The average consumer of alcohol tends to be unaware of what kinds of roles exist within the liquor business, but they should already realize that alcohol is not like apples or iPods. The same sets of laws that limit where and when you can buy alcohol also create major roles in how alcohol gets from the brewery/still and into the home. Within the industry, this set of roles is referred to as the “Three-Tier System”.
This system of liquor sales and distribution came about with the passing of the 21st Amendment. After the end of prohibition, the US government ceded control over liquor sales directly to the individual states. The consensus at the time was that liquor needed to be controlled in two main ways: producers should not be able to sell their products directly, and no one should be able to control the end-to-end process of liquor sales. Thus the unspoken “fourth” tier became the local and state governments who oversee the restricted flow of alcohol within its jurisdictions.
The first tier is the producers. These are the breweries, wineries, distillers, and bottlers who create the finished product. For non-domestic production, the importer takes on the role of being a producer. Domestic producers have two masters: the state’s liquor control board and the US Bureau of Alcohol, Tobacco, and Firearms (ATF). The ATF regulates things such as bottle size, labeling requirements, and assessment of taxes and fees. The states also will regulate the producers through licensing and state-level taxes.
In order to stand between the producers and consumers, states require that there be a distributor/wholesaler that buys the alcohol from the producers. Distributors tend to be much larger than producers, but it’s rare to have a distributor with a presence in more than a few states. In about half of the states, the distributor is the state’s liquor control board, or LCB. Depending on the mentality of the LCB, this can be good or bad. LCBs can buy larger amounts and more diverse selections of alcohol, thus giving the state’s consumers more options for less money. The flip side is when the LCB’s role is to severely restrict the options and access to alcohol. In these states, the average consumer might never experience any liquors beyond a handful of famous labels.
The final layer in the system is the retailer, where the consumer finally has access to alcohol. Retailers are classified as “on” and “off” sale, which merely refers to where the alcohol is consumed. On-sale would be bars, restaurants, and events where the alcohol is consumed on the premises. Off-sale establishments are the liquor stores, gas stations, and grocery stores where you don’t consume the alcohol on the premises. In many of the LCB states, the LCB controls the off-sale stores. For example, the Pennsylvania LCB owns the “Wine and Spirits” stores within the state. Since the local governments control the licensing of off-sale stores, some of them choose to own the liquor stores. This used to be more common, but has fallen out of vogue as local governments look for ways to save money. If you ever see a city’s name in a liquor store, it’s either currently or formerly owned by the local government.
So what does this mean for the average liquor consumer? The more layers in any distribution system, the more expensive the product will be for the consumer. It also greatly reduces a consumer’s selection, no matter how progressive the state or distributor. It’s just impossible to have every option available from the distributor. The obvious solution to this would be to have consumers able to purchase directly from the producer. Unfortunately this is only an option for vineyards, so getting rare beers and liquors from their producers is illegal.
There is hope, though, as state governments relax the laws that limit consumer choice. It’s been 75 years since the end of prohibition in 1933. It may be that in another 75 years the term “Three-Tier System” will be as arcane as the “Speakeasy” is today.