How the TABC Regulates On-Premises Promotions for Texas Liquor License Holders, Part II
Today we are continuing with our second installment in a blog series on how the TABC regulates “On-Premises Promotions” — a term that the Texas Alcoholic Beverage Commission (TABC) uses to describe promotions carried at the location of a retailer who sells alcohol for consumption on its premises — predominantly bars and restaurants.
Last month, we began the series by looking at the prohibitions related to free and discounted drinks and saw that coupons or any similar promotional tool are prohibited. Today, we are continuing to discuss this category of promotions including buy-one-get-one-free, volume discounts, late-night discounts and other similar promotions.
The prohibited practices in this section fall under the category of the age-old “buy-one-get-one-free” promotion. To cover the prohibited activity, however, we think a little more detail helps:
Buy ________ (insert any form of alcoholic beverages) and
Get ___________ (insert really anything) Free or at a Discount.
Buy ________ (insert really anything) and
Get ___________ (insert any form of alcoholic beverage) Free or at a Discount.
That means the following promotions are prohibited:
- Buy an alcoholic beverage, get an alcoholic beverage free or at a discount.
- Buy an alcoholic beverage, get food, entertainment, promotional items, etc., free or at a discount.
- In a mixed drink, adding an extra shot or otherwise increasing the alcohol content without increasing the price, i.e., “Buy this drink, and get a shot free.”
- Increasing the amount of alcoholic beverage served without increasing the price.
Exception: Alcohol as Part of a Meal or a Package
The TABC rules specifically clarify that selling alcohol as part of a meal or hotel/motel package is permitted. For example, a meal priced at $200 including three courses and a glass of wine paired with each course is fine. Offering a hotel package that includes alcoholic beverages is also acceptable. An example here might be an offer of a hotel room for two people for two nights for $500 that includes a bottle of champagne. Though essentially the same, you would not want to market either in a way that looks like the prohibited “buy-one-get-one-free” above (i.e., offering a free bottle of wine with purchase of the meal or hotel stay).
Discounts Based On Volume
The TABC also prohibits discounts that are contingent on the volume purchased or consumed. In other words, the more you buy or drink, the cheaper the drinks. This is similar to the above prohibition against offering a discount in exchange for an alcoholic beverage purchase.
For example, reducing the price for each additional drink would be a violation of this rule. Similarly, it is a violation to offer a discounted drink if the person drinks a certain number or volume of alcoholic beverages. Also, offering a discount for purchasing a certain number drinks at one time is a violation per TABC Rule 45.103(c)(6).
Clearly, you cannot give a free or discounted drink in exchange for a purchase. Are any free drinks permissible?
Yes, but within a strict limit.
The TABC Rule says that you cannot serve “more than one free alcoholic beverage to any identifiable segment of the population during the course of one business day.” An example of this is offering one free glass of champagne to mothers on Mother’s Day. You can also serve a free alcoholic beverage to anyone for a birthday, anniversary, or other special event, but you cannot advertise or promote these free drinks.
No Late-Night Discounts
While the party can go all night long (or until midnight or 2 a.m. depending on your location), happy hour cannot. The TABC prohibits discounts on alcohol after 11 p.m. Period.
The TABC Rule states clearly, “Retail licensees and permittees may not … reduce drink prices after 11 p.m.” But, don’t forget that you can still offer discounts on food and other items. Those promotions are fine as long as the discount is not dependent on the purchase of an alcoholic beverage.
Finally, don’t forget that this list doesn’t capture every possible illegal promotion. Texas law prohibits any practice that reasonably causes people to drink excessively. A promotion that doesn’t fit into any of the categories described above, can still potentially be prohibited if it causes people to over indulge. The TABC takes the position that an excessive discount can lead to excessive consumption.
What is an excessive discount? Unfortunately, there is no set standard to reference. I recall years ago, the TABC cracked down on a location that sold beers on certain nights for 69 cents each. On those nights, a large number of people stopped for DWI in the area claimed they had been at said location prior to driving.
Know that one of the first questions law enforcement will ask a person suspected of drunk driving is where they have been drinking prior to driving. You do not want to be the bar or restaurant that is named over and over again!
What about selling a drink for less than your cost? Is that an excessive discount? Maybe, but the TABC has not expressly prohibited this practice. However, note that the TABC does prohibit taking a fee at the door to recoup losses from heavily discounted drinks.
The Art of Menu Pricing
You have probably noticed that many of these prohibitions are ultimately not based on an objective standard, but on perception and your own menu pricing. Further, there are no specific guidelines on how you set those prices. For example, as we said above, you could sell a drink for less than cost.
Consider this situation: You price a certain beer at $5 a pint and the restaurant next door prices the same beer at $10 a pint. You can sell two of those beers to one person for a total of $10. The restaurant next door cannot offer a buy-one-get-one-free (two beers for $10), buy-one-get-one-half-off (two beers for $15), or any similar promotion — even though doing so would still result in a total price that would be equal or greater than what you are offering. Applying the limits on happy hour, your neighbor can offer a happy hour or other discount and sell those beers for $5 each, for example, but this is only allowed until 11 p.m.
The prohibitions seem to rely on your patrons’ perception. Is the TABC right that a person is more likely to purchase a $10 beer if it’s buy-one-get-one-free than two $5 beers? Maybe they are, maybe there is room for improvement in the law. Or maybe this is a question that delves into psychology and won’t soon be answered. At any rate, these are the rules that liquor license or permit holders are currently bound to follow under Texas law.
Still have more questions about similar promotions? Check in later this month as we complete our three-part series about On-Premises Promotions with the TABC restrictions related to the volume of drinks sold, including the prohibition against “bottomless” beverages, and other miscellaneous prohibitions.
About Martin Powers & Counsel PLLC. Dallas-based Martin Powers & Counsel, PLLC is a boutique business law firm dedicated to providing personalized and strategic legal services for businesses of every size. The firm is home to experienced attorneys with expertise in business disputes, bankruptcy and creditors’ rights, Texas Alcoholic Beverage Commission (TABC) compliance, labor and employment law, real estate transactions, landlord/tenant disputes, contract negotiations, general counsel services, and other areas at the intersection of business and law.