Liquor Licenses: Is Traverse City Overserved?

When it comes to restaurants, bars, and taprooms in Traverse City, is there such a thing as too much of a good thing? Or should city officials maintain a ‘the more, the merrier’ approach?

Downtown Development Authority (DDA) staff plan to study the issue after hearing concerns from restaurateurs about the number of establishments serving alcohol downtown. At the heart of owners’ complaints is a program adopted by the city in 2008 that allows businesses within downtown and at The Village at Grand Traverse Commons to apply for a new type of liquor license offered by the state – one significantly cheaper than a traditional license.

The Michigan Liquor Control Commission (MLCC) started offering redevelopment liquor licenses in 2006 to allow communities with full quotas on traditional licenses to attract new bars and restaurants in certain defined neighborhoods. Unlike a traditional license – which can be sold or transferred if a business closes – a redevelopment license is not considered an asset. If a business closes, the license reverts to the state. For that reason, “the price difference between the two licenses is about $65,000,” says City Clerk Benjamin Marentette. “A redevelopment license is a $20,000 fee to the state of Michigan, whereas a traditional license is market value-based. In Traverse City, they tend to sell for $85,000.”

When Traverse City adopted the program, the MLCC made a total of 265 redevelopment licenses available to the community. Because of that high threshold, city officials voluntarily put additional local restrictions on redevelopment licenses, including the requirement that liquor sales end by midnight. “The city wanted to make sure (the licenses) were operated by boutique restaurants and not traditional bars,” says Marentette. “We examined a number of ways to make sure the licenses were operated in a way it wasn’t getting out of control.”

The program has attracted steady interest since its inception. Eighteen total redevelopment liquor licenses have been issued in the city in the last nine years: 15 downtown and three at the Commons. Those are in addition to 63 traditional licenses operating within city limits, according to Marentette, including wine tasting rooms and the Nauticat, which has a watercraft license.

Though the redevelopment license program has averaged just two applicants per year, officials worry about the 265 threshold and also about issues like the ratio of restaurants to retail downtown, scarcity of available labor, and community branding.

“I encouraged the DDA to start talking about this and thinking about putting a cap on it or figuring out what the criteria should be (for licenses),” says Traverse City Mayor Jim Carruthers. “We’re seeing a lot more grapes, hops and grains making booze, which has been huge for our economy and a good thing. But as a tourist town, we also have to think about, how boozy do we want to be? I don’t want to be like some cities where every other storefront is a bar or a head shop.”

At a January 17 commission meeting, commissioners approved a new redevelopment license for The Dish on Union Street. With the program on the agenda, restaurateur Paul Danielson – who holds traditional liquor licenses at his restaurants The Franklin and Trattoria Stella – wrote commissioners about his concern Traverse City was “quickly approaching a bubble” in terms of its hospitality industry.

“There are two basic forces working to bring this about…the most obvious is a shortage of labor,” Danielson wrote. “The second…is an overabundance of establishments.” Danielson continued that area restaurants won’t be able to continue maintaining high standards in an employment cycle of “busy/understaffed, slow/can’t-make-a-living,” and that stopping the practice of offering redevelopment licenses “might be a start” in regulating the crowded market. “Most established cities have a cap on liquor licenses,” he wrote. “I would suggest that we are there.”

DDA Executive Director Rob Bacigalupi tells The Ticker “at least a couple other restaurateurs” have expressed similar concerns, one of the reasons the organization is assembling a committee of business owners to evaluate the program and provide feedback. Bacigalupi says one area of concern to the DDA is maintaining a diverse mix of businesses downtown. Economist Chris Brewer warned DDA board members in a May presentation that downtown retailers face an uphill battle as rents increase, with restaurants better able to bear rising costs than stores. “We don’t want too much of our retail space to convert over to restaurant space, because once it converts, it’s very difficult to change back,” says Bacigalupi. “If there were too many licenses downtown, it could start limiting retail space.”

However, Bacigalupi also says he “really sees the value" in redevelopment licenses and "would never advocate for getting rid of them,” noting they “offer an opportunity for smaller businesses” to enter the market. Recent recipients of redevelopment licenses include Mama Lu’s, Gaijin, Olives & Wine, PepeNero, Nolan’s and Red Spire Brunch House. Instead of eliminating the program, Bacigalupi says the DDA committee could consider options like capping the annual number of permits, adding new criteria, or limiting licenses to underdeveloped areas, like State Street. Any recommendations would go to the city commission for final approval.

Meanwhile, those who’ve benefited from a redevelopment license express support for the program. Owner Matt Cozzens of 7 Monks Taproom says his business was close to purchasing a traditional license when the deal fell through shortly before 7 Monks opened. “The fact this (redevelopment license) was available was imperative,” he says. “We would have been delayed a long time without it. It took about a year-and-a-half for folks to get used to the fact we have to close at midnight, but we’re enjoying it, especially having (staff) with families who have to get up the next morning. It’s a concept that's worked well for us."