The three-tier system of alcohol distribution is the system for distributing alcoholic beverages set up in the

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

after the repeal of

Prohibition Prohibition is the act or practice of forbidding something by law; more particularly the term refers to the banning of the manufacture, storage (whether in barrels or in bottles), transportation, sale, possession, and consumption of alcoholi ...

.Mayfield, Kendra
Web Wine Sales Still Bottled Up
''

Wired ''Wired'' (stylized as ''WIRED'') is a monthly American magazine, published in print and online editions, that focuses on how emerging technologies affect culture, the economy, and politics. Owned by Condé Nast, it is headquartered in San ...

'', 31 March 2004. The three tiers are importers or producers; distributors; and retailers. The basic structure of the system is that producers can sell their products only to wholesale distributors who then sell to retailers, and only retailers may sell to consumers. Producers include brewers, wine makers, distillers and importers. The three-tier system is intended to prohibit

tied house In the United Kingdom, a tied house is a public house required to buy at least some of its beer from a particular brewery or pub company. That is in contrast to a free house, which is able to choose the beers it stocks freely. A report for th ...

s and prevent "disorderly marketing conditions." Some states chose to become alcoholic beverage control jurisdictions after Prohibition. In these states, part or all of the distribution tier, and sometimes also the retailing tier, are operated by the state government itself (or by contractors operating under its authority) rather than by independent private entities. The only state with a privately operated retailing and distribution system that does not require any form of three-tier system is the

State of Washington Washington (), officially the State of Washington, is a state in the Pacific Northwest region of the Western United States. Named for George Washington—the first U.S. president—the state was formed from the western part of the Washington ...

. In Washington, retailers may purchase alcoholic beverages directly from producers, may negotiate volume discounts, and may warehouse their inventory themselves. However, the three-tier system largely remains in fact a reality in Washington despite the lack of a law requiring it.Nakamura, Motoya
Privatizing liquor sales in Washington hasn't brought price down
''

Oregon Live ''The Oregonian'' is a daily newspaper based in Portland, Oregon, United States, owned by Advance Publications. It is the oldest continuously published newspaper on the West Coast of the United States, U.S. west coast, founded as a weekly by Th ...

'', December 31, 2012, accessed 25 April 2015.

History and legal justification

In 1933 the 18th Amendment was repealed by the 21st Amendment. (Previously, the 18th Amendment had outlawed alcohol in the US in 1919 and led to

in 1920.) Section 2 of the 21st Amendment specifies that the power to control alcohol resides with the states, leaving each state to decide when and how to repeal Prohibition. After Prohibition, the states began to seek methods to regulate and control the alcohol industry. The states were also eager to devise a method to levy and collect taxes on alcohol producers. Both of these concerns led to the states individually creating environments in which single ownership of all three tiers (production, distribution and retail) was entirely or partly prohibited. As states were left by the 21st Amendment to regulate themselves, alcohol laws and the nature of the three tier system can vary significantly from state to state.

Exceptions and regulations

States have various exceptions to this rule, the most prevalent one being the case of a

brewpub Craft beer is a beer that has been made by craft breweries. They produce smaller amounts of beer, typically less than large breweries, and are often independently owned. Such breweries are generally perceived and marketed as having an emphasis ...

, 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 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, ...

to sell bottles of wine on-site to customers. 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 Companies, LLC is an American brewing company headquartered in St. Louis, Missouri. Since 2008, it has been wholly owned by Anheuser-Busch InBev SA/NV ( AB InBev), now the world's largest brewing company, which owns multiple ...

products competing against each other. Rules also vary according to what kind of relationships each of the tiers can enter into 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 states, generally called control states, less often ABC states, are 17 states in the United States that, as of 2016, have state monopoly over the wholesaling or retailing of some or all categories of alcoholic beverage ...

s - in any of these jurisdictions state governments maintain a

monopoly A monopoly (from Greek language, Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situati ...

on the distribution tier of the system (at least for distilled beverages). Some (such as

Utah Utah ( , ) is a state in the Mountain West subregion of the Western United States. Utah is a landlocked U.S. state bordered to its east by Colorado, to its northeast by Wyoming, to its north by Idaho, to its south by Arizona, and to its ...

and

Pennsylvania Pennsylvania (; ( Pennsylvania Dutch: )), officially the Commonwealth of Pennsylvania, is a state spanning the Mid-Atlantic, Northeastern, Appalachian, and Great Lakes regions of the United States. It borders Delaware to its southeast, ...

) monopolize the distribution ''and'' retail tiers. Those that maintain monopolies over the distribution system only (such as

Michigan Michigan () is a state in the Great Lakes region of the upper Midwestern United States. With a population of nearly 10.12 million and an area of nearly , Michigan is the 10th-largest state by population, the 11th-largest by area, and t ...

