Why three tiers? There are lots of reasons, including that before Prohibition breweries held unfettered ownership stakes in retailers (known as "tied houses"), leading to rampant anti-competitive business practices and marketing tactics aimed at inducing excessive consumption. To remedy these problems, the 21st Amendment gave the states' sole authority to regulate the distribution of alcohol within their borders, and the states responded by requiring that each tier be independent. States who enacted this system looked to the wholesale tier as the physically present, locally owned and regulated buffer between distant mega-manufacturers and licensed retailers.
The independence of each tier prevents the formation of vertical monopolies and corrupt sales practices in the beer industry. It is the greatest antitrust law ever written.
California benefits from the three-tier system. Beer distributors help ensure compliance with California's laws and regulations relating to beer distribution. For example:
- The system creates an efficient framework for ensuring the protection and collection of state excise taxes and the California Redemption Value (CRV) under the state's recycling act. As distributors of many of the products included in the state's recycling program, beer wholesalers are responsible for paying to the Department of Conservation the CRV on all containers of beer sold to the state's licensed retailers.
- The in-state beer wholesaler is the link to beverages brought in from out-of-state which need to be tracked back to the point of manufacture for state tax purposes.
- California beer wholesalers create a paper trail for tracing sales that discourages "gray market" activity and ensures the full collection of all sales, excise and state taxes.
- California beer wholesalers, as local community activists, work with other local groups to reduce underage consumption and drunk driving.
The three-tier system creates market efficiencies. California's independent beer wholesaler has an incentive to maintain a diverse product portfolio and to buy from many brewers for sale to ALL licensed retailers. This gives the consumer the widest of product choices from the major brands to micro-brewed specialty beers at competitive prices. The development of a strong, independent beer wholesaler has been the catalyst for competition and consumer choice.
The public and consumers benefit from the three-tier system. The public is protected from unscrupulous sales practices because beer wholesalers represent multiple brands, only sell beer to state licensed retailers and answer to state regulators, local officials and law enforcement.
California's beer wholesalers are locally owned and operated, independent, family businesses actively involved in their communities. Local beer distributors employ over 11,000 Californians, operate over 8,000 trucks, and contribute nearly $2.1 billion annually to the state's economy in wages, benefits, vehicle and license fees, capital investments, and property and excise taxes. (Source: John Dunham and Assoc., and Beer Institute / 2005 figures and CBBD's 2003 Economic Survey of its members)
The three-tier system stimulates price competition, promotes diverse product choice, incentivizes new product entry and mandates accountability through locally owned and licensed beer wholesalers who are answerable to state regulators, law enforcement and the community.