If you read many wine blogs you have certainly seen discussion around the displeasure with the three-tier liquor distribution system in the United States. I for one did not exactly know what this meant. I did some research to try and find a simple way to understand what this system is, and why it is different than other products that we consume. It gets a little confusing, and individual States handle parts of this differently, but bear with me and I will try to explain.
First we have a producer, Tier 1. This is the company, family, or person who has made the wine. There are obviously Tier 1 participants who are big and corporate, and some that are really small family businesses. These people have a couple of options, depending on the laws of their states and the type of alcohol control license that they have. In some States they may sell directly to you the consumer on their property (ala tasting room). In other States the government controls all alcohol retail, and they may not (but you don't see a lot of wine production in those States.) The wine producer may also sell their wine directly via mail or Internet and ship it to you, dependent on the direct alcohol shipping laws in YOUR state. But mind you we are still dealing with Tier 1. Of course wineries love to participate in one of these options, which they refer to as direct-to-consumer sales, because then they actually get to see the profit of the full retail mark-up instead of sending all that money down the line to the other two tiers.
The second tier is the contentious and arguably unnecessary tier. This group of folks can be referred to as wholesalers, brokers, representation, distributors, a whole number of terms. After Prohibition, when States became responsible for their own method of alcohol control, it was decided to put this layer of distribution into the alcohol system as a means of promoting responsible social behavior. It was also argued that this layer helped to guarantee that all taxes were paid on alcohol sales, and regulation of this tier gave each individual State more control over how they wanted to deal with alcohol and its availability to the public. To this day the wholesalers and their very powerful associations insist that these are the justifications for their existence. As you can imagine, there is a markup at this tier.
The third tier is who you as a consumer generally deal with, the retailer. This may be a large supermarket chain, a small wine shop, a restaurant, even an airport gift shop. This tier buys their wine, at a wholesale price, from the 2nd tier, marks it up, and sells it to you.
To add complexity some States control 100% of tier 2, and some even 100% of tier 3. Throw in the import rules for wines not produced in the United States and you can see how many hands, and governmental controls, get involved in your little bottle of wine.
So in the 3-tier system you, the consumer, are not a tier. You just get the pleasure of paying the multiple markups, and having your access and control over what products you buy restricted by the existence of the 2nd tier. Here's why: the 2nd tier is the only group that is mandated, and protected by the system. Producers and retailers will go out of business if they don't provide a product that people want to buy. This encourages diversification, quality, value, and all those other things we study in basic capitalist economic courses. The wholesalers are guaranteed a spot in the game by the system itself. In fact, they are rewarded for exerting more control, and restricting competition in your marketplace.
I won't go on too long on this. There are many people out there who know WAY more about this than I even care to. But I wanted to go back to square one for those of you who read wine blogs and occasionally come upon discussions of the injustice in the distribution system without any understanding of what they are talking about.
Anyone who either works in one of these tiers, or has additional, clearer explanation please jump in. I know I for one find this topic to be quite interesting.
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