) 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. The only substantial exception to the three-tier system is the State of Washington. In November 2011, voters in Washington approved Initiative 1183, which dismantled the state-operated retailing system and removed the legal requirement for a three-tier distribution system for alcoholic beverage sales.Allison, Melissa
Liquor board, retailers gear up to implement I-1183
''

Seattle Times ''The Seattle Times'' is a daily newspaper serving Seattle, Washington, United States. It was founded in 1891 and has been owned by the Blethen family since 1896. ''The Seattle Times'' has the largest circulation of any newspaper in Washington st ...

'', Nov. 9, 2011.Baker, Mike
Washington state approves liquor law

Associated Press The Associated Press (AP) is an American non-profit news agency headquartered in New York City. Founded in 1846, it operates as a cooperative, unincorporated association. It produces news reports that are distributed to its members, U.S. new ...

, Nov. 8, 2011. Under the modified law, the prior state-operated liquor retailing system was eliminated in favor of heavily taxed private retailing. By a substantial margin, Washington has the highest liquor tax rate in the nation. With a liquor tax rate around $35 per gallon, its liquor tax is about 50% higher than in Oregon, which has the next highest rate.Thomas, Linda
DUI Arrests Decrease After State Monopoly on Liquor Sales Ends
MyNorthwest.com, July 16, 2013. In Washington, retailers may bypass distributors by purchasing directly from producers, may negotiate volume discounts, and may warehouse their inventory themselves. Private retailing began on June 1, 2012. Although private retailing should increase competition in principle, in many cases producers have entered into exclusive marketing agreements with distributors for the market region, to the extent that each brand is often only available from a single distributor in the state (although large retailers such as

Costco Costco Wholesale Corporation ( doing business as Costco Wholesale and also known simply as Costco) is an American multinational corporation which operates a chain of membership-only big-box retail stores (warehouse club). As of 2022, Costc ...

have been able to take some advantage of the law and in some cases have introduced their own

house brand A private label, also called a private brand or private-label brand, is a brand owned by a company, offered by that company alongside and competing with brands from other businesses. A private-label brand is almost always offered exclusively by th ...

s). Contrary to the fears of some in the political process, the number of drunk-driving arrests and alcohol-related motor vehicle accidents actually dropped in the year after the conversion to the new system. A different type of exception to the three-tier system existed in Oklahoma prior to October 2018, where laws historically mandated a ''four-tier'' system for package sales of beer of greater than 3.2% alcohol by weight (4.0% by volume). Brewers in that state were historically been prohibited from selling to distributors; they instead were required to sell to brokers, who in turn would sell to distributors. Following the passage of a voter referendum in 2016, the broker and distributor levels were effectively merged effective on October 1, 2018, resulting in the three-tier system common to the rest of the U.S.

Disputes and criticisms

Wine and Spirits Wholesalers of America Wine and Spirits Wholesalers of America, Inc. (WSWA) 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 and has 360 member companies in all 50 s ...

(WSWA), an influential

trade organization A trade association, also known as an industry trade group, business association, sector association or industry body, is an organization founded and funded by businesses that operate in a specific industry. An industry trade association partic ...

and

lobby group In politics, lobbying, persuasion or interest representation is the act of lawfully attempting to influence the actions, policies, or decisions of government officials, most often legislators or members of regulatory agencies. Lobbying, which ...

based in Washington, D.C. that works to oppose initiatives to alter the three-tier model, contends that wholesalers not only sell alcohol but also perform state functions and are in the business of encouraging social responsibility concerning alcohol. The National Association of Wine Retailers represents the wine retail industry, advocating for the free movement of

wine Wine is an alcoholic drink typically made from Fermentation in winemaking, fermented grapes. Yeast in winemaking, Yeast consumes the sugar in the grapes and converts it to ethanol and carbon dioxide, releasing heat in the process. Different ...

across state lines.

Use in other markets

A similar use of a three-tier system is enforced for

tobacco Tobacco is the common name of several plants in the genus '' Nicotiana'' of the family Solanaceae, and the general term for any product prepared from the cured leaves of these plants. More than 70 species of tobacco are known, but the ...

products in some jurisdictions. In June 2017, tobacco wholesalers proposed that the three-tier system also be imposed for recreational

marijuana Cannabis, also known as marijuana among other names, is a psychoactive drug from the cannabis plant. Native to Central or South Asia, the cannabis plant has been used as a drug for both recreational and entheogenic purposes and in various t ...

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. They argued that this would improve tax collection enforcement. There is no direct equivalent in the

United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and ...

, occasioning criticism whereby large distributors (such as supermarkets, etc.) may squeeze local, independent beer retailers.

References

{{reflist

External links

Bye-Bye Bell's

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