Liquor licenses in New Jersey cost $350K and it's crippling the state's dining scene

Show Caption Hide Caption Liquor license reform in NJ Restauranteurs and politicians want the laws to change, but some are resistant.

Peter Loria still recalls with disappointment the time he tried to open a restaurant in Ridgewood. He poured a chunk of his retirement savings into what he thought would become a destination for New Jersey food lovers, but he hit a common roadblock.

"I couldn’t get a liquor license," Loria, who owns Café Matisse in Rutherford, said of the 2007 project. "So it never opened. It was heartbreaking."

Loria is one of countless casualties of New Jersey’s notoriously restrictive laws governing who can sell alcohol. Those laws, which date back to the post-Prohibition era, limit municipalities to one liquor license per 3,000 residents. In places where demand is high, licenses can sell for $1 million or more — if they are available at all.

The result is a dining scene that, in the words of Morris Davis, a Rutgers professor who studies the economics of real estate and housing, is “diseased.” And more problematic still, the laws are seen by local officials as holding back efforts to revitalize downtowns and attract new, often younger residents.

New liquor license laws, experts say, could strengthen New Jersey’s economy.

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Cafe Matisse operates in dry Rutherford Peter Loria of Cafe Matisse in Rutherford explains what it takes to operate a BYOB. Thursday, Sept. 27, 2018

Many longtime Trenton observers say change seems inevitable, and even groups representing existing license holders, who have been fiercely resistant to anything that might devalue their licenses, acknowledge the system needs to be tweaked.

Momentum is growing around a proposal from Assemblyman John Burzichelli, D-Gloucester, to let restaurants purchase much cheaper permits to serve alcohol. Existing license holders who suffer losses would be compensated, possibly through state tax credits.

But similar proposals in the past have been thwarted again and again. Will this time be any different?

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A legacy of Prohibition

Statewide restrictions on who can sell alcohol began in 1947, when the attitudes that brought about Prohibition still animated policymakers.

“Experience has demonstrated that there are issued and outstanding in New Jersey far more licenses to sell alcoholic beverages at retail than are necessary to meet public convenience,” proclaimed a law enacted that year limiting towns to one retail liquor license per 1,000 people.

Lawmakers tightened the rules in 1960 and again in 1969, when they settled on the one-license-per-3,000-population ratio that is still in effect today. Licenses that pre-dated the changes were grandfathered in, leaving some places, like Newark, with far more licenses than the ratio would otherwise allow, and others bound by the cap.

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Each municipality now has a separate market for liquor licenses that feature wild price disparities. Restaurants in Clifton can pick one up for $50,000 or less, according to Clifton-based developer George Jacobs, while a Cheesecake Factory at the Short Hills Mall recently paid $2.3 million so it could serve strawberry daiquiris alongside its “Famous Factory Meatloaf.”

The statewide average is thought to be about $350,000, according to Diane Weiss, executive director of the New Jersey Licensed Beverage Association, which represents more than 800 bars, taverns and restaurants with liquor licenses.

For many existing license holders, especially smaller operators, their license has become a precious safety net.

“This is their children’s education. This is their home. You know, people mortgage and use their house as collateral,” Weiss said. “This is their life. This is what they base their whole retirement on.”

But those prices are often out of reach for independent chefs and restaurateurs. And without the ability to serve alcohol, “You can’t make any money,” said Drew Nieporent, a celebrated New York restaurateur and former New Jersey resident.

Nieporent has owned more than 40 restaurants — including the groundbreaking Asian-Fusion restaurant Nobu and the French classic Montrachet, which helped revitalize TriBeCa in the 1980s — but refuses to open a restaurant in the Garden State.

30 percent more profits

Selling glasses of wine or tumblers of gin and tonic can be a critical boost to a restaurant’s bottom line: Alcohol sales can provide as much as 30 percent in additional revenue on average. Plus, chefs say, the easy availability of booze makes restaurants livelier and encourages people to stay longer.

