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Saturday, December 05, 2009

The Three-Tier System

You might have to be a lawyer to understand the legalities and intricacies of the US alcohol distribution network, originally set up after the repeal of Prohibition in 1933. And even that might not be sufficient.

In most states, a shop or restaurant may only purchase alcoholic beverages from a wholesaler (or the state or municipality) and often it may only buy a particular beverage from the wholesaler designated by the state to purvey it.

This is commonly referred to as the three-tier-system, that is: producer, wholesaler, and retailer. It is regulated in each state by an agency named the ABC (Alcoholic Beverage Commission) or something similar.

In many states, when a contracts is signed between a brewery (winery, distillery, etc.) and a wholesaler to give distribution rights to that wholesaler in that area, that contract remains legally binding in perpetuity. Forever.

(There is an escape hatch, however, from 'forever'. A contract can be purchased or sold for a mutually agreeable amount, commonly the equivalent of gross sales over the period of one to three years.)

The primacy of the states in such matters — and the three-tier system itself— has been challenged in Federal court.

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