Three-tier (alcohol distribution)

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.^{[citation needed]} The three tiers are producers, distributors, and retailers.^{[citation needed]} 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.^{[citation needed]} Producers include brewers, wine makers, distillers and importers.^{[citation needed]} 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.

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 wineries to sell bottles of wine on-site to customers.

In those jurisdictions that are not alcoholic beverage control states (discussed below), both liquor stores 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 states - 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.

A substantial exception to the three-tier system, becoming effective in 2012, is the State of Washington. In November 2011, voters in Washington approved Initiative 1183, which essentially dismantles the three-tier distribution system and the state-operated retailing system for the sale of liquor and wine in the state. Under the modified law, the prior state-operated liquor retailing system is required to be dismantled in favor of a private retail system. Retailers may bypass distributors by purchasing directly from producers, may negotiate volume discounts, and may warehouse their inventory themselves.

Disputes and criticisms

Wine and Spirits Wholesalers of America (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).

See also

• Granholm v. Heald - Supreme Court of the United States 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
• Support Your Local Brewery - Grassroots campaign against the three tier distribution system