Whether you’re buying alcohol from a bar or restaurant, grocery store, or gas station, it goes through a process to get from where it’s made to where it’s sold. That’s why we’ve put together this guide to dive deeper into its history and where it is now.
Here’s a few things you should know about:
- The Three-Tier System
- The Relationship Between Distributors and Retailers
- Recent Changes within the Alcohol Industry
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The Three-Tier System
In the US, alcohol distribution follows the three-tier system which is a set of laws that separates the producers of alcoholic beverages from retailers and consumers. Under this system, manufacturers make their product, distributors sell it to retailers, and retailers are responsible for selling it to customers. The three-tier system exists in all 50 states, but differs slightly according to state law. For instance, some states allow direct sales by manufacturers while others do not. Some states require wholesalers to pay taxes on all their profits while allowing them to claim certain expenses as deductions from those profits.
It’s two key benefits include:
- Fairness: Allowing multiple parties between a producer and consumer ensures there’s an effective check on prices charged by any one party.
- Monopoly prevention: With multiple parties involved in each step along the way, no one party can dictate how much any other must charge for their products or services.
The Relationship Between Distributors and Retailers
The relationship between distributors and retailers is symbiotic and has existed since alcohol was first sold in stores. In fact, it was one of the reasons why Prohibition (1920–1933) failed; people were able to get their hands on alcohol through bootlegging operations or by buying directly from distillers and brewers who made their own spirits illegally but with no oversight from authorities that could have stopped them from doing so if they had wished to do so.
The retailer depends on the distributor for a steady supply of products, while the distributor depends on retailers for sales. Retailers are the end users of alcoholic beverages, which makes them an essential part of the supply chain. As the final step, consumers are able to buy alcohol, depending on your age and local state laws, from grocery stores or gas stations, convenience stores, liquor retailers, bars or restaurants.
Recent Changes within the Alcohol Industry
The COVID pandemic has significantly changed the alcohol industry in the past two years as consumers purchased more which led to an increase in distribution to keep up with demand. According to a report by the Wine & Spirits Wholesalers of America, brewers shipped an estimated 208 million barrels in 2021 which is the highest volume in the past decade. They also found that the industry is starting to recover and should normalize by the end of 2022.
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