How Does Beer Distribution Work in the U.S.?

From the brewery, how exactly does beer get to consumers? 

You may not be aware of it, but those ice-cold bottles of beer on supermarket and convenience store shelves traveled far to get there. If you’re interested in distributing beer in the U.S. or simply want to get to know a bit more about the third-most popular drink in the world, read on!

The Early History of Beer Distribution

There was a time when beer was exclusively sold at saloons, the majority of which were owned and controlled by breweries. If you wanted to drink, you either drank it there or took it home using a growler. However, some people wanted to prohibit the alcohol trade, which was how Prohibition in the United States started.

Prohibition—which began in 1920—was a constitutional ban on the production, importation, transportation, and sale of alcoholic beverages, including beer. But alcohol was not entirely prohibited. Wine was allowed for religious rituals and doctors were also permitted to prescribe medicinal alcohol for their patients. 

The ban gave birth to a black market that competed with an already depressed economy which went under even more pressure when the Great Depression struck. This economic urgency was what accelerated the repeal of Prohibition. 

In 1933, the ban was finally repealed, but not without the states seeking ways to regulate the alcohol industry and devise a method to collect taxes from producers. This led to the three-tier distribution system.

What Is a Three-Tier Distribution System?

The three-tier distribution system is comprised of the following:

Tier 1: Producers

This includes breweries, distilleries, importers, or anyone who manufactures or supplies beer in cans, bottles, or kegs. It’s the federal government that directly regulates, licenses, and collects federal excise taxes from producers.

Tier 2: Distributors

Also called wholesalers, distributors buy the beer from producers and sell/transport them to retailers. State Control Boards also fall under tier two. In some states, importers also fall under tier two. 

The federal government is also responsible for the regulation and licensing of distributors.

Tier 3: Retailers

Retailers buy the beer from distributors and sell them to the public through bars, restaurants, and stores. Retailers are regulated and licensed by the state they’re in.

The three-tier distribution system prohibits (or partly prohibits) single ownership of all three tiers. In a nutshell, it prevents producers from selling directly to retailers or acting as a supplier and retailer at the same time. 

 

The Pros and Cons of a Three-Tier Distribution System

Pros:

The beer distribution framework has several benefits:

• It prevents tied-houses (bars run by producers that only sell their own brand) and other unfair practices. 

• It allows consumers to enjoy a variety of beers. 

• This distribution system—where each tier is licensed by a dedicated government agency—is easier to regulate, which means only quality beer can find its way to consumers.

• It allows tax monitoring components to be carefully built into the framework, which makes tax collection more efficient. In 2021, the U.S. alcohol tax revenue collected was $10.27 billion, and this sum was used to fund education programs, food assistance programs, and other social priorities.

Ultimately, no system is perfect—and the three-tier beer distribution system is no exception.

Cons:

• Because the three-tier beer distribution system involves a substantial amount of regulation, the burden of regulatory compliance is huge.

• Large beer manufacturers can also work around the system and maintain their own large network of distributors, which puts smaller breweries and manufacturers at a disadvantage.

• With all the tiers that beer distribution passes through, it often results in higher prices for consumers and less profit for producers. 

Exceptions

Although the three-tier beer distribution system prohibits single ownership of the tiers, there are exceptions to this rule:

• Certain breweries and brewpubs are allowed by the government to self-distribute or simultaneously be a producer and a retailer. 

• States with state alcohol control boards are also allowed to play the role of both distributor and retail establishment.

• In the state of Washington, retailers may bypass distributors and purchase directly from producers. This allows them to negotiate for volume discounts as well as put their inventory in their own warehouses.

Other Beer Distribution System and Laws

Many states also allow manufacturers to distribute their products directly to retailers, albeit with some restrictions. 

Four-Tier Distribution System

Although most states operate on a three-tier beer distribution system, others don’t. For example, in less populated areas of some states, large retailers are allowed to distribute to smaller retailers, which creates a four-tier beer distribution system. 

Self-Distribution

The truth is that there are only 16 states (and the District of Columbia) that do not allow self-distribution. However, self-distribution laws vary greatly from state to state.

In California, for instance, manufacturers are allowed to sell directly to licensed retailers except those with a Type 75 Brewpub license. But in Arkansas, self-distribution has more than one restriction. It is limited to producers who sell at least 35% of what they produce within the state.

 

Your Trusted Partner in Beer Distribution

Because regulations vary from state to state, beer distribution in the U.S. is a complicated process. But whether you’re a distributor or a manufacturer, one thing is certain: you need a logistics partner who knows the ins and outs of the beer industry.

Brew Movers has years of experience and expertise in brewery equipment logistics, cold chain shipping, and everything in between. If you want to know more about our reliable services across North America, get in touch with us today.