baltimoresun.com

« Fab Five Friday | Main | Sam Sessa = mad scientist? »

April 11, 2008

Why do bars close?

MS reader Jason alerted me to Epicurious L.I.Z.'s post about why restaurants close.

I've talked to a few bar owners about this. And I'd like to hear from more people too.

If you own a bar or used to own a bar, tell me if I'm right or wrong.

Here's my understanding of it.

One big reason bars close is the interest.

Liquor licenses cost a boatload of money, which is usually covered by a loan.

If the buyer also wants to own the building, that costs even more.

So they borrow more money.

Paying it back is the hard part. 

While bars make a decent amount of dough on alcohol, food sales generally don't turn huge profits.

This is also part of the reason why, at some bars, Miller Lites cost $3.50.

So unless the bar is a hit in its first year or two open, it could easily go under.

(Photo of the now-closed Admiral's Cup in Fells Point by me)


Follow Midnight Sun on Facebook and Twitter @midnightsunblog
Posted by Sam Sessa at 12:03 PM | | Comments (7)
Categories: Bars & Clubs
        

Comments

Interest is huge. If your clientele loses interest, well......

You have to ask why the clientele loses interest, though. It could be anything from advertising to location to management.

My experience is that the overarching reason is management. People will go out of their way for a good spot. Of course, this is as ubiquitous as "interest". Primarily you're looking at two forms of management: business and operations.

With business management, you need ownership that understands the ins and outs of business. Owners need to understand the ins and outs of loans, inventory control, payroll, vendor coordination, etc. One of the biggest issues I've seen over the years is over-expansion/renovation. For example, should you expand: can you afford the expansion or renovation now is what poor business managers think of. In reality, they need to address, can we sustain the cost of expansion through the life of the loan?

Operations management covers everything: knowing the laws behind your business (or at least affording a decent lawyer), knowing the rules/regulations (e.g. health codes), customer service, customer trends, physical maintenance, and quality control, Whatever the quality of your product, from the most "authentic" dive bar to the swankiest lounge, quality control is huge. People like what they can expect.

Though I haven't had a Miller Lite since High School, I'd guess the sort of place that would charge $3.50 for one would very quickly lose my interest.

I have to agree with GoFreeScout. Honestly, there are 2 things I do when I drink at bars.

1. I never pay cover.

2. I never pay more than 3 dollars for a beer.

For as much as people hated 25 cent bottles at Have A Nice day, it did draw in people for over ten years, which is a pretty good track record.

As for the liquor licenses, (correct me if I am wrong), you can’t buy one from the city because they only have a certain number and they are all out to people in the city. You have to buy one from an owner, hence, they go for massive bucks (I have heard 50 to 100 thousand.) Sam is right about the interest.

All that being said, many bars around the city do a hell of a business. A few examples:

Bay Café (especially during the summer)
Looney’s (look at the recent renovations)
Max’s on Broadway
Ropewalk and other Federal Hill bars

Is there an answer? Surely the real estate market is too entrenched to reform. But maybe the liquor license should be cheaper? Is it a significant source of tax revenue? What do the economics of licenses look like?

Hold up. I've owned three successful bars in this state, and others. The vast majority of bars and restaurants fail due to lack of experience on behalf of the owners/operators. Liquor licenses don't cost too much. Yes, you can no longer get a BD7 or tavern license issued, but you can easily have a restaurant license issued that requires a ratio between food and beverage sales. A new license will run you $5000.

Depending on where you open, you may be required to spend a certain amount on improvements (such as Canton Sq. or Cross St. Corridor).

What we end up getting, because of this ratio, are inexperienced operators who carbon copy the competition. How many bars do we need with cheap wings, dollar beers and mozzarella sticks?

Opening a bar should not be a retirement dream. It is hard work, probably more difficult than the job you are retiring from.

A new restaurant license requires 200,000 capital investment for 75 persons. So yes, it is 'relatively' cheap compared to buying a BD-7 license from an owner, for whatever they are willing to part with it for. Licenses are considered an asset or commodity. They vary in price just like the real estate market.

