The alcohol industry is complex and highly regulated, and this is partially because of the legacy left by Prohibition.
This event in U.S. history brought about the three-tier system, which is how alcohol—including beer—is distributed in the country today.
This article deep dives into what the three-tier system is, its purpose, and how it boosted craft beer to become the seven-billion-dollar industry that it is today.
The Rise of Craft Beer
The craft beer industry is projected to be worth $210.78 billion by 2028. Craft beer is gaining preference because of its rich, unique taste and cultural and community importance—specifically for small business owners.
In fact, 62% of North Americans say that sustainability is also a strong influencing factor behind their purchase decisions as craft beer has a sustainable edge over mass-produced beer.
Aside from customer preference, the three-tier system is another factor that boosted the success of the craft beer industry.
What is the Three-Tier System of Alcohol Distribution?
The three-tier system of alcohol distribution started shortly after the end of the Prohibition era in 1933. It was put in place in an attempt to balance the interests of the government that collects the tax revenues, the sellers, and the consumers.
To establish checks and balances, the industry was divided into three tiers: producers, middlemen, and retailers. None of these groups are allowed to occupy more than one tier in order to prevent anyone from exerting substantial influence on how alcohol is sold and consumed.
The Benefits of the Three-Tier System
Because laws on alcohol production and sale are complex, having a three-tier system allows for an organized hierarchy when it comes to ensuring compliance. Each of the tiers has a corresponding government entity to answer to. This ensures that the alcohol produced and distributed is of good quality.
Guarantees Orderly Tax Collection
The hierarchy of the three-tier system of alcohol distribution also ensures orderly tax collection. Before this system was introduced, not all alcohol products were taxed properly. This resulted in a significant loss in government revenue which could have funded infrastructure, education, and the like.
Levels the Playing Field
The three-tier system also ensures that the playing field is leveled, giving smaller producers a chance against bigger companies. Without the three-tier alcohol distribution system, big-name producers can choose to set up their own distributors and/or retailers, distributing or selling only the alcohol that they produce. When the industry is dominated by big-name producers in this manner, it decreases competition and would likely result in fewer options for consumers.
How This System Boosted the Craft Beer Industry
The three-tier system ensures that craft beer is regulated, thereby increasing the confidence of customers in these products even if they are made by lesser-known producers.
In addition, since the system keeps bigger brands from dominating the industry, smaller-scale craft beer brewers have a higher chance of competing and succeeding.
The future looks bright for craft beer—and the three-tier system is one of the factors that paved the way. Customers can continue to enjoy a variety of options, whether they’re traveling across the country, or are grabbing a quirky-looking can off the shelf of their local store.
A Reliable Logistics Partner in Beer Distribution
There are a number of regulations surrounding alcohol distribution in the United States. This article about the three-tier system gives a rough idea of how those regulations come into play.