Our Industry

SNAPSHOT

In 2007, the bar and nightclub industry's drinking establishments primarily engaged in the retail sale of alcoholic drinks numbered 60,876, according to Dun & Bradstreet, which generated approximately $15 billion in combined annual sales revenue, with the average establishment accounting for about $200,000. States representing the majority of drinking places were: Wisconsin with 4,489; California with 4,449; Texas with 4,388; New York with 4,283; Illinois with 3,634; Pennsylvania with 3,572; Florida with 3,191; and Ohio with 3,201. Other significant states included Michigan, New Jersey, Louisiana, Indiana, Iowa, Minnesota, and Washington.

No major companies dominate; varying state liquor laws complicate the ability to form large chains. The industry is highly fragmented: the 50 largest companies hold just over 5 percent of sales. Taverns were the largest sector within industry, with 19,660 drinking places. Combined, they shared more than 32 percent of the market. Bars and lounges represented 19.8 percent edging out drinking places share of about 19.5 percent of the market. Cocktail lounges held 11.5 percent and night clubs had 8.6 percent. Per the U.S. Census Bureau's Statistics of U.S. Businesses, there were about 351,912 people employed within the industry with nearly $4.1 billion in annual payroll in 2005.

The drinking establishment industry--also known as the bar and tavern industry--dates back to colonial America, which adopted the concept of a roadhouse tavern as a gathering place. The industry, however, is changing rapidly and may not exist in its traditional form by the beginning of the next century. By the late 1980s, some consultants and bar owners were predicting that the corner bar, which sells nothing but alcohol, was heading toward its demise. By way of adaptation, bars and lounges, which serve food and even emphasize the sales of food items over alcoholic beverages have been gaining in popularity relative to establishments that sell beer, wine, and cocktails exclusively.

COMPETITIVE LANDSCAPE

Bars and nightclubs compete with other venues that offer alcoholic drinks or entertainment, including restaurants, hotels, casinos, and consumer homes.

Personal income and entertainment needs drive demand. The profitability of individual companies depends on the ability to drive traffic and develop a loyal clientele. Large companies can offer a wide variety of food, drinks, and entertainment, and have scale advantages in purchasing, financing, and marketing. Small companies can compete effectively by serving a local market, offering unique products or entertainment, or providing superior customer service. The industry is extremely labor-intensive: average annual revenue per worker is $45,000.

ORGANIZATION & STRUCTURE

A profile of the bar and tavern industry in terms of what percentage of the market is represented by larger concerns, such as major hotel lounges versus independently owned taverns, doesn't exist. However, the leading trade association of licensed servers of alcoholic beverages--the American Beverage Licensees--boasted 20,000 members throughout the 1990s and that number remained steady through the mid 2000s.

Most eating and drinking establishments are small, independent operations. In fact, in 2007, nearly 86 percent of all establishments employed fewer than 10 employees. The small neighborhood bar, the sports bar with menu, the brew pub, and the hotel lounge are generally spread throughout urban and suburban centers in the United States. While they may differentiate themselves in image, ambiance, and type of product served (some, for instance, serve only beer), they often coexist in close proximity to one another. Many have live entertainment, such as music, or associations with celebrities, such as sports bars bearing the name of their athlete-owner.

BACKGROUND & DEVELOPMENT

The use of fermented beverages in celebratory rituals and social gatherings has been documented in many parts of the world throughout its history. The public roadhouse was developed by the Romans in the first century A.D. as they built their infrastructure of paved roads. The word pub, in fact, is shortened from "public house," a stopping place for the traveler to rest both himself and his horse. In the fifth century, Europeans fostered winemaking. In addition, in the tenth century an Arab physician is believed to have discovered the distillation process (for medicinal purposes).

The tavern, or pub, was an important aspect of English culture and was adopted by colonial America. Rum was prevalent at social occasions in early America, as were corn whiskey and hard cider. Tavern patrons were often entertained by performers, including ventriloquists, dancers, and musicians. The pub was also a place where the day's news was spread, as locals listened to travelers passing through from other places. This dissemination of news made the tavern a natural place for the establishment of local post offices.

The tavern owner was considered responsible for contributing to the town's orderliness. Licenses for serving alcoholic beverages dated back to 1672, and they were subject to suspension or revocation for sales to minors, slaves, servants, or intoxicated adults. Throughout the 1600s and 1700s, wine and malt liquors, as well as hard liquor or spirits, were sold. Rum was imported from the West Indies and had begun to eclipse the popularity of hard cider by the early 1700s. The colonies traded fish, tobacco, cotton, and lumber for rum and for molasses, which was then distilled in New England as rum.

