Analyzing the Liquor Laws in the Garden State

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Article Overview:

The liquor laws of New Jersey have been called the most complex of all alcohol regulations in the United States. They’ve been called “outdated,” “past their shelf life,” and among the most restrictive in the country. But those laws have been on the books for a long time, and some influential voices in New Jersey are very keen to keep them that way.

New Jersey Gateway Drug

Home Rule

The problems begin with New Jersey’s policy of home rule, a system whereby every town, city, municipality, and borough has its own infrastructure: its own police and fire department, public utilities, planning director, school system, and liquor laws. This applies to even the smallest of settlements, regardless of how much of a financial burden such services place on the state government.

New Jersey has 611 school districts and 567 municipalities, a situation that New Jersey Public Television (NJTV) says renders it impossible for all of the state’s communities to have any economies of scale. Despite the government drafting plans for the smallest of towns to merge, and despite surveys showing that residents of the towns are “very willing” to share public services with their cross-town neighbors, no noteworthy action has been taken.

Why is that? According to NJTV, local political leaders are turning a blind eye to the idea of consolidating New Jersey’s plethora of small towns, for fear that such a move would cost them key votes when elections roll around.[1]

In addition to civil infrastructure, New Jersey’s home rule system also permits individual communities a large degree of authority in creating and enforcing their own policies when it comes to the sale and consumption of alcohol within their borders. The population of a municipality determines the number of retail licenses made available, which may be further regulated by the community’s governing body.

New Jersey’s home rule system also permits individual communities a large degree of authority in creating and enforcing their own policies when it comes to the sale and consumption of alcohol within their borders

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567 municipalities in NJ

Dry Towns and Legal Limits

Because of this, the regulations regarding how much alcohol can be produced and consumed can be very different from town to town, even within the same county. Some towns, for example, are dry; alcoholic beverages cannot be sold, but restaurants will allow customers to bring their own booze, and some dry towns even have breweries and wineries. Other towns are completely dry. Even for the areas that do permit alcohol sales, the licenses to do so are expensive and difficult to obtain; hence, business owners and politicians with vested interests either refuse to yield or make the licenses available at exorbitant prices.

dry town alcohol free

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Only 2 retail distribution licenses per corporation

Why even have dry communities at all? New Jersey’s strong history with religious groups like Quakers and Puritans goes some way in explaining the state’s reluctance to fully embrace alcohol. Certain laws were written shortly after the end of Prohibition, where even as the rest of the country celebrated the passing of the Eighteenth Amendment, there were still concerns over the social and health risks of alcohol. Even as decades and generations passed, some towns never updated their rules, and the sale and distribution of alcohol in local businesses remains a quagmire of bureaucracy that persists in the early 21st century.[2]

Certain laws were written shortly after the end of Prohibition… Even as decades and generations passed, some towns never updated their rules.

In New Jersey, corporations are limited to a meager two retail distribution licenses. This creates a stiflingly impractical situation for chain stores, like Costco, to sell alcohol (and alcoholic beverages). Additional municipal legislation restricts supermarket and convenience stores from selling beer and wine, as such businesses easily do in other states. New Jersey state law further muddies the waters by allowing individual cities and towns to define underage drinking laws the way they see fit, setting up potential conflicts of jurisdiction with other local governments under the same umbrella.

Corrupt, Inefficient, Costly, and Time-Wasting

Writing an opinion piece in NJ.com, Louis D. Greenwald, the Assembly Majority Leader of the New Jersey General Assembly, calls for a modernization of his state’s liquor laws, pointing out that a 1962 law imposes an unnecessarily strict cap on supermarket liquor licensing, which has effectively prohibited an overwhelming number of supermarkets across the state from selling alcoholic beverages.

Such laws, says Greenwald, were written in the days of independently owned “mom and pop” corner stores, to protect establishments from price fixing and organized crime. But even as the landscape has changed, with supermarket chains rising and mobsters falling, liquor laws failed to reflect the cultural and economic shift.

