Friday, July 1, 2016

Why Do We Still Have a Three Tier System for Alcohol Still?

     In a conversation the other day a friend asked why do we still have a three tier system for Alcoholic Beverages?  I had to think about it and two things come to mind, first is government control of the dissemination if alcoholic beverages and the second relates to the taxation of the product.  The more layers that you put it through the more tax money can be collected.  Alcohol is one of the most taxed products that are legal to sell here in the United States.  The basis of the system hasn't changed much in the past 80 years, but distributors are not state based businesses and the larger producers are getting shelf space where smaller "craft producers" don't seem to be able to get into stores of bars.

     The Three Tier System is simple really, Producer or Importer to Distributor to Retailer to Customer.
Retailer and Customers
      The 21st Amendment to the U.S. Constitution, which repealed Prohibition, left it up to the states to regulate the distribution and sale of alcoholic beverages. The states did not have to impose a three-tier system - comprising producers, distributors and retailers - but all of them did.   While producers in many sectors rely on distributors to get merchandise to market, with alcohol, it is mandatory. By law, producers may only sell to distributors and retailers may only buy from distributors. Drinks retailers and producers may not do business with each other directly. No business in one tier may own a business in any other tier. Only retailers may sell to consumers.   What's more, distributors are required to be in-state businesses.

     The system has in fact,  become a hollow shell. In-state ownership is a joke. Most distribution companies now are national enterprises that merely have subsidiaries in each state. Cross-tier ownership has become common; drinks-makers establish subsidiaries - often in the names of different members of the owner's family - that buy stakes in tier-two distributors. This is why small brewers, distillers and vintners so often complain that their products can't get shelf space

     I'm not saying to do away with the system completely, but there needs to be some concessions made so the small craft producers have a viable path to the marketplace.  The biggest killer for the small craft alcohol producer is that if they don't move it from their showroom at the distillery, they are in trouble.   Most of the big distributors won't handle these small producers and if they do usually don't let anyone know that they are available unless a client specifically asks for it.  This is an unfair restraint of business that is sanctioned by the government and needs addressing.