England's Molasses Act of 1733 levied a duty on products imported into the colonies. This legislation provided an impetus for independence from England. Numerous historical figures in pre- and post-Revolutionary America that were tavern owners or sons of owners included Samuel Adams, Ethan Allen, William Penn, and Abraham Lincoln.

Prohibition caused the tavern to be replaced by "speakeasies"--illegal establishments where liquor was plentiful to those who provided the correct password. Organized crime gained its foothold in America during this period, as bootlegging flourished and dealers in whiskey and other liquors protected their market with weapons. Following the repeal of the Prohibition Act thirteen years after its passage, the neighborhood tavern reemerged.

Americans were increasingly doubting the healthiness of alcohol consumption in the early and mid-1990s. Medical research linked high alcohol consumption to liver cancer and other degenerative diseases. Smokers who also drink alcohol were found to have 13 times the risk of developing lung cancer as those who neither smoke nor drink. Although some research had found that widespread consumption of wine with dinner in France was responsible for their lower levels of heart disease compared with that of Americans, a 1993 study contradicted that finding. The more recent study concluded that the relative health of the French was due not to their wine consumption, but to their love of vegetables.

The bar and tavern industry has been heavily impacted by the steadily declining consumption of distilled liquor in recent decades. One bar owner in San Francisco described the environment in the late 1980s as "neo-prohibitionist." In an article in New York Times in 1989, Gerry E. Murphy, then executive director of the then-National Licensed Beverage Association (NLBA), said, "The day of the old bar which just served alcoholic beverages is past." Indeed, the U.S. Industrial Outlook predicted that "Domestic consumption of, and spending for, alcoholic beverages will probably continue to decline, leveling off toward the end of the 1990s."

In the early to mid-1990s, the eating and drinking places industry as a whole was growing at a steady rate, averaging about five percent increase in overall sales per year. By contrast, sales from bars and taverns (including both alcohol and food receipts) were flat and in some years actually fell. According to the National Restaurant Association (NRA), for example, sales at such establishments fell from $9.4 billion in 1991 to $9.3 billion in 1993, rebounded to $10.9 billion by 1995 but then fell again to $9.4 billion in 1996 (the latter a drop of nearly 14 percent). The NRA expected 2000 sales of about $12 billion, an increase due in large part to the rising popularity of sports bars.

Americans' growing emphasis on healthy eating and healthy living is the primary reason for the slow growth in this category. Self-help programs designed to help people identify and end addiction to alcohol flourished throughout the 1970s and 1980s. Moreover, those who drink alcohol in moderation have become more conscious of caloric measure and the nutritive value of food and drink consumed. In addition, Americans became more disapproving of driving while intoxicated, and groups such as Mothers Against Drunk Drivers (MADD) have gained political and social clout. Rising litigation over the responsibility of drinking establishments for the alcohol consumption of patrons also acted as a force toward lower purchases of alcoholic drinks. The overall effect of this shift in thinking is that the line is blurring between full-service restaurants which serve alcohol and bars and taverns that offer full lunch and dinner menus.

This grim outlook for the alcohol industry as a whole did not portend well for the bar and tavern industry. Many hotel lounges were transformed into combination eating/drinking establishments, or eliminated altogether to be replaced by meeting rooms. Although alcohol items have higher profit margins than food items, food was increasingly being emphasized more than drinks. Renewed interest in wine, martini bars, and sports bars helped stave off a continued decline at the end of the century, stopping the sales slippage with 2000 totals of $11.9 billion.

While the overall cause in this threat to the industry is the nationwide trend toward healthier living, the signposts of this shift are many. There has been, for the past several decades, a growing acceptance for the nondrinker in social settings. This has occurred in large part because of the widespread recognition of the physical and emotional health problems created by alcohol addiction. The Alcoholics Anonymous (AA) program, begun in the early 1900s by Bill Wilson and others, was created to combat the problem of alcoholism through meetings of individuals who identify themselves as having an addiction to alcohol. The number of people who have ended their consumption altogether through this mutual support program is unknown, but is believed to be in the millions. Although people who wished to abstain from alcohol consumption felt social pressure to drink at parties and public gatherings, the stigma associated with "teetotaling" faded until it was almost nonexistent in the 1990s. MADD gained political influence and helped create a stigma surrounding driving an automobile while intoxicated. In addition, several key civil actions brought by victims of auto collisions and their families resulted in increased liability of alcohol servers for intoxicated patrons that leave establishments and cause accidents.

