Three-tier (alcohol distribution)
Encyclopedia
The three-tier system of alcohol distribution is the system for distributing alcoholic beverages set up in the United States
after the repeal of Prohibition
. The three tiers are producers, distributors, and retailers. The basic premise of the system is that producers must sell only to distributors who then sell to retailers, and that only retailers may sell to consumers. Producers include brewers, wine makers, distillers and importers. It has been estimated that a consequence of this system is that consumers spend 18-25% more in retail prices than they would without it, and it has been asserted that the system limits the ability of producers to introduce and market their products and inhibits consumer access to a broad diversity of such products.
Some states chose to become alcoholic beverage control jurisdictions
after Prohibition - as discussed below these states do not always fit so neatly into the "three-tier" model.
to sell bottles of wine on-site to customers.
In those jurisdictions that are not alcoholic beverage control state
s (discussed below), both liquor store
s and licensed establishments are considered "retailers" for all intents and purposes, and may buy their product directly from distributors.
Usually producers will give a distributor exclusive rights to market their product within a geographical area, so that there will not, for example, be two distributors of Anheuser-Busch
products competing against each other.
Rules also vary according to what kind of relationships each of the tiers can enter in to with the other two tiers. For example, a producer may not be allowed to give promotional items or services to a retailer. Another example is that a beer distributor might be responsible for setting up and maintaining draft lines in a restaurant, or may be legally prohibited from doing so, depending on the state.
Also, several states are alcoholic beverage control state
s - in any of these jurisdictions state governments maintain a monopoly
on the distribution tier of the system (at least for distilled beverages). Some (such as Utah
and Pennsylvania
) monopolize the distribution and retail tiers. Those that maintain monopolies over the distribution system only (such as Michigan
) could still be said to have a three-tier system - in such states producers sell to the distributor (in these cases, the state as opposed to a private operator) who in turn sells to private retail outlets.
(WSWA), an influential trade organization and lobby group based in Washington, D.C.
that works to oppose initiatives to alter the three-tier model, contends that wholesalers perform state functions and are in the business of encouraging social responsibility concerning alcohol as well as alcohol wholesale.
The Specialty Wine Retailers Association
(SWRA) is a group which represents the wine retail industry, advocating the free movement of wine across state lines. These interests lie in direct opposition to the WSWA.
In March 2011, a bill was introduced in the U.S. House of Representatives that would explicitly allow states to regulate alcohol products from outside of the state differently from those produced within the state. This could allow states to prohibit direct sales to consumers from out-of-state sources, which has not been possible under the 2005 Granholm v. Heald
ruling of the Supreme Court of the United States
(unless direct sales to consumers are similarly prohibited from sources within the state).
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
after the repeal of Prohibition
Prohibition
Prohibition of alcohol, often referred to simply as prohibition, is the practice of prohibiting the manufacture, transportation, import, export, sale, and consumption of alcohol and alcoholic beverages. The term can also apply to the periods in the histories of the countries during which the...
. The three tiers are producers, distributors, and retailers. The basic premise of the system is that producers must sell only to distributors who then sell to retailers, and that only retailers may sell to consumers. Producers include brewers, wine makers, distillers and importers. It has been estimated that a consequence of this system is that consumers spend 18-25% more in retail prices than they would without it, and it has been asserted that the system limits the ability of producers to introduce and market their products and inhibits consumer access to a broad diversity of such products.
Some states chose to become alcoholic beverage control jurisdictions
Alcoholic beverage control state
Alcoholic beverage control states, generally called control states, are those in the United States that have state monopoly over the wholesaling and/or retailing of some or all categories of alcoholic beverages, such as beer, wine, and distilled spirits....
after Prohibition - as discussed below these states do not always fit so neatly into the "three-tier" model.
Exceptions and regulations
States have various exceptions to this rule, the most prevalent one being the case of a brewpub, which is simultaneously a producer and retailer, and has no requirement to sell to a distributor. Some states allow an entity to have a part in two of the tiers, letting small breweries act as their own distributor, for example. Many states permit wineriesWinery
A winery is a building or property that produces wine, or a business involved in the production of wine, such as a wine company. Some wine companies own many wineries. Besides wine making equipment, larger wineries may also feature warehouses, bottling lines, laboratories, and large expanses of...
to sell bottles of wine on-site to customers.
In those jurisdictions that are not alcoholic beverage control state
Alcoholic beverage control state
Alcoholic beverage control states, generally called control states, are those in the United States that have state monopoly over the wholesaling and/or retailing of some or all categories of alcoholic beverages, such as beer, wine, and distilled spirits....
s (discussed below), both liquor store
Liquor store
In the United States, Australia and Canada, a liquor store is a type of store that specializes in the sale of alcoholic beverages. In South Africa and Namibia these stores are generally called bottle stores....
s and licensed establishments are considered "retailers" for all intents and purposes, and may buy their product directly from distributors.