One owner could sell theirs for 50K in a depressed area, another would ask 125K in a 'hot' market. But a license is only good for that particular district. So, you can't move a license from Mount Vernon to say Canton. One cannot get a new license issued for a BD-7 license for Canton, Fells or Fed hill. You have to buy an existing one. But anything is possible in Bmore. BeLIEve.

As for a loan, from a bank, for a liquor license or a bar? In a word, No. Please tell me if I'm wrong. I'd love to know what 'bank' would give such a loan and what are their 'rates'. One knee cap or two? I'm not talking about collateral lenders or bridge loans either. As for reasons bars fail? Tired/inexperienced/naive owners, employee theft(see above), high rent, high property taxes, (as is the case with alot of commercial and residential properties in town), drugs, (Can't tell you how many places went up an owner's nose), divorce/owner dissolution, owner death, no marketing advertising, and some just don't draw people.

Side bar - I remember seeing owners pre-complaining about the smoking ban and lost revenue. Low and behold, those bars are up for sale!

Anon,

You're right. Banks haven’t issued loans for restaurants or bars since the late 80's, early 90's. Unfortunately for me, I got into this business far later than then the late 90’s.

A few years back I bought into a large, yet fledgling nightclub in DC. I partnered with an Iranian operator who, in addition to the nightclub, owned three successful restaurants scattered through DC (one in the heart of Georgetown). When he arrived to this country in the late 70's, early 80's, he was able to walk into a bank and secure a line of credit to open his first restaurant; he's the first to admit that if he arrived in this country today, with what he had then, he would most likely not be the success he is today. It’s a shame too.

There are people who have managed bars for years, written excellent business plans, but cannot secure funding to make their dream a reality. In reaction, we see more and more corporate chain bar/restaurants opening rather than independent establishments (not that there is anything wrong with corporate chains, but rarely can they match the character of a locally owned establishment).

But, by far, the #1 reason that 80% of all bars/restaurants close their doors within the first three years of opening: inexperience.

Post a comment

All comments must be approved by the blog author. Please do not resubmit comments if they do not immediately appear. You are not required to use your full name when posting, but you should use a real e-mail address. Comments may be republished in print, but we will not publish your e-mail address. Our full Terms of Service are available here.

Please enter the letter "c" in the field below:
About Erik Maza
Erik Maza is a features reporter at the Baltimore Sun. He writes for several sections of the Sun paper and contributes weekly columns on music and nightlife. He also writes and edits the Midnight Sun blog. He often covers entertainment, business, and the business of entertainment. Occasionally, he writes about Four Loko, The Block, the liquor board, and those who practice "simulated sex with a potted palm tree." Before The Sun, he was a reporter at the Miami New Times. He's also written for Miami magazine, the Orlando Sentinel, the Sarasota Herald Tribune and the Gainesville Sun. Got tips? Gripes? Pitches? He's reachable at erik.maza@baltsun.com. Click here to keep up with the dumb music he's listening to.

Midnight Sun covers Baltimore music, live entertainment, and nightlife news. On the blog, you'll find, among other things, concert announcements, breaking news, bars closings and openings, up-to-date coverage of crime in nightlife, new music, round-the-clock coverage of Virgin Mobile FreeFest, handy guides on bars staying open past 2 a.m. on New Year's Eve and those that carry Natty Boh on draft. Recurring features include seven-day nightlife guides, Concert News, guest reviews of bars and concerts, Wednesday Corkboard, and photo galleries, as well as reader-submitted photos. Thanks for reading.
-- ADVERTISEMENT --

Most Recent Comments
Recent tweets
Sign up for FREE nightlife alerts*
Get free Baltimore Sun mobile alerts
Sign up for nightlife text alerts

Returning user? Update preferences.
Sign up for more Sun text alerts
*Standard message and data rates apply. Click here for Frequently Asked Questions.
  • Weekend Watch newsletter
Plan your weekend with baltimoresun.com's best events, restaurant and movie reviews, TV picks and more delivered to you every Thursday for free.
See a sample | Sign up

Photo galleries
Stay connected