Cocktails To Go
As everyone in the hospitality industry is aware, Illinois passed legislation enabling to-go cocktails in May, and Chicago followed up and passed an ordinance tracking the Illinois legislation in June. With cocktails-to-go now allowed in Illinois, restaurants and bars have a new option in their fight for revenues amidst the Coronavirus crisis.
However, due to the particularities about the Illinois law – and some issues with cocktails-to-go programs in general – there are a few practices to avoid, and risk to assess, when establishing a cocktails to go program. Unfortunately many of these restrictions add expense or uncertainty to the program, making it a more difficult decision for restaurant owners to decide if the investment in a program is worthwhile.
Delivery: The most significant restriction in the Illinois law is that only an employee of the retail licensee is allowed to deliver cocktails to go. This restriction eliminates the Grubhub, Caviar, and other third party delivery options. For many restaurants, these third party companies are their only form of delivery service, and green-lighting an internal delivery process is not a simple solve. A restaurant looking to self-deliver needs to set up an ordering platform, hire a delivery driver, get insurance, possibly a delivery vehicle, and packaging to keep products at the proper temperature. The restaurant also has to somehow market their stand-alone delivery service directly to customers, which is going to be difficult to do, given the marketing budgets of the Grubhubs and Caviars.
This means that Illinois cocktails to go are best in two situations – carryout, which does not require any new logistics, or for the incorporation of an already existing delivery program. Otherwise the logistical issues and up-front costs of the program are going to be a significant gamble for restaurants trying to avoid large cash outlays with uncertain returns.
Packaging: Based on Eater’s list of current cocktails to go, it seems most of the current offerings did not read the law’s restriction on “plastic, paper, or … foam containers”, as seven of the nine cocktails pictured in the article were in plastic containers. In addition, there are examples of other violations of the law, including a few “container[s] with a lid with sipping holes or openings for straws”, which are expressly prohibited. Others clearly are not served with “a lid or cap that has been sealed with tamper evident covers [like] wax dip or heat shrink rap.” In fact, it appears that only two of the nine cocktails pictured are actually in legally compliant packaging.
To be clear, the law requires a tamper evident seal (but does not define that past the examples of wax dip or heat shrink wrap) and does not allow plastic or paper, leaving glass and metal as the two most likely container types. For bottles, it is likely that a sticker is the simplest way to provide a tamper-evident seal, as a re-sealable glass bottle is likely non-compliant.
The early market entrants do seem to be doing better on the labeling requirements, as most seem to list the ingredients, name, license number, address, volume, and date of bottling.
Expiration: The cocktails-to-go program is only set for a one year period, and then must be renewed by the legislature. While it is certainly possible the program will be a success and allow for long-term service of this type, it is also possible that the program will end after a year. Given this risk, it is difficult for restaurants and bars to purchase the type of bottling, canning, and mixing equipment required to make high quality cocktails in-house.
There is also an expiration on the drinks themselves – they must be sold within seven days of packaging, preventing operators from creating a large amount of cocktails in a single session and slowly selling them – due to these restrictions, production must be done on a weekly basis.
Federal Crime: While there has been much celebration of the cocktails to go passages across the country, there has been little coverage of the legal ramifications of these programs on a federal level.
Based on a straightforward reading of the liquor statutes and regulations, bottling, sealing, and labeling cocktails for sale off-premise would fit under the federal definition of “processer” – “any person who manufacturers, mixes, or otherwise processes distilled spirits.” As each of these cocktails to go are mixed and processed products, they fall under this definition. The regulation further states that it is a crime to “engage in the business of a … processor without having filed application for and received notice of registration.”
Each violation of this regulation carries a fine of up to $10,000 and imprisonment for up to five years for individuals who were present during the processing of the cocktails.
Is it likely that, given pandemic situations, the IRS, TTB, or other federal agencies are going to immediately crack down on illegal cocktail processing? No, but that doesn’t mean they can’t, and if the federal government decides it wants to go after a restaurant owner, a cocktail to go program combined with federal liquor laws provides enough prosecutorial “ammunition” to fine a restaurant out of business, and put a restaurant owner and their employees in jail. While this is an unlikely risk, it is still a real one, and one that restaurant and bar owners should consider when launching their programs and determining the level of investment in them, as one communication from the federal government could shut down sales state-wide, much like we saw a few years ago with interstate alcohol delivery (which was effectively stopped when third party carriers were informed by the federal government they could not ship).
Conclusion: Cocktail-to-go programs in Illinois could be a lifeline for restaurants and bars struggling to produce profitable revenue during the pandemic. However, due to the restrictions of the Illinois law, it is best suited for only carryout and existing delivery programs who are able to batch high quality cocktails and can make profits despite the packaging and label requirements. Even in those situations, the one year duration of the program and potential federal penalties may cause pause for operators to invest in a robust program.
Operators can, even without the new cocktail-to-go laws, offer properly packaged and manufactured beverages, like beer, wine, and other ready-to-drink cocktails. Without the startup costs, available for delivery through third parties, and with no risk of federal crimes or program expiration, this is the easiest way for restaurants to provide liquor service in carryout and delivery situations. With companies starting to move into the white labeling of restaurant cocktails, operators may want to consider partnering with a manufacturing partner who can white label their drink to avoid compliance issues and create a long-term delivery and carryout cocktail program.
This article is for informational purposes only. If you have any questions, please contact our team at Troglia•Kaplan Attorneys.