Greenwald finishes his NJ.com column by talking about his proposed legislation to update New Jersey’s liquor laws, with an eye on creating jobs and stimulating the economy. The point, he says, is that his state’s rules on how alcohol should be distributed are “vintage,” written for a bygone era. By modernizing how New Jersey regulates its share of an industry that was nationally worth over $400 billion in 2010, Greenwald says the Garden State will become like the rest of the country in taking the seemingly basic step of offering wine, spirits, and beer in supermarkets.[3]

Greenwald calls for gradually allowing for the two-license cap on individuals and corporations to be lifted, pointing to a 2011 study published by Monmouth University that showed New Jersey residents who actively purchase alcohol would like to enjoy the convenience of buying alcohol in supermarkets. Such a move, says Greenwald, would benefit both the business and the consumer.[4]

Greenwald’s voice is not the only one speaking up against what are also known as retail consumption laws in New Jersey. In July 2014, the principal of a development and consulting firm told an audience of real estate officials that the current system of New Jersey’s laws are corrupt, inefficient, costly, and time-wasting.[5]

… A 1962 law imposes an unnecessarily strict cap on supermarket liquor licensing, which has effectively prohibited an overwhelming number of supermarkets across the state from selling alcoholic beverages.

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A $400 billion Industry Nationally

Teterboro, New Jersey

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New Jersey law allows local government to issue one liquor licenses based on population:

1 restaurant liquor license for every 3,000 residents

1 retail store liquor license for every 7,500 residents

Costco is entitled to only two retail liquor licenses in the state so the Teterboro location cannot claim another liquor license to legally sell alcohol.

The point is picked up by NorthJersey.com. In “Battling N.J. Liquor Laws,” the site explains that New Jersey law allows local government to issue a single restaurant liquor license for every 3,000 residents. Retail stores are granted a license for every 7,500 residents. But as an example of New Jersey’s complex and restrictive liquor licensing laws, consider Teterboro, a borough in Bergen County. The borough is home to a 55-acre shopping center that cannot serve any alcohol, because Teterboro has only 67 residents.[6]

It took a 2013 bill that gave the state “special authority” to create five additional liquor laws, three for restaurants and two for retail stores. In October, a Costco location opened at the shopping center, but was unable to use any of those five liquor laws; since Costco is entitled to only two retail liquor licenses (which it uses in the municipalities of Wayne and Edison), the chain cannot claim another liquor license to legally sell alcohol in Teterboro.

This has led to a situation where there is a liquor store attached to the Costco in the Teterboro shopping center, but the liquor retailer is not a part of the Costco corporation, and it cannot sell Costco’s signature brand of tequila, whiskey, or chardonnay.

The Price for a Liquor License

NorthJersey.com spoke to the CEO and president of a national firm that assists clients with the purchase, sale, and maintenance of liquor licenses. He described how the current system of laws in New Jersey not only prevents businesses from receiving new licenses, but also allows individuals and corporations who hold licenses to hang on to them for years, even if the licenses are not being used. This has the effect of unfairly raising prices in high-demand areas, with some licenses reaching prices between $50,000 and $2 million (the Cheesecake Factory restaurant in Short Hills, New Jersey, paid $2.3 million), as holders steadfastly (and perhaps selfishly) oppose any measure that might erode their monopoly.

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… licenses reaching prices between $50,000 and $2 million

liquor license cost nj

The result is that there is no significant desire to change the status quo, even where the status quo has stopped making sense. A 2,500-square-foot restaurant costs between $250,000 and $300,000 to construct and operate, but it could cost that same establishment more than $500,000 just to purchase a liquor license to offer wine to its patrons.

Nonetheless, entrenched business owners hold all the right cards, and the politicians and lawmakers who benefit from the arrangement are happy to turn a blind eye or kick the can down the road. New Jersey’s rigid and archaic liquor license laws remain just as they are.

NorthJersey.com points out that New Jersey’s governance of how alcohol is sold and distributed cannot continue in the modern era of decentralized and remote industry, especially when the relevant laws were written for a different generation in response to a different problem (that of bootlegging in the Prohibition era).

The proposal put forward by Louis Greenwald, says NorthJersey.com, would allow supermarkets that are known for selling food to receive up to 10 liquor licenses over a period of time. This plan would only extend to supermarkets that carry groceries; warehouse stores like Costco, and even big-box stores like Wal-Mart and Target (both of which also sell groceries) are exempt from this provision. Not only would this protect local businesses from corporate chains buying up every available liquor license, it would also do away with locally owned stores from having to resort to putting their businesses in the names of different family members, which they have to do to circumvent the two-license limit.

