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Do you want to do something radical? You can get a cocktail at your local bar or restaurant. Prior to the Pandemic, that act was illegal almost everywhere in America. Cocktails had to be consumed. They couldn't be packaged and sold. They couldn't be delivered to people's homes.
Bars and restaurants began closing after the Pandemic. More than 30 states have legalized the sale of to-go cocktails. On March 19, 2020, it happened in Vermont. Sam Nelis knew he would still have a job.
Nelis says that they realized they could bring back some staff and start doing cocktails. He is the beverage director for the cocktail bar at Barr Hill Distillery. His team quickly got to work, serving cocktails in glasses that could be used in people's homes, and it saved their business. Nelis says, please, keep the to-go cocktails going forever. I don't know why it wasn't allowed.
Nelis may not know, but he is pondering something very important.
The Surprising Importance of To-Go Cocktails is a related show.
There are two good reasons to wonder why to-go cocktails weren't allowed. The economics of alcohol are dominated by a tangled mess of laws that go back a century, and to-go cocktails were illegal because of that. To-go cocktails reveal an important lesson about how to create positive change when you dig into the way alcohol regulations are changed.
Why do you want to understand how to create change more broadly? It is possible to change laws and create new opportunities for businesses and consumers, but entrepreneurs may not realize it.
Entrepreneurs can have a big impact on the regulatory environment. He can see it. He was the first political adviser for the company, which initially protected taxis against all forms of competition. He only invests in companies that operate in highly regulated industries, such as Bird, Bird, and Coinbase. Taking politics seriously is the first step.
That may not be very appealing. Entrepreneurs rarely get into business to play politics, they do it to solve problems, build something great, and make people happy. Cocktails are simple and straightforward, and consumers are very happy with this newly legal option, which makes it a perfect case study in how change happens. According to polling done by the National Restaurant Association, upwards of 85 percent of drinking-age consumers now want to drink cocktails permanently. Mike Whatley, the association's VP of state affairs and grassroots advocacy, says he has never seen a poll like this before.
The past year has created a molten environment, which has made it a good time to look at how laws are changed. Telemedicine's burdensome regulations were loosened, as were restrictions on drone deliveries, and many other regulations. All of these things were temporary. Suddenly they were not. At some point in the future, nobody will remember why they weren't allowed.
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When someone like Nelis asks, "Why isn't that allowed?", it can become the first step towards a larger question, "What does it take to change that?"
A simple cocktail can teach a lot.
Why didn't you take a cocktail home in 2020? The answer begins more than 100 years ago, when America began to follow alcohol regulations.
The R Street Institute has a senior fellow who researches alcohol policy who says that prohibition didn't just happen overnight. Before national prohibition started, one county would vote to go dry and another would be wet, but before that started, one county would vote to go dry and another would be wet.
This system was porous. If a resident of a dry county wanted a drink, they would just drive over to a neighboring wet county and buy some booze and take it home. Lawmakers banned the transportation of alcohol as they saw that happening. The local laws remained on the books even after prohibition ended in 1933. The vigilance forces didn't go away. A lot of them focused on the state level.
He says that the ban on to-go cocktails was influenced by when dry states banned the transport of alcohol from wet ones. We evolved into a world that embraced alcohol and had a thriving hotel scene, so why couldn't these laws be updated? To appreciate that, you need to look at the full mess of alcohol policy across America.
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The impact of prohibition was much more than cocktail policy. There are outdated alcohol laws in America. Many states still ban liquor sales on Sundays, or mandate that liquor stores be state-run. In Indiana, convenience stores can only sell warm beer. It is against the law for them to keep beer in the fridge.
It can be difficult to change these laws. Public safety is often tied to alcohol laws. If a change in a law is blamed for a drunk-driving death, few lawmakers want to change it. Laws come with a lot of benefits and diffuse costs, so it's hard to change them. The warm-beer law in Indiana is a good example. When Indiana residents are surveyed, they overwhelmingly want the law to change, but it won't affect how they vote in the next election. Liquor stores have an interest in keeping the law the same as it is because they can legally keep their beer refrigerated. The stores will punish a lawmaker who votes against them. The benefits of keeping the liquor stores happy are concentrated, while the costs are diffuse. The law stays.
One part of the alcohol industry is trying to stop another part from selling more booze. The alcohol industry has parts that are turned against each other. It is a system that dates back to the 19th century.
John D. Rockefeller wanted to limit the influence of the alcohol industry. The three-tier system was developed in 1933, after the end of prohibition. The rule splits the industry into three tiers. The middleman that transports and resells the beer is a brewery, and the store where the beer is sold is a brewery. No company can operate in more than one tier.
In the past few decades, there have been exceptions to that rule. Some states have strict limits on how much beer a brewpub can directly sell. If they go over that limit, the states will require the breweries to make the beer, sell it to the wholesalers, and then buy their own beer back. This is very different to the business world, where vertical integration is applauded. Apple sells its products in its own stores, for example, and Peloton also makes and produces classes for its riders. That is not allowed in the world of alcohol.