Usually producers will give a distributor exclusive rights to market their product within a geographical area, so that there will not, for example, be two distributors of Anheuser-Busch
Anheuser-Busch
Anheuser-Busch Companies, Inc. , is an American brewing company. The company operates 12 breweries in the United States and 18 in other countries. It was, until December 2009, also one of America's largest theme park operators; operating ten theme parks across the United States through the...
products competing against each other.
Rules also vary according to what kind of relationships each of the tiers can enter in to with the other two tiers. For example, a producer may not be allowed to give promotional items or services to a retailer. Another example is that a beer distributor might be responsible for setting up and maintaining draft lines in a restaurant, or may be legally prohibited from doing so, depending on the state.
Also, several states are alcoholic beverage control state
Alcoholic beverage control state
Alcoholic beverage control states, generally called control states, are those in the United States that have state monopoly over the wholesaling and/or retailing of some or all categories of alcoholic beverages, such as beer, wine, and distilled spirits....
s - in any of these jurisdictions state governments maintain a monopoly
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
on the distribution tier of the system (at least for distilled beverages). Some (such as Utah
Utah
Utah is a state in the Western United States. It was the 45th state to join the Union, on January 4, 1896. Approximately 80% of Utah's 2,763,885 people live along the Wasatch Front, centering on Salt Lake City. This leaves vast expanses of the state nearly uninhabited, making the population the...
and Pennsylvania
Pennsylvania
The Commonwealth of Pennsylvania is a U.S. state that is located in the Northeastern and Mid-Atlantic regions of the United States. The state borders Delaware and Maryland to the south, West Virginia to the southwest, Ohio to the west, New York and Ontario, Canada, to the north, and New Jersey to...
) monopolize the distribution and retail tiers. Those that maintain monopolies over the distribution system only (such as Michigan
Michigan
Michigan is a U.S. state located in the Great Lakes Region of the United States of America. The name Michigan is the French form of the Ojibwa word mishigamaa, meaning "large water" or "large lake"....
) could still be said to have a three-tier system - in such states producers sell to the distributor (in these cases, the state as opposed to a private operator) who in turn sells to private retail outlets.
Disputes and criticisms
Wine and Spirits Wholesalers of AmericaWine and Spirits Wholesalers of America
Wine and Spirits Wholesalers of America, Inc. is the industry trade group representing wine and spirits wholesalers in the United States. WSWA is headquartered in Washington, D.C. It was founded in 1943 and has 360 member companies in all 50 states and the District of Columbia...
(WSWA), an influential trade organization and lobby group based in Washington, D.C.
Washington, D.C.
Washington, D.C., formally the District of Columbia and commonly referred to as Washington, "the District", or simply D.C., is the capital of the United States. On July 16, 1790, the United States Congress approved the creation of a permanent national capital as permitted by the U.S. Constitution....
that works to oppose initiatives to alter the three-tier model, contends that wholesalers perform state functions and are in the business of encouraging social responsibility concerning alcohol as well as alcohol wholesale.
The Specialty Wine Retailers Association
Specialty Wine Retailers Association
The Specialty Wine Retailers Association is a group representing the wine retail industry who work for the free movement of wine across state lines, whose stated goal is that any adult consumer in any state should be allowed to legally purchase and have shipped to them any wine from any retailer...
(SWRA) is a group which represents the wine retail industry, advocating the free movement of wine across state lines. These interests lie in direct opposition to the WSWA.
In March 2011, a bill was introduced in the U.S. House of Representatives that would explicitly allow states to regulate alcohol products from outside of the state differently from those produced within the state. This could allow states to prohibit direct sales to consumers from out-of-state sources, which has not been possible under the 2005 Granholm v. Heald
Granholm v. Heald
Granholm v. Heald, 544 U.S. 460 , was a court case decided by the Supreme Court of the United States in a 5-4 decision that ruled that laws in New York and Michigan that permitted in-state wineries to ship wine directly to consumers, but prohibited out-of-state wineries from doing the same, were...
ruling of the Supreme Court of the United States
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
(unless direct sales to consumers are similarly prohibited from sources within the state).
See also
- Granholm v. HealdGranholm v. HealdGranholm v. Heald, 544 U.S. 460 , was a court case decided by the Supreme Court of the United States in a 5-4 decision that ruled that laws in New York and Michigan that permitted in-state wineries to ship wine directly to consumers, but prohibited out-of-state wineries from doing the same, were...
- Supreme Court of the United StatesSupreme Court of the United StatesThe Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
case involving states' rights and the three-tier distribution system.
External links
- National Beer Wholesalers Association: The American Beer Distribution System
- Bye-Bye Bell's Chicago Reader article about beer distribution laws