So outdated and restrictive are New Jersey’s liquor laws that a group of supermarket chains have come together, calling themselves Retailers for Responsible Liquor Licensing, to express their support for Louis Greenwald’s plan.

A 2,500-square-foot restaurant costs between $250,000 and $300,000 to construct and operate, but it could cost that same establishment more than $500,000 just to purchase a liquor license to offer wine to its patrons.

Opposition to Modernizing the Laws

However, not all voices have been in favor of modernizing alcohol regulation in New Jersey. Owners of liquor stores and wholesale liquor distributors are worried that granting more liquor licenses, or expanding the terms of current liquor licenses, will squeeze them out of business. The president of the New Jersey Liquor Store Alliance, who also owns the Super Wine Warehouse in Paterson, NJ, told NorthJersey.com that extending liquor licenses to mass merchants that have their head offices outside the state will be too much competition for New Jersey-based stores.

If the perspective seems contrary to what Louis Greenwald and other voices are claiming, that’s because such plans are usually put forward as a method of helping the “little guy,” says a broker who specializes in restaurant transactions. He tells NorthJersey.com that the current liquor licensing laws have been instrumental in keeping corporate chains out of the Garden State and encouraging smaller businesses to operate. Increasing the scope of licenses could cause big out-of-state competition to saturate New Jersey’s market.

The owner of a chain that has four locations in New Jersey insisted that changing the licensing rules has to be for reasons more logical than there simply being a strong lobby to reform the laws, especially if businesses that have played by the rules (for decades, in some cases) suddenly find themselves on the losing side of the change. He argues that if supermarkets are allowed up to 10 licenses, independent wine and liquor stores should also receive the same benefit.

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… current liquor licensing laws have been instrumental in keeping corporate chains out of the Garden State and encouraging smaller businesses to operate.

A further reason for potential opposition to finally improving the state of New Jersey’s liquor laws is that the average New Jersey voter is not likely to go to the polls for expanding the licensing rules for businesses. As of January 2016, the Garden State is experiencing the eighth slowest job growth of any state in the country, and has not yet recovered all the jobs it lost during the Great Recession of 2008. Since the Recession, New Jersey has regained only 82 percent of the jobs it lost, with its neighbors New York and Pennsylvania not only regaining their lost jobs, but adding even more jobs to their respective economies – something New Jersey has failed to do.[7]

Given that reality, the restaurant transaction broker speaking to NorthJersey.com is skeptical that the residents of the state are prioritizing having more liquor licenses and places to drink.

‘Accompanying Nuisances’

New Jersey Monthly Magazine provides another reason for the local resistance to loosening up the state’s retail consumption laws, which the publication says have not been updated since 1948: Smaller towns appreciate that a reduced limit on liquor licenses clamps down on the number of bars that operate and the “accompanying nuisances.”[8] The sentiment may be a holdover from the days when the laws were written, as the dust of the end of the Prohibition era was still settling; only now, the stakes are higher, and popular culture has dramatically changed from the halcyon days of the mid-20th century.

For example, two bars in the Jersey Shore area – home to the infamous reality TV show of the same name, which was slammed by observers for promoting copious alcohol consumption as a lifestyle and disavowed by the borough where the show was filmed because of the “bad behavior” carried out while cameras were running, such as an alcohol-fueled assault at a bar – were at risk of having their liquor licenses suspended for serving underage customers.[9], [10], [11]

oppose change

A Lack of Competition and Higher Prices

But the bigger frustration, says NJBIZ, is that the resistance to reforming New Jersey’s retail consumption laws deprives the state of competition. The rigidity with which license holders are allowed to sit on their permits furthers a state of inequality that paralyzes the entire industry, and prevents New Jersey from developing local economic opportunities.

