The three-tier system offers safeguards for the industry, fosters market growth, but faces regular challenges By Amanda Wegner Nearly 100 years ago, one of America’s greatest failed social and economic experiments began: Prohibition. January 2019 marks the 100th anniversary of the ratification of the 18th Amendment, which outlawed alcohol across the country. But almost as soon as Prohibition came into effect, it began to unravel and in February 1933, it was U.S. Senator John Blaine of Wisconsin who hammered the first nail in Prohibition’s coffin. In pledging his loyalty to the “will of the people” of Wisconsin, one of Blaine’s first acts as a senator was to author the 21st Amendment to repeal Prohibition. On December 5, 1933, the 21st Amendment was ratified, and national Prohibition ended. Whereas the beverage alcohol industry in the decades leading up to Prohibition was largely unregulated, the 21st Amendment ushered in a new era of alcohol policy, safeguards and a system of checks and balances, including the three-tier system of alcohol distribution.
SETTING UP THE SYSTEM Consisting of producers, distributors and retailers, the three-tier system creates a hierarchy in which producers can only sell their products to wholesale distributors, distributors to retailers, and retailers to consumers. “The three-tier system serves a good purpose,” says John Bodnovich, executive director of American Beverage Licensees (ABL), who spoke on the topic at the recent fall convention. “It helps avoid many of the problems that led to Prohibition in the first place by creating separation between producers and sellers and by giving states the right to handle how alcohol is sold in their states. This is why we have a patchwork quilt of laws, but laws that are tailored to their populaces and that address issues with local understanding. This is why what you see in New York City is different than Salt Lake City.” www.tlw.org
While some may dislike the three-tier system, ABL and the Tavern League of Wisconsin have always supported it. “We are in the golden age of beverage alcohol,” says Bodnovich. “We have more product, more places to obtain it, more places to go to enjoy beer, wine and spirits, and it’s important to keep it that way. Some may want to deregulate [the industry]. It wasn’t an unregulated system that got us into this golden age, but it is what got us into Prohibition.” While each state has control over how to administer the three-tier system within their state, there are five common characteristics among the state systems:
1. The efficient collection of taxes: Bodnovich notes that alcohol sales generate a significant amount of revenue. This revenue, in turn, helps support a variety of services and necessities, such as infrastructure and public safety, at both the state and federal level.
2. Preventing the sale of alcohol to minors: “This is a check that effectively straddles commerce and control. It’s a great mechanism that allows you to do business, make a living, have employees, but also in a controlled way by not selling to minors or someone who is intoxicated.”
3. Fosters responsible competition in a
regulated marketplace: “From the biggest brewer to the smallest, all have access to the market, access to customers. That would not be the case without this system; we would not have the vibrancy and diversity we have, but dominance by large suppliers and retailers.”
4. Product safety through a traceable chain of custody: “When you see news about tainted spinach or lettuce, they always talk about how long it takes to find that spinach or those heads of lettuce,” says Bodnovich. “Alcohol is much more easily traceable thanks to the three-tier system. If there are bottles with glass in them, they’re off shelves as soon as 48 hours later. That’s a pretty incredible thing.”
5. Preventing the sale of tainted or
counterfeit products: “If you buy a bottle of Johnnie Walker Black in the United States, you’re getting a bottle of Johnnie Walker Black because it’s gone through a licensed and controlled system. There are some major issues with that in other countries, where you might not
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