Everyone in the alcohol industry is protective of their turf because they have a limited ability to expand. That makes selling to-go alcohol very complicated. One tier's opportunity can be another tier's loss.
Restaurants are gaining trust with customers.
The rise in food-delivery apps over the past decade has caused the industry to be inching into this tension. As people shifted away from eating in restaurants and towards Seamless, on-premises alcohol sales were declining, which was problematic given that alcohol is generally a restaurant's highest-margin item. Some states have begun allowing restaurants to sell bottles of wine or beer with takeout orders, though the states are hesitant to do it with cocktails. Texas and Louisiana allowed restaurants to sell single-serving, mixeddrink containers in 2019. What are those? Imagine buying a canned drink at a liquor store, and there is tension with the law change. The National Restaurant Association's Whatley says that liquor stores are the largest opposition to the proposal. The existing three-tier system for alcohol raises a lot of concerns.
The legalization of to-go cocktails was too complicated for most groups to tackle. David Wojnar, senior VP and head of state government relations for the Distilled Spirits Council of the United States, admits that the issue wasn't on their radar. The National Restaurant Association was not focused on it.
The epidemic arrived. New York governor Andrew Cuomo was one of the first to shut down bars and restaurants, but at the same time he allowed the sale of alcohol. The team heard about the opportunity. Maybe, they thought, this was an opening for even more change.
Why? Big things can follow when small laws are changed.
Entrepreneurs have to know what they are up against if they want to change a law. The investor who works with startups in regulated industries suggests starting with seven questions.
What are the punishments for breaking the law?
How politically powerful are the people you are going to disrupt?
How much corruption is pervasive in the area you are targeting?
Will your customers show up?
How sympathetic are you, compared to what you are trying to change?
What was the original intent of the law? Was it meant to stop you, or was it written a long time ago?
The fight is important to you.
Many fights are winnable, but at a cost of time, money, and effort. It becomes pretty clear if you can change the regulatory environment around you if you can honestly assess each of these.
These fights are better built for industry associations than individual entrepreneurs. In the case of to-go cocktails, the questions seem to apply. The political power was shifting, restaurant allies were everywhere, customers were excited, local entrepreneurs were sympathetic, and the fight could determine whether many of these businesses survived. DISCUS formed a coalition with the restaurant association, the bartender's guild, and more. They went state by state to push the same deal New York had struck. It was pitched as being creative, outside the box, in a crisis situation. Politicians like to feel like they are going the extra mile, that they are creative.
It worked. Thirty-three states and Washington, D.C. now allow alcohol to be consumed. State governments framed it as a temporary shift. It would be very difficult to go back once entrepreneurs started taking advantage of the shift.
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Barr Hill in Montpelier was one of the first bars and restaurants to serve innovative and convenient new cocktails. There were companies that serve bars. Oktober Can Seamers sells a machine that can sit atop a bar and easily seal a can full of alcohol. Bars had a little bit of reservations, thinking it was going to be more complicated than it really is. Oktober began adding new styles of cans after alcohol became legal.
Change creates change. It creates a new environment around itself. Businesses were finding new ways to serve their customers and clients. The change was becoming something people would rely on long after the pandemic.
The question becomes: What next?
It was a big deal for bars and restaurants to sell to-go alcohol, but in the grand scheme of alcohol law it is a small change. How meaningful could it be?
David Wojnar tells a story about West Virginia.
There were a lot of alcohol restrictions in West Virginia. It banned liquor sales on Sunday in some of its counties. DISCUS spent a decade trying to change the Sunday sale law. DISCUS tried a different approach. It looked for the smallest law it could change.
Restaurants in West Virginia can't serve alcohol until 1 p.m. on Sundays. If you showed up for pancakes before then, you won't get a drink. DISCUS and its partners proposed a small change. If restaurants could sell alcohol three hours earlier, what would it be like? Lawmakers put the question on the ballot. The overwhelming majority of voters in West Virginia said yes when they were asked if they wanted to have mimosas a few hours earlier. It gave legislators a sense of what was happening in their districts. People were happy with change. The people voted to adopt the law. We are looking at Sunday sales.
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It worked. The Sunday sales ban was eliminated in West Virginia. Lawmakers decided to make the entire state wet. There are no more dry counties.
This is the power of small change. Big change is hard to start with. The status quo is embedded. Big things can happen fast when people start benefiting from a little change.
That is what the spirits and restaurant industries are betting on as they manage the next phase of to-go cocktails. They knew that as entrepreneurs made these changes a regular part of their lives, it would be hard to change the law back. That is being proven out. In June 2020, Iowa became the first state to permanently allow to-go cocktails. In October, Ohio became the second. Many states are looking to make it permanent or extend the change for a long time.
It would have taken 10 years of work to get 33 states to allow cocktails to go without COVID, according to Whatley.
What will happen in the next 10 years? They may have started with a simple cocktail.
Do you want to know more? The episode "The Surprising Importance of To-Go Cocktails" can be found on the Build For Tomorrow show.