"If the laws change, there would be a flood of the best and most gifted chefs coming to New Jersey," said Fort Lee resident Dale Talde, chef and co-owner of restaurants in Manhattan and Talde in Jersey City, which has a liquor license.

Chris Cannon, owner of Jockey Hollow Bar & Kitchen in Morristown, is one of the few New York restaurateurs to make the move to New Jersey, and he said getting a liquor license was difficult. Few followed.

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Ehren Ryan of Common Lot talks about liquor license laws in New Jersey Ehren Ryan, head chef/owner of Common Lot in Millburn, talks about liquor license laws in New Jersey and how it affects small restaurants.

"Just the fact that none of the large New York restaurant groups — Jean-Georges, Bastianich, (Danny Meyer's) Union Square Hospitality Group — never opened in New Jersey, but did so in Westchester and Connecticut, says a great deal," he said.

Many of the best restaurants in New Jersey don’t have a liquor license, but rather are bring-your-own-bottles — or BYOBs.

According to Christine Nunn, a Fair Lawn-based chef and caterer, BYOBs tend to be small and chef-driven, while restaurants with liquor licenses tend to be big and often opened by investors, who bring in chefs who must answer to them.

"There's a big difference if it's not the chef calling the shots," Nunn said.

BYOBs, however, still incur costs associated with service of wine and beer, including wine glasses and the cost of the labor to serve and wash them.

"You're providing all the glassware and the manpower and not getting a nickel for it," said Kevin Kohler, chef-owner of Café Panache in Ramsey. "Waiters never get the proper amount of tip either."

In South Jersey, no downtown has taken advantage of BYOBs to help drive redevelopment efforts more than Collingswood, which is a dry town except for one craft brewery. It boasts at least 30 restaurants in 1.9 square miles, including two recognized by the prestigious James Beard Foundation, a nonprofit devoted to celebrating America's food culture. Many of these restaurants thrive despite being just minutes away from Haddon Township, which boasts many craft-beer driven restaurants with full liquor licenses.

Mayor Jim Maley said he’s not sure the proposed legislation would be a good thing for some of the very restaurant owners who might support it.

“My first reaction to it from our borough’s perspective is it ain’t broke, so don’t fix it," he said.

Many New Jerseyans love the prevalence of BYOBs and would be sad to see their ranks diminish.

"It's one of the best things about living in New Jersey," said Lettie Teague, a wine columnist for the Wall Street Journal and a Montclair resident. "Every time I go out, I’m wildly grateful to live in New Jersey."

Still, many owners of BYOBs say they would serve alcohol if given the chance, helping them survive longer and creating what they believe would be a more vibrant dining culture.

“We don't have a lot of quaint, crazy-good restaurants with high-quality food and beverage in New Jersey,” said Tim Hanley, co-owner of S. Egidio, Stella Artisan Italian and the recently opened No. 12, all BYOB's in Ridgewood. “We have a social scene that pushes people out to New York or Philly. There would be a lot more life to the New Jersey scene if that liquor license door would open for us.”

And to those who fear the death of BYOBs, should the law change, Rutgers professor Davis said the market should decide.

"If the marketplace wants BYOBs, restaurateurs will choose to have BYOBs. Let the marketplace decide. Let's see what happens. In every other state, there are hardly any BYOBs. Maybe BYOBs aren't that great."

A drag on local economies

The frustration among chefs is shared by many local officials and developers who have embarked on ambitious projects across the state to revitalize downtowns with new housing, entertainment and — crucially — restaurants.

“Downtowns need thriving retail and establishments that people demand, and right now restaurants are where it’s at,” said Courtenay Mercer, executive director of Downtown New Jersey, a nonprofit that provides education and support for such projects. “Just go to Hoboken, go to Jersey City, go to Montclair. The really thriving downtowns have a robust restaurant scene.”

Officials are trying to capitalize on a historic shift in living preferences that has the potential to radically reshape New Jersey. Over the past decade, population growth in the state’s cities, smaller downtowns, and older, walkable suburbs has outstripped that in car-centric suburbs for the first time since the post-WWII era.

