Restaurants face thicket of liquor taxes
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The failed battle against Allegheny County's new 10 percent drink tax was a low point for many local restaurateurs, who see it as another discouraging blow after years of already operating in a thicket of taxes and regulations.
The simple answer from those supporting this and other "sin taxes" -- that people who don't want to pay the tax can choose not to drink and restaurateurs who don't like it can stop selling alcohol -- doesn't get to the heart of the complaints within the hospitality industry about how alcohol is sold in Pennsylvania.
The taxation picture, with five different levels of taxation or markups, hit home with Pat McDonnell when he went in with Hall of Fame football player and coach Mike Ditka to open the highly successful Chicago restaurants. The restaurants feature Mr. Ditka's own line of wine, which Mr. McDonnell, the CEO of Restaurant Holding Services, hoped to bring to Atria's, which his company manages.
But this is what he discovered: In Illinois, he can buy the Ditka chardonnay at wholesale for $10.49. In Pennsylvania, he pays retail for that same bottle and, despite a 10 percent licensee discount, the markup, taxes and charges bring the total to $20.42.
Mr. Ditka's feature wine, a Mendocino blend called Kick Ass Red, costs the Chicago restaurant $35. To bring it here, Mr. McDonnell's cost would be $54.57 -- and that's not counting the expense of paying someone to pick it up at the state store.
"I can't carry it," Mr. McDonnell said.
So the only one of Mr. Ditka's wines to be found at Atria's is the merlot, which costs the restaurant $14.03. In Chicago, the same bottle would be $6.75.
After Allegheny County Council opted not to rescind the drink tax at its Jan. 15 meeting, Mr. McDonnell and his father went back to the PNC Park restaurant for a bite to eat. The restaurant was closed already, so it was just the two of them in the darkened eatery.
"I said to him, 'When it becomes so difficult that it's harder and harder to make money, and there's more and more risk, when do you finally say, 'Enough is enough?'"
Mr. McDonnell, a Pittsburgh native, and the chain of eight Atria's restaurants aren't going anywhere. With 30 years in the restaurant business, including opening the region's first Chi-Chi's, Chili's and Boston Market, he is committed both to the city and the business.
But he's frustrated.
Joe Conti, CEO for the Pennsylvania Liquor Control Board, said last week that improving relations with licensees "is one of our main initiatives, in addition to the store initiatives. This board is making a real commitment to our licensees, who we see as valuable partners."
He already is planning to set up licensee service centers throughout the state so restaurant and bar owners can more conveniently pick up purchases. If that and other initiatives are successful in coming years, and revenues increase, "we would like to look at pricing, too."
Restaurant and bar owners account for about one-third of the state's wine and spirits. One of their major complaints has been special liquor orders, typically wines that can't be found in state store shelves.
Those orders -- making up the major part of many restaurants' wine list -- carry all the regular markups even though "they don't buy it, they don't inventory it, they don't market it," said Michael Passalacqua, owner of Angelo's restaurant in Washington County and former president of the Pennsylvania Restaurant Association.
"They have no costs or labor associated with that."
In the past year, the PLCB also has told liquor licensees they must pick up the merchandise within 10 days, instead of the previous 30, a move taken in part because orders were not being picked up in a timely fashion.
That particularly hurts independent, upscale restaurants such as Le Castagne on Chestnut Street in Philadelphia.
"I really pride myself on having what the customer needs, but I can't go out and buy the more expensive, exotic wines," said manager Anthony Masapollo, because he needs time to set aside money to pay for it.
"Even if you only want to buy six bottles, you don't have the money."
Mr. Conti said the 30-day time limit "was just not a good business practice," adding that "10 days is more than a lot of other businesses give."
Liquor license holders in Pennsylvania do get a 10 percent discount on their liquor purchases, although the discount used to be higher.
In Mr. Passalacqua's view, that is not enough.
"They need to treat the people who buy 30 percent of their product as their best customer, instead of giving us a measly 10 percent discount," he said.
Liquor is just another raw material necessary to run a successful restaurant or bar business, he said. For any other raw material, from food to napkins, restaurateurs typically can negotiate a 20-to-30 percent discount. If one vendor doesn't want to discount, he'll find another who does.
"You can't do that with liquor."
First Published January 29, 2008 12:00 am