and for the Richmond region actually noticed a declining trend in mixed beverage sales. Mr. Coleburn also looked at specific licensees and noticed that where food sales have dropped, mixed beverage sales have not increased.

Public Comment

William Baldwin, the president of the Virginia Nightlife Association and a restaurant owner, stated that he has worked hard to make the food/sales ratio. The problem is that he has to open for lunch to meet the food requirement, because no one wants to eat dinner next to a dance floor. He says he is just breaking even on food sales and actually loses money when he takes into account the cost of keeping his establishment open for lunch.

Delegate Bulova asked if there was any benefit in going from a dollar ratio to a volume ratio. Mr. Baldwin responded that he supported any effort to reduce the burden on restaurant owners. Delegate Albo asked Mr. Baldwin if a business model existed to open a high-end whiskey bar. Mr. Baldwin responded that the food sales would have to be extremely high to support an establishment that wanted to serve very expensive mixed beverages. Delegate Albo stated that he would like to reserve the remainder of the meeting to discuss the feasibility of a change to a volume ratio. Peter Fulge, restaurant owner in Arlington, stated that a change to a volume-based ratio would help his business. Mr. Fulge said that although he makes some money on his food sales, the majority of his profits come from the sale of mixed beverages and alcohol. Tom Lisk, representing the Virginia Hospitality and Travel Association, voiced his concern of the accuracy of the reporting by licensees and any subsequent reliance on self-reported data. Mr. Lisk stated that the VHTA supports the committees' effort to examine the possibility of a volume-based ratio.

Review of Draft Legislation

The members reviewed draft legislation that would create a two-year pilot project for certain mixed beverage restaurant licensees of the Alcoholic Beverage Control Board to provide an alternative method for calculating the 45 percent food-to-beverage ratio based on the volume of mixed beverages, expressed as food sales compared to proof gallon of spirits purchased from the Board or food sales as compared to dollar sales of mixed beverages. A complete draft of the legislation is available on the committees' website.

Final Recommendations

After a brief discussion, members of the committee discussed potential problems with voting on legislation that requires ABC to define major portions of the pilot project. Senator Miller asked if it would be better if potential volunteers were made aware of the details of the pilot project prior to volunteering. The committees voted to delay the deadline for volunteers until after the parameters of the pilot project were defined by ABC.

Delegate Albo requested ABC to calculate the dollar amount of a proof gallon and the dollar amount of food sales assigned to each proof gallon that shall be sold by each mixed beverage restaurant licensee participating in the project. The goal should be to maintain the 45 percent food-to-beverage ratio so that any currently compliant licensees would remain compliant under the new volume-based ratio.

Delegate Albo requested that ABC report back to the committees prior to the start of the 2009 General Assembly session so that the members could make a final vote on whether to approve and introduce the pilot project.

Chairman:
The Hon. Linda "Toddy" Puller
The Hon. Terrie Suit

For information, contact:
Maria Everett and Patrick Cushing, DLS Staff

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