Friday, April 20, 2007

Smoking ban temporarily stunted bar revenues

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Chris Rossi⁄The Gazette
‘‘If you don’t have sales growth, you’re just dead in the water,” says Greg Hourigan, owner of Hard Times Café in Bethesda, who opposed the smoking ban imposed by Montgomery County in 2003.
When Montgomery County became the first jurisdiction in Maryland to ban smoking in bars and restaurants in 2003, county officials predicted that nonsmokers from across the region would come ‘‘flocking” to the area, ‘‘grateful for the chance to eat smoke-free.”

But more than three years after the Montgomery County ban went into effect, Greg Hourigan, owner of Hard Times Café in Bethesda, doesn’t quite remember it that way.

‘‘Flocking?” he asked with a laugh. ‘‘People did not come in droves to Bethesda after the ban, that’s for sure.”

Now that the ban on smoking in bars and restaurants will be enforced statewide beginning in February, restaurateurs across the state may be taking another look at the short-term impact on establishments in Montgomery County — which has been under a ban for three and a half years — to see what awaits them.

Revenue growthalmost stopped with ban

A review by Capital News Service of state sales tax data from the Maryland Comptroller’s Office shows that Montgomery County bars and restaurants with liquor licenses saw revenue growth come to a virtual stop immediately after the smoking ban. Conversely, the sales tax data show that county restaurants and cafés without liquor licenses continued to experience steady growth. In addition, tax receipts from licensed establishments in neighboring Howard and Prince George’s counties, which did not yet have smoking bans, also continued to grow.

The figures alone are inconclusive, however. Growth in revenues for establishments with liquor licenses as measured by tax receipts had already been slowing throughout the state in the two years before the 2003 Montgomery smoking ban.

Other factors such as the economy and changing business tides may explain the trends. In addition, the original proponents of the ban say that any leveling-off or downturn in revenues was a temporary blip in the vigorous long-term growth in restaurant and bar revenues the county has experienced.

Indeed, operators of some businesses that took a sharp hit after the smoking ban have repositioned their establishments and say that business is now better than ever.

‘‘We’ve angled the business toward everyone now, whereas before it was very blue-collar,” says Gordon Banks, manager of Quarry House Tavern in Silver Spring. Though business at the Quarry House saw a drastic drop after the smoking ban, Banks says it is now booming.

‘‘Rather than just being a smoky dive, it’s become other things,” he said.

One of the establishments that saw a downturn was Hourigan’s Hard Times Café, a mid-sized chain restaurant and bar in downtown Bethesda. Although not the kind of ‘‘smoky dive” that smoking ban opponents said would be most harmed, Hourigan said he saw a 6 percent to 10 percent drop in bar sales during the first year after the ban started in October 2003.

‘‘Our growth rate was very steady for the first years we were open and then it went flat,” he said.

Others say the ban hit them far harder.

Macdara ‘‘Mac” Tigue, owner of Flanagan’s Harp and Fiddle, another mid-sized venue in Bethesda, says his bar sales dropped about 30 percent during the first year of the ban. Tigue blames the fact that smokers were at that time still able to go to Washington, D.C., or Prince George’s or Howard counties.

‘‘It had a major, major effect because Bethesda is so close to the D.C. line,” Tigue said. ‘‘The smokers stayed downtown for the happy hours.”

Since Montgomery County adopted its ban, five other Maryland jurisdictions — including neighboring Howard and Prince George’s counties — and the District have gone smoke-free.

In the waning hours of this year’s General Assembly session, legislators voted to make that ban statewide, and Gov. Martin O’Malley agreed to sign the bill.

The final bill includes an exemption for tobacco shops but not for private clubs such as the American Legion. Some establishments may apply to the state for a hardship waiver, which would be enforced by local officials.

‘It’s about health,’say ban proponents

Proponents of the smoking ban championed it as a public health issue, and said current law permits harm to restaurant employees who work in smoking establishments and breathe secondhand smoke during their shifts.

‘‘The bottom line is, it’s about health,” said Councilman Philip M. Andrews (D-Dist. 3) of Gaithersburg, the original sponsor of the Montgomery County ban. ‘‘The hardship that’s experienced is by the employees of restaurants who have to breathe unsafe air.”

Some Montgomery County servers, however, said they preferred to work in smoking sections before the ban, where tips typically ran 5 percent to 15 percent higher.

‘‘I always thought that was ridiculous,” Banks said. ‘‘You have a choice where to work.”

Opponents, primarily business owners and tobacco vendors, have maintained that a ban should be an individual business owner’s decision, and that hurt most will be smaller, neighborhood restaurants and bars that rely mostly on customers who smoke.

Hourigan, who was the Montgomery County Chapter president of the Restaurant Association of Maryland in 2003, and other restaurateurs say they fought the county ban for precisely those reasons.

But while some businesses say that they lost money from bar sales after the smoking ban was enforced, others say their sales went up for a short time after the ban started.

‘‘I was vehemently against the smoking ban. I was nervous about it,” said John McManus, co-owner of The Barking Dog in Bethesda. According to McManus, his sales went up the first few months following the ban before dipping back to normal.

The owner of five bars over the course of 25 years, McManus said that his Bethesda business is successful because it has a unique interior, draws a young crowd and has competitive prices.

‘‘If you can’t survive without smoking, then you’re dead anyway,” he said.

Gains for some,losses for others

The idea that some gained and others lost seems to be consistent with the sales tax figures that show a leveling off period in the county for restaurants and bars with liquor licenses. Because liquor licensees are more likely to allow smoking or have a smoking section, and because many argue that smoking and drinking tend to go hand-in-hand, their data were separated from non-licensees.

Before the ban, the state showed increased sales tax receipts from county bars and restaurants with liquor licenses each year from 2000 to 2003, though the rate of increase had been declining even before the smoking ban. After the smoking ban took effect, however, the reports show a less than 1 percent gain from the previous year. And in 2005, restaurants and bars in Montgomery County showed an actual decrease in sales tax receipts reported by about 0.25 percent.

By comparison, since the ban took effect, the state showed a fairly steady increase in sales tax receipts from restaurants and bars with liquor licenses in neighboring Howard and Prince George’s counties.

Prince George’s licensees showed an annual increase of about 7 percent from 2000 to 2005. The Prince George’s smoking ban was enacted in 2006, during which time licensed establishments show a 1 percent drop in sales taxes collected.

Receipts from establishments without liquor licenses for all three counties show average increases ranging from 11 percent to 17 percent per year for the past four years.

Last year, Montgomery County licensed establishments showed a 5.4 percent increase in sales taxes collected, which put the group ahead of where it was in 2003. But owners point out that businesses lost out during the time period when sales leveled off.

‘‘If you don’t have sales growth, you’re just dead in the water,” Hourigan said.

Many supportlevel playing field

Despite the initial mixed reviews, however, most owners say that, at this point, they support the statewide smoking ban because it creates a level playing field between businesses across the state. The notion of competing jurisdictions seemed to play out between Bethesda and the District, before the District banned smoking this year.

At Maggiano’s Little Italy, one block from the Maryland line, bar sales increased about 35 percent to 50 percent for the first few months after Montgomery County banned smoking, according to Sidiky Bakayoko, the banquet operations manager.

To that end, owners are pleased that private clubs will not be exempted from the ban, according to Melvin Thompson, a spokesman for the Restaurant Association of Maryland.

‘‘I just don’t want to see loopholes,” said Fenton Galway, owner of Galway Bay in Annapolis. ‘‘Either we’re going to go nonsmoking as a state or we’re not.”

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