Cafe Panache's Kevin Kohler talks about NJ liquor license laws Kevin Kohler, chef/owner of Cafe Panache in Ramsey, talks about liquor license laws in New Jersey and how it affects small restaurants.

“Suburbia had a good run,” said Tim Evans, who has authored several articles on the subject as director of research at New Jersey Future, a nonprofit group that encourages smart planning. Now, he said, redevelopment is the “new normal.”

But many mayors and developers feel the state’s approach to liquor licenses is holding back local economies. Liquor licenses, they say, enhance the financial viability of redevelopment by increasing the profitability of restaurants and thus the larger retail or mixed-use projects they may be a part of.

“More retail licenses lead to less vacancies, more opportunities for people to offer businesses and destination restaurants,” said South Orange Mayor Sheena Collum, whose town has seen tens of millions of dollars poured into redevelopment projects over the past decade. “That’s the type of environment that people want to live in.”

Restaurants, in turn, act as a magnet for other activity, experts say. The rise of Amazon and online shopping has undercut traditional brick-and-mortar retailers, but restaurants fit into the category of “experiential” retail that is still popular.

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“It’s not just the restaurants that will benefit, but the surrounding businesses, the movie theaters, the bagel shop, department shops — the whole central business district,” said Michael Cerra, assistant executive director of the New Jersey League of Municipalities, which supports changes to the liquor license system. “A rising tide lifts all boats.”

Officials in Hackensack, which is the midst of a years-long redevelopment effort, have gone so far as to deem alcohol the lifeblood of their revitalization.

“To attract developers down here, you have to prove to them you're going to provide the ambiance and nightlife for clientele that are going to live in these places,” Jerry Lombardo, chairman of the city’s Main Street Business Alliance, said earlier this year.

'We just know something's going to change'

The restlessness around the issue of liquor licenses is visible in the more than a dozen bills on that topic pending in the New Jersey Legislature. Nearly all of them would make it easier to sell alcohol.

“We just know something’s going to change,” said Marilou Halvorsen, president of the New Jersey Restaurant and Hospitality Association, which has resisted changes in the past. “You do have areas in this state that sorely need new liquor licenses: redevelopment areas.”

Added Weiss, of the New Jersey Licensed Beverage Association: “There is a need in some areas in the state of New Jersey where the population is such that no new licenses can be issued or probably will be issued for a very long time, that maybe there is a way to strategically place some of these licenses in those locations."

Burzichelli, the Democratic assemblyman, has led the push for reform with a bill, A-3494, that would allow certain restaurants to purchase permits to serve alcohol at a cost ranging from $1,500 to $10,000. In its current form, the bill does not limit the number of permits or where they could be issued, and it provides compensation in the form of tax credits over five years to existing license holders who can prove they were harmed by the legislation.

Many municipalities and commercial developers support the measure, but existing license holders remain leery. Halvorsen, for example, said the measure could decimate the value of licenses while offering false comfort in the form of the tax credits.

“The state can’t afford tax credits, especially to the magnitude of what we’re talking about,” she said. “And a restaurant does not show that kind of profit in five years to be able to compensate them back for their liquor license.”

Some proponents of change characterize the push-back from existing license holders as much ado about nothing, but anecdotal evidence suggests otherwise.

James Cassella, the longtime mayor of East Rutherford, said liquor licenses in his town were selling for about $650,000 before the state allowed prospective restaurants and bars at the Meadowlands Xanadu complex — now the American Dream project — to apply for low-priced concessionaire permits to sell alcohol.

Now, Cassella said, liquor licenses are selling for under $200,000.

Burzichelli said he is working with all sides to revise his legislation and hopes for votes on his bill this fall. But until then, he said, New Jersey is holding its own economy hostage.

“We’re an older, legacy Northeastern state, so we constantly have to redevelop and reinvent ourselves,” he said. “We can’t do that if we’re going to be caught in rules that go back to the 30s.”

Tammy Paolino, Courier-Post, contributed to this report.