Has the demand in liquor licenses peaked?

Ioannis Pashakis//January 14, 2020

Has the demand in liquor licenses peaked?

Ioannis Pashakis//January 14, 2020

Demand for beer and wine licenses in Lancaster and York may be slowing. If so, license prices may drop.

The cost of a restaurant liquor license in York and Lancaster counties may fall from the heights they reached in recent years, partially because fewer grocers stores are looking to buy them.

Last month, Larry Heim, an attorney with Lancaster-based law firm Barley Snyder, offered a series of restaurant liquor licenses available for purchase to clients, and they declined. For years his corporate clients in the super market industry have quickly purchased available liquor licenses so they could sell wine and beer from their stores. December marked the first time since the state allowed grocers to purchase a liquor license that Heim didn’t see interest from his clients in either York or Lancaster.

“I had some licenses available and ran it by the usual suspects to see if they were interested and they weren’t,” he said. “It’s the lack of interest that surprised me and I know a couple of those players stated through their council that for York County they had filled all of the spaces where they wanted licenses.”

In June of 2016, Gov. Tom Wolf signed Act 39 of 2016 into law, which allowed the sale of beer and wine by grocery and convenience stores. For the last three years, convenience stores and grocers have been some of the state’s biggest buyers of restaurant liquor licenses, either through public auction or private sale.

Fall of 2016 was the first time that the Pennsylvania Liquor Control Board opened public bidding for the available restaurant liquor licenses in the state. During the bidding process, 41 businesses put their names into consideration, with bid amounts going as high as $526,000 by Giant Food Stores LLC for one of its stores in Montgomery County.

“If you take a look at the winning bidders, a number of them were grocery store chains and convenience store chains,” said Shawn Kelly, spokesman for the state Liquor Control Board. “We are still seeing bids in the hundreds of thousands of dollars range.”

Because of the high rates that the liquor licenses have been going for as companies look for liquor licenses for each of their stores, smaller restaurants, particularly in more populated counties, haven’t had the resources to compete.

If fewer large entities are buying licenses, as Heim’s experience last month suggests, the costs could decline.

“The appetite will eventually be satiated and we may be at that point,” Heim said.

Competing on a $500,000 bid is a high ask for local restaurateurs, but the lower the cost for one of Pennsylvania’s restaurant liquor licenses, the more likely it could be that more bank’s become interested in financing for a restaurant’s liquor license.

Restaurant lending is itself a niche business and financing liquor licenses is uncommon, said Eric Williams, senior vice president and chief lending officer of Ephrata Bank.

“You have to understand all of the legalities and considerations if you will take a security interest in a liquor license,” he said. “With restaurant lending, generally it’s not something we are comfortable with. There is a lot of volatility there.”

Heim recommends his clients wait to see what the market does before selling their licenses at a reduced price, noting that December could just have been a slow month. He also noted that he is still seeing high sales figures in Dauphin County, showing that there is still plenty of demand for the licenses elsewhere.