That benefits the liquor lobby, which manipulates the system and its loopholes to hoard liquor licenses. One retailer, says NJBIZ, has 25 licenses throughout the state; another has 47. While the average New Jersey voter may not prioritize alcohol choices in a struggling economy, the lack of competition leaves consumers with no option but to pay unnecessarily high prices for their beverages.[12]

An editorial in NJBIZ “pleads for some sanity” in reforming New Jersey’s liquor licensing laws, which are “hopelessly out of date.” The paper specifically mentions the biased and unfair way the state government issues permits. It is viewed as a system that is easily gamed by shrewd (and rich) business owners to create a monopoly that benefits them alone, not the liquor industry in New Jersey and not New Jersey residents who would like a greater variety of options and more reasonable pricing in their alcohol beverage consumption.[13]

The Dark Ages

Meanwhile, the fight rages on, with no sign of resolution on the horizon. The executive director of Retailers for Responsible Liquor Licensing told a New Jersey radio station in December 2015 that the goal of his coalition was to “bring New Jersey out of the Dark Ages,” with regards the Garden State’s retail consumption laws.[14]

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What would be in it for New Jersey? The word competition is used a lot, but in 2011, the Food Marketing Institute carried out a study that went into some detail about what the state stood to gain if it relaxed its grip on liquor licenses.

  • The state could gain $12.6 million in wages from the creation of over 275 fulltime jobs that would arise from supermarkets being allowed to sell beer and liquor
  • New Jersey coffers stand to collect $6.7 million in sales and excise tax revenues, and $3.6 million from business and employment taxes, without having to raise tax rates.
  • The demand for licenses could give municipalities as much as $364,600 in license transfer fees, a figure that might increase if retailers purchase expired licenses directly from local governments and not the owners of the expired licenses.[15]

For now, however, New Jersey has to be content with being included on lists of “States with the Craziest Liquor Laws,” where TIME magazine writes of a Garden State liquor license selling for $1.6 million.[16]

Talking to The New York Times, the chief executive of LiquorLicense.com describes New Jersey’s liquor laws in quite simple terms: They’re out of control.[17]

Citations

[1]An End to NJ “Home Rule”?” (September 2011). New Jersey Public Television. Accessed March 25, 2016.
[2]Dry Towns in New Jersey.” (August 2015). FunNewJersey.com. Accessed March 25, 2016.
[3]Economic Contributions of the Distilled Spirits Industry.” (n.d.) Distilled Spirits Council of the United States. Accessed March 25, 2016.
[4]Opinion: It’s Time to Modernize New Jersey’s Outdated Liquor Licensing Laws.” (March 2015). NJ.com. Accessed March 25, 2016.
[5]NJ Liquor-License Law Needs Reform, Says Developers.” (July 2014). NorthJersey.com. Accessed March 28, 2016.
[6]Battling N.J Liquor Laws.” (January 2016). NorthJersey.com. Accessed March 27, 2016.
[7]Christie Boasts of Saving N.J. Economy.” (January 2016). NJ.com. Accessed March 27, 2016.
[8]Loosen Up: Reassessing NJ’s Strict Liquor Laws.” (September 2015). New Jersey Monthly Magazine. Accessed March 27, 2015.
[9]Two Jersey Shore Bars Charged With Alcohol Violations.” (July 2014). NJ.com. Accessed March 27, 2016.
[10]Jersey Shore’s Snooki Slammed for Promoting Tanning.” (January 2010). US Weekly. Accessed March 27, 2016.

[11]Seaside Heights Officials Distance Themselves From “Jersey Shore” Reality Show.” (December 2009). NJ.com. Accessed March 27, 2016.
[12]Past Its Shelf Life: Why It’s Time to Modernize New Jersey’s Outdated Liquor Licensing Laws.” (September 2015). NJBIZ. Accessed March 28, 2016.
[13]Editorial: A Reminder That We Need Liquor License Reform.” (August 2015). NJBIZ. Accessed March 28, 2016.
[14]Should NJ supermarkets be allowed to sell beer and liquor?” (December 2015). New Jersey 101.5. Accessed March 28, 2016.
[15]The Economic Impact of New Jersey A-2591: An Act to Increase Retail Liquor Distribution License Limits for Certain Retailers.” (June 2011). Food Marketing Institute. Accessed March 28, 2016.
[16]These are the States with the Craziest Liquor Laws.” (October 2015). TIME. Accessed March 28, 2016.
[17]A Liquor License Workaround: Fermented, Not Distilled.” (February 2016). The New York Times. Accessed March 28, 2016.