New restaurants, stores held up by lack of liquor licenses

Feb. 26, 2018

The closed sign had barely been hung outside Beef ‘O’ Brady’s at 69th Street and Western Avenue when co-owner Janet Eining’s phone started ringing.

“I’ve had all kinds of calls,” said Eining, who estimates at least a dozen inquiries since Feb. 1.

That’s because the closure leaves her with a rare commodity – a full-service liquor license – and those callers all want it.

“I knew there would be a lot of interest because it’s a full license,” Eining said. “They’re very popular.”

They’re also quite limited. State law allows a city to add licenses only based on population growth.

“We were issued two based off 2016, and we won’t be able to do another estimate off of the population until 2018, and those numbers will come out in July 2019, so it’s another year and a half at least,” said Jamie Palmer, the licensing specialist for the city of Sioux Falls.

There are 22 people on a city wait list including some who have been on it for more than a decade. The next in line, Larry Lang, applied when his business, Michael’s Steakhouse, was still located on South Louise Avenue. It moved from there in 2007 and has since closed.

Eining’s business partners Pam Greene and Rory Kelly are on the list, too. But while she has one available, they don’t have a ready-to-go concept. Licenses must be active within two years of being acquired.

Joel Ingle has interest in the list, too. An applicant on it has identified wanting to open near Harmodon Park, which Ingle is marketing with Harr & Lemme Commercial Real Estate and agrees is a good spot for a restaurant.

“If I had a liquor license, we’d have a sports bar and restaurant on that site, three times over. It’s an easy site to predict it will work with a good operator — if you can get a licensed,” Ingle said. “The ones that comes available are ridiculous (in price).”

Others got turned off by the wait and the cost and never made it to the list.

“It’s really frustrating,” said Chris Houwman, co-owner of Washington Square, who envisions a restaurant and bar filling out the first floor of the downtown building.

“We had two people doing the pro forma on building out the restaurant space, and it was enough for them to shy away,” he said. “They’re not used to this kind of an outlier. It’s been challenging, and I hope the city or state can do something do address it.”

As he has worked with restaurant operators looking at coming to town from other cities, they’ve had sticker shock at Sioux Falls license costs. A full-service license through the city costs $192,360 – but only if you’re next on the waiting list and one is granted. On the secondary market, asking prices are higher — $300,000 to $350,000 by many accounts.

Some are paying them, too. In 2017, there were six transfers, including one from Tre Lounge to Crooked Pint Ale House and one from Bogtrotters to The Blarney Stone Pub. But costs aren’t disclosed.

The city offers a $260,000 license to restaurants that can prove at least 60 percent of their sales comes from food. That helped McKenzie River Pizza open, said Lloyd Cos. broker Scott Blount, who keeps a copy of the requirements posted at his desk and refers interested restaurant operators to the option.

While the city has sold only two in the past few years – McKenzie River and Red Robin – another is in the works, Palmer said.

That won’t get the deal done for operators of a sports bar, Ingle said.

“They know they will sell more in alcohol than food, and that’s the problem,” he said.

“That license suits national franchised restaurants, where you’re not going there to meet your buddies and have a few drinks. You’re going out to dinner, and at $15, $20 a plate, it’s easier to make those ratios work.”

Eining said her license will go to the first tenant to ink a deal on the Beef ‘O’ Brady’s space.

“For a couple I’m working with, it isn’t a big deal. They could buy a restaurant license and be OK, but if they want video lottery or don’t want a quota on how much food they need to sell, they would need the full license,” she said.

“If they don’t want a liquor license, I’ve got somebody to buy it. I don’t care either way. It’s got substantial value whatever we do with it.”

Package liquor wait

While there’s been a wait for full-service restaurant licenses for about a decade, the line is now growing for businesses seeking package liquor licenses.

Those allow a retailer to sell beer, wine and liquor, and they also are capped by the state based on population.

“We ran out of them in November of 2016,” said Palmer, who has 17 businesses on that list.

That license costs $533 when purchased through the city, but they also are selling for many times that on the secondary market.

That’s where Lewis Drug CEO Mark Griffin was forced to turn to buy licenses for his new stores downtown and at 41st Street and Ellis Road.

“The law maybe started out to be a good idea but turned out to be a bad idea for growth in the city,” he said. “We have the city busting out all over and services, which include adult beverages, not being able to keep up because of an antiquated law. The only avenue you have other than waiting an unreasonable time is to buy somebody else’s. And then you get in a bidding war, which is unreasonable as well.”

The types of stores that sell alcohol have changed over time, he said.

“The laws need to keep up,” he said. “Society is time-compressed. Everybody wants speed of shopping and super convenience, so we’re trying to accommodate societal changes and being handicapped.”

Convenience is what Dakota Seafood Co. had in mind when it decided to sell a limited selection of beer and wine with its fish and other food items. It’s now at the bottom of the list for package liquor and started off with a license for malt beverages and South Dakota farm wine, which the city can offer without a cap.

For Tom Slattery, owner of JJ’s Wine, Spirits & Cigars, the law is a mixed bag. He’s moving his package liquor license from his current location to his new one on West 57th Street.

“(The cap) gives us more value for our current license but doesn’t allow us to grow,” he said. “If we wanted to add a location, we’d have to find one and purchase it.”

And while this year’s legislative session has included many changes in liquor laws, including opening up opportunity for craft breweries, nothing has been proposed that would change the caps on city licenses.

In the meantime, Palmer monitors retailers closing and notifies the next on her list if package licenses become available.

“Just this month, I offered the top three names because three didn’t renew,” she said. “And they can certainly sell (the license), and when they say they’re closing, I let them know there is a list, but that’s totally up to them.”

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New restaurants, stores held up by lack of liquor licenses

First, restaurants and bars were held up from opening because of a city liquor license cap. Now stores are hitting the same roadblock.

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