Who may pay for alcohol in a private club

A private club is an association of persons for some common purpose. The law allows a private club to serve and offer to serve alcohol to its members, even in a dry area, as long as it holds a valid private club permit from the Texas Alcoholic Beverage Commission ("TABC"). Any club that does not hold a TABC permit is prohibited by law from serving or offering to serve alcohol to its members.

Private Club Act

The Private Club Act was enacted in 1961, which exempted associations from the general prohibition against the “sale” of alcoholic beverages containing distilled spirits for on-premise consumption, provided they obtained a private club permit from the Liquor Control Board (which later became the Texas Alcoholic Beverage Commission or “TABC” for short). Prior to the enactment of the private club legislation, bars, lounges, and taverns which were known as "open saloons", were prohibited from operating under the Texas State Constitution and Liquor Control Act.

Associations benefiting from a private club permit included country clubs, fraternities and lodges such as Eagles, Elks, Freemasons, Moose, and Knights of Columbus, golf clubs, social clubs, and veteran’s organizations, such as American Legion and Veterans of Foreign Wars. Of course, this wasn’t limited to well-known and established organizations either. Bars, lounges and taverns could also be eligible as a social drinking club.

Under the Private Club Act, no “sale” of alcoholic beverages occurs under the Texas Alcoholic Beverage Code or the State Constitution, if a member of a private club holding a TABC private club permit is served alcohol for service charge or fee. Alcohol is common property owned by members of the private club. Members contribute money to a pool system through a service charge and or other fees, which in turn is used to purchase alcohol for the use and enjoyment of all private club members. While this may sound very simple in principle, there are complex laws and regulations governing membership and pool system which have to be complied with.

Following the 1970 repeal of constitutional prohibition against open saloons, the legislature passed local option elections laws. Justice precincts, counties and cities were given local control over the sale, service, and distribution of alcoholic beverages at the retail level. This introduced a new category of permits such as a Mixed Beverage Permit (MB), among others, which made it simpler and easier for businesses to offer alcohol service located in wet areas.

Private Club Permits

Notwithstanding the above, over a thousand private club permits are still active today as of this blog posting. Some of those permits have been active since September 1961 when private club permits first became legal. While reasons for obtaining a private club permit may vary, the most common two are being able to serve mixed beverages at a restaurant located in a dry area, and operating an exclusive club which limits membership through invitations, strict eligibility criteria, and membership fees.

Whether you choose to apply for a private club on your own or through a licensing agency, it is important to speak with a liquor attorney having experience with TABC to advise you about the feasibility of applying for a private club permit, reviewing and drafting legal documents, maintaining compliance, and availability of other alternatives.

Some businesses like brewpubs and brewery taps produce their own alcohol-for a personalized liquor bottle display. Other businesses like pubs, bars, and restaurants typically purchase from a local beverage distributor or a brewery. Of course, all those businesses have to learn how to get a liquor license.

Where Do Bars Get Their Alcohol?

Bar owners, bar managers, and beverage directors get their alcohol from a beverage distributor or wholesaler. That's because the wholesale price is much cheaper than the retail price for stocking a bar. This helps lower a bar’s liquor cost and increase a bar’s profit margin. Most bars maintain a consistent bar supplies list that they restock each week.

The bar will also outline the source of their supplies in their restaurant business plan. If they're looking for particular vintages, they can also buy them through private online liquor sales.

How Do Bars Buy Their Alcohol?

Two ways. One is picking up a phone or firing up a computer and contacting a sales rep for a distributor or wholesaler directly. It's the same process for ordering Bar Keepers Friend for your bar and restaurant glass and surface cleaner supplies. Or buying bar glasses and mixing tools from a vendor.

The second way is using a bar and beverage ordering platform, where all orders are placed directly to distributors through subscription-based software.

To use BinWise Pro as an example, you can place all your alcohol orders through one easy-to-use interface. That's the benefit of liquor inventory software. It'll give you complete insight into vendors, order creation date, delivery date, and more.

How Much Do Bars Pay for Alcohol?

When buying from a beverage distributor or wholesaler, bars typically pay 70% to 80% less than what they charge their customers. We reached out and asked an experienced beverage program manager how much bars can expect to spend acquiring alcohol from vendors.

They said small bars tend to spend around $2,500 to $6,000 per month on alcohol, while mid- and large-sized beverage programs can spend anywhere from $6,000 to $13,000 per month. But it's very dependent on inventory turnover and order minimums. It's also dependent on concept, such as running a speakeasy with wood furniture and vintage style.

