Heights Restaurants Could Ditch That Pesky Private Club Designation by End of Year

Harold's, one of 20 Heights eateries that operate as a private club.
Harold's, one of 20 Heights eateries that operate as a private club. Photo by David Rozycki
In Texas, there are more than 1,000 private clubs in operation today and about 20 of those reside in the Houston Heights. These are actually just bars and restaurants that are forced to operate as private clubs in order to sell booze thanks to a loophole dating back to the 1930s, since the neighborhood is actually a dry zone. But soon enough, if it's up to the political action committee called Houston Heights Restaurant Coalition, the private club designation could end. The group has applied for a petition to make it easier for bars and restaurants to sell alcohol in the Heights. Now all it needs is 1,500 of the neighborhood's residents to sign on and the issue will go up for a vote in November.

"It's basically a country club loophole," Bryan Poff, a contact for the coalition, tells the Press. You probably already know the story — the Heights was its own city and became dry in 1912, and after joining the city of Houston in 1918, remained dry through prohibition and all the way up until last year, when voters in the neighborhood decided to allow for the sale of beer and wine (but not liquor) in grocery stores.

"I can't think of anyone waving the private club banner," Poff says. "The TABC doesn't even like the loophole."
While it doesn't seem like such a big deal to be a customer at one of these spots — all you have to do is hand over your license and sign in as a member before you order a drink — for the restaurants it's pretty much a nightmare. "it's almost like running two businesses," Poff says, right down to filing two tax returns.
Coltivare, a drinker's paradise, a restaurateur's pain in the ass. - PHOTO BY CHRISTINA UTICONE
Coltivare, a drinker's paradise, a restaurateur's pain in the ass.
Photo by Christina Uticone
In an industry where profit margins are slim and competition is through the roof, these private clubs have to do risky business on the back end "because of a silly clause," says Coltivare owner Morgan Weber. "It encumbers you so bad." That's because restaurants in the dry Heights don't just operate as LLCs the way they do everywhere else in Houston. Instead the restaurants must also set up functioning nonprofits to handle the booze side of operations separately. "At night, when money goes into the account, most restaurants' complications end there. Not ours."

Heights restaurants must then figure out a percentage of alcohol-to-food sales and immediately deposit that money in the nonprofit's account, which, by the way, can't be touched at whim. "The only way to get money out of the account is charging the nonprofit a renters fee and management fee."

These fees are set yearly and can be changed only by a board meeting, meaning restaurateurs have to be able to foresee well in advance how much of it they'll need for the coming year in order to survive. Not a great business plan for anyone hoping to open a restaurant in the area. "By the end of our first year, we were fortunate because food sales were enough to make it work. We had a significant chunk of money sitting there that you just can't touch."

Aside from juggling finances and seeing into the future, a veritable restaurant sideshow, the Heights private clubs also endure one of the most egregious of all the backwards Texas booze laws. They must use a distributor different from the ones used by other restaurants. Class B, which means they buy booze from liquor megastores such as Spec's at nearly 8 percent higher cost than establishments not in the dry zone.

Yes, that's right. Spec's makes money off the dry zone loophole, just as it essentially makes money off the state's ancient anti-competitive consanguinity loophole.

"We can't buy alcohol at the same price as, say, Anvil or Underbelly," Weber says. "We have that extra distribution layer. For us the opportunity to get the law repealed gives us another chance at the piece of pie."

Furthermore, private clubs can't have booze delivered. It has to be picked up in person. Weber says that Coltivare also gets audited about once a year by the state. "Thing is, when TABC is here, I always ask them what they think of this law, and nobody has legit answers. It's a massive amount of work for them too."

At least TABC investigators have a short commute to investigate Heights clubs; the agency's Houston office, perhaps unsurprisingly, is located on West 20th Street.

For proponents of the petition, residents can actually sign it (they have to live in the 77007 or 77008 ZIP codes) at all the Agricole eateries —  Cotivare, Eight Row Flint and Revival Market. For opponents who associate opening up booze sales with an influx of chain eateries or Washington Ave-style nightlife, Weber doesn't see that happening. "We're at $60 per square foot down here in terms of rent. It's too expensive for that to happen. And if people don't think places like Pappas or Landry's couldn't afford to just have a position on staff for somebody to run the nonprofit side, these guys are machines. If they wanted to be in the Heights, they'd be in the Heights."
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Gwendolyn Knapp is the food editor at the Houston Press. A sixth-generation Floridian, she is still torn as to whether she likes smoked fish dip or queso better.