The response of the bar and tavern industry to the liability issue was the education of its workforce about this challenge. A program sponsored by the American Beverage Licensees (ABL)--formed by the merger of the NLBA and National Association of Beverage Retailers (NABR) in 2002--called Techniques of Alcohol Management (TAM) certifies bartenders and other alcohol servers in methods of curtailing the problem. The program teaches employees of taverns to identify signs of intoxication in patrons, the effect of food consumption on the rate of intoxication, how to discreetly regulate a customer's consumption, and the application of state and local laws to the sale of alcoholic beverages. A similar program is called Training for Intervention ProcedureS (TIPS).

Several different pieces of federal legislation either hampered the industry or threatened it in the 1990s. President Clinton signed a bill that reduced the business meals and entertainment tax deduction from 80 percent to 50 percent in 1993. The industry immediately began lobbying for repeal of that legislation through separate bills introduced in both the Senate and House of representatives.

A bill under consideration in 1999 included a provision to lower the national blood-alcohol content (BAC) level defining intoxication from .10 to .08. The then-NLBA opposed this measure on the basis that, of those intoxicated drivers who were killed in auto accidents, 81 percent had a BAC higher than the legal limit of .10. However, several states, including California, had already lowered the BAC to .08 while national legislation was still being considered. By the mid-2000s all states had adopted the lower limit.

While opposing legislation that was perceived to be harmful to the industry, bar and tavern owners fought back by courting consumers. The rise of sports bars in the 1980s provided an example of industry adaptation to consumer health concerns. In contrast to the dark, smoke-filled bar of past decades, sports bars are lighter, with an updated, high-energy ambiance. The vast majority of such bars, in addition to having televisions for their customers to view, serve full menus of lunch and dinner items. These types of establishment stress a casual atmosphere and efficient but unobtrusive service so that patrons may meet to watch an athletic event and enjoy gathering with friends. Sports bars also target women and families, often tailoring their menu to include light, healthy food in addition to burgers and other American fare. The celebrity element is another prominent characteristic of sports bars. Many are owned by, or named after, athletes, and rely on visits by athletes to publicize and promote the establishment.

Another successful concept of the 1990s has been the brew pub. Although this is a borderline category since many brew pubs derive more than half of their sales from the food they serve, the brew pub--and microbrewer beer generally--has helped to revive both a beer industry on the decline and the drinking places industry itself. According to Michelle Dorfman, writing in ID: The Voice of Foodservice Distribution, "brew pubs, by definition, have an on-site brewery and more than 50 percent of the brew product is consumed on-premise." After gaining initial popularity early in the 1990s, the category has since exploded with more than 500 brew pubs nationwide by late 1996.

Posher alternatives that catered to popular fads such as swing dancing, martini bars became more prevalent and helped rejuvenate the industry. Industry entrepreneurs also embraced the cigar fad of the 1990s, and began to allow their patrons to smoke cigars on-site or created specialty cigar bars that sold a variety of cigars in addition to selling alcoholic beverages. Such innovations were signs that the industry would keep reinventing itself despite all the negative trends.

PRODUCTS, OPERATIONS & TECHNOLOGY

Beer is about 40 percent of sales, distilled spirits or hard liquor 30 percent, food and non-alcoholic beverages 10 percent, and wine 7 percent. Customers consume the majority of bar drinks on-premise, and companies may specialize in certain beverages, like craft beers or martinis. Entertainment includes live music, DJs, dancing, and adult entertainment.

While most customers go to bars and nightclubs to socialize, bar activities tend to focus more on drinking, while nightclubs focus on entertainment and dancing. Types of bars include microbreweries, taverns, pubs, wine bars, and martini bars. Bars and nightclubs may have themes, like sports or country-western. The failure rate for nightclubs can be high due to the trend-driven nature of the industry; an estimated eight of 10 nightclubs will fail during the first year of operation, according to Nightclub and Bar magazine.

To open a bar or nightclub, a location must have proper zoning from local government. Community resistance to new bars and nightclubs is common due to anticipated problems with drunken patrons and noise. Companies may need both a standard liquor license to sell alcohol, and a pouring license to serve alcohol for consumption on-premise. Multiple types of liquor licenses dictate what types of alcohol a bar can sell, and the availability and cost of licenses can vary greatly. Licenses to serve beer and wine tend to be less expensive than to serve hard liquor. Some communities issue a limited number of liquor licenses, and companies may have to buy one from an existing licensee. Local municipalities may also require an entertainment license to provide TV programming, live music, or dancing.

Local laws typically dictate days and hours of operation. A venue may announce a "last call" or last chance, to buy an alcoholic beverage, prior to the required closing time. The majority of business is during the weekend. Most nightclubs are not open during the day, and many open only two to three nights per week.

Almost all companies consist of a single operation, although the industry includes some regional chains and franchises. Tourist destinations can be good locations, since vacationers tend to visit bars and nightclubs. Size varies greatly, from small corner taverns to warehouse-sized dance clubs. The majority of nightclubs range from 3,500 to 7,000 square feet, according to nightclubbiz.com. Experienced owners tend to run the largest nightclubs, which range from 10,000 to 30,000 square feet. A 3,000 square foot club can gross between $24,000 and $64,000 per month. A 15,000 square foot club can gross between $100,000 and $260,000 per month.

Bars that serve food may have an area for table seating. Nightclubs may have one or more bars, table seating, a stage, or a dance floor. Outdoor seating is popular in warm weather and many tourist locations. Most companies use lighting and decor to create a distinctive ambiance or image to attract specific clientèle. For example, a sports bar may have numerous large screen TVs and sports memorabilia to draw sports fans, while a nightclub may have expensive lighting and sound systems to draw the dance crowd. In addition, a friendly bartender or a popular DJ can help develop a loyal customer base. Some nightclubs promote an image of exclusivity, and may be selective as to which patrons can enter.

Bartenders are responsible for mixing and serving drinks. How fast a bartender operates and how much a bartender pours can significantly affect sales and profitability. Companies may use special pour spouts to standardize liquor dispensation. In addition, secret audits monitor liquor consumption and can be used to identify "heavy-handed" bartenders. Some companies audit liquor inventory daily.

Companies typically buy alcoholic beverages from state-licensed liquor distributors. Federal and state laws prohibit direct sales from manufacturers. Large bars and nightclubs can hold sizeable, expensive inventories of alcohol, especially if the company stocks high-end liquor. Inventory management and cost control can be difficult due to employee error, overpouring, and theft. Proper storage is important to minimize bottle breakage and prevent theft. Bars and nightclubs that serve food typically buy ingredients from food distributors

Companies may use computerized point-of-sale (POS) systems to record orders, look up drink recipes, and manage bar tabs. Beverage monitoring systems use miniature sensors attached to liquor bottles to record individual drink servings and transmit data wirelessly to inventory management systems. Handheld scanners help track inventory. For nightclubs, technology plays an important role in providing entertainment and ambiance. Computer systems that integrate sound, light, special effects, and music videos help create a distinctive environment. In addition, some companies use digital surveillance systems to catch illegal activity by both customers and employees.

CURRENT CONDITIONS

The National Restaurant Association (NRA) projected 2008 sales of $16.5 billion for drinking places, accounting for 3.2 percent of commercial restaurant establishments.

While the distilled spirits industry has been lucrative, Federal and state excise taxes play a significant role in the industry. In 2005, The National Center for Policy Analysis (NCPA) reported that thirteen states sought increases in taxes and related fees on alcoholic beverages. Further, taxes on distilled spirits were about $0.21 per ounce of alcohol. According to the Distilled Spirits Council (DSC) of the United States, "distilled spirits are one of the most heavily taxed consumer products in the United States. More than half of the price that consumers spend on a typical bottle of distilled spirits goes toward a tax of some kind." The resulting effect on the entire hospitality industry is wide-reaching, as the DSC goes on to say "When beverage alcohol taxes are increased, it creates a devastating ripple effect on jobs throughout the entire hospitality industry."

Despite the excise tax, the U.S. Department of Commerce reported that adjusted alcohol sales were up 5.2 percent to nearly $9.2 billion in June of 2008 over the same period a year earlier. Also, according to the NCPA, the total amount of Federal excise tax collected from the distilled spirits category for 2006 was $4.4 billion, from the beer category for $3.6 billion, from the wine category for $800 million. Additionally, state taxes during that same time reached nearly $5 billion.

Source Citation:

* Research & Markets Reports: c52188 SIC Codes: 5813 NAICS Codes: 722410 Page Length: 12

* "Drinking Places (Alcoholic Beverages)." Encyclopedia of American Industries. Online Edition. Gale, 2009.

* Reproduced in Business and Company Resource Center. Farmington Hills, Mich.:Gale Group. 2009. http://galenet.galegroup.com/servlet/BCRC Document Number: I2501400750