We work with many high-end concepts with extensive wine collections and higher price points. Our internal data shows a median alcohol spend of around $30,000 per month before the pandemic, and around $10,000 per month after, for bars and restaurants like that.

Most bars will mark up their drinks four or five times more than its cost to cover the expenses. For example, if a bar pays $1 for a single 12-ounce serving of beer, they should charge their guests between $3.33 and $5 for it.

The same goes for beers in kegs, you just have to figure out how many beers in a keg to get your pricing numbers. Keep in mind that this number varies based on many factors.

The bar or pub layout, what kind of bar it is, and what prices their competitors have, for example. And even who their customers are, what type of liquor they're selling, and what their liquor pour cost is.  Which, conveniently, they can find out with a pour cost calculator. You'll certainly be paying more if you buy through a high-end wine negociant.

How Do Bars Price Their Liquor?

When pricing specific liquor types and qualities, most bar owners and managers divide their liquor into three tiers based on quality: well, call, and top shelf. It's very much related to the bar layout. Then they price accordingly. Sometimes using psychological pricing, believe it or not. We'll also touch briefly on how bars price wine.

Well Liquor

Well liquor is what bartenders use when a guest doesn’t name a specific brand in their drink order. It is typically the most inexpensive liquor at the bar.

Call Liquor

This is what bartenders use if a guest requests a specific brand for an order, like Tanqueray. Call liquor usually has higher name recognition and quality—and thus a higher price. But they're still not the most expensive ones. A few more examples of typical call liquor are Smirnoff Vodka, Beefeater Gin, and Bacardi Light Rum-one of many types of rum.

Top Shelf Liquor

Top shelf liquor is also called premium. These are usually the most expensive items in a bar, as they carry a more refined reputation. Most bars will have these on display to pique guests’ interest, such as Tennessee Whiskey, Crown Royal Whiskey, or Jose Cuervo 1800 Tequila.

Wine

Wine by the glass programs typically price a glass of wine at the wholesale cost of the entire bottle. While wine bottles are marked up between 200% to 400% of their wholesale cost.

Note to bar managers: Don’t feel like you’re being greedy if you have to charge your guests four to five times what the drink actually costs. You have many things that you need to cover aside from just the cost of your liquor. Things like ice, garnishes, glassware, rent, your staff’s salaries, and even more. The list goes on and on.

Frequently Asked Questions About Bars Buying Liquor

If you're planning to start stocking a bar, there are a few more things you should know. These common questions include:

Do Bars Get Discounts on Liquor?

The answer is: Yes. Most beverage distributors and wholesalers will have discounts for buying liquor in bulk or for frequent ordering. The reason behind it is quite simple.

Distributors want to sell more, but they don’t want to break up cases. Therefore, in order to encourage you to order more products, they will either charge breakage fees or offer bulk shipping discounts.

As a bar owner or manager, this is sometimes the best buying option to keep liquor costs down. The less bars pay for products, the lower their pour cost will be. However, this should not be applied to more expensive products that don’t fly off the shelves quickly.

Where Can I Buy Liquor For A New Bar?

If you're just opening up a bar in your location, the best way to start buying liquor is to look into liquor distributors in your area. A Google search will help, but you can also reach out to other bar owners. If there isn't a distributor right in town, there's sure to be one nearby!

How Much Pricing Control Do I Have?

When you start buying and selling liquor, you may be tempted to do your own calculations and run away with pricing to work on your bar profits. While there's nothing wrong with controlling your costs and sales points, don't get too carried away. Be sure to use the liquor cost formula and other strategies to keep your profits and cost points under control.

Ah, So That's Where Bars Buy Liquor!

Keep in mind, if bars overprice drinks, they'll have no business. And if they underprice, they'll make no money. Bars should strive to strike a balance with their alcohol pricing. And be open to making changes when certain things no longer fit. This is just a small part of learning how to open a bar.

Another note to bar managers: Maybe you're spending a lot on liquor and not making enough profit to cover it. Before increasing menu prices, work with your distributors for a better deal. Or do your own research to find an alternative liquor option.  

If you found this article helpful, contact us to learn more about BinWise Pro. It’s a liquor inventory system and bar inventory app that helps save time in taking your beverage inventory and running your bar more successfully. It can help set par levels (see par level definition), curb variance, and more.

Reduce inventory counting time by as much as 85%. Schedule a demo now: