As the states weighed the issue of responsible alcohol regulation post-Prohibition, a central concern was eliminating the “tied-house evils” that supposedly led to Prohibition. The states’ primary objectives were promoting temperance, collecting taxes, and ensuring orderly market conditions. One of the primary tools to achieve these objectives – adopted in one form or another by all states – was the three-tier distribution system. The three-tier system established three distinct levels of distribution: manufacturer, distributor/wholesaler, and retailer.
The three-tier system generally requires manufacturers (aka suppliers) to sell their products to wholesalers, who in turn sell the products to retailers, such as grocery stores, convenience stores, liquor stores, bars, and restaurants. As a general matter, the three-tier system functions to prevent manufacturers from selling their products directly to retailers, thus arguably preventing tied houses. The Alliance members work within each state’s three-tier system by delivering alcohol to consumers from the same licensed retailers that sell alcohol to consumers in the tradition brick and mortar environment.
Central to each state’s three-tier system and associated tied-house laws, cross-ownership between the tiers is generally prohibited, in order to prevent vertical integration and insulate retailers from the influence of manufacturers. In addition to establishing separate licenses for each tier and prohibiting entities and individuals from holding licenses in more than one tier, state legislatures adopted a variety of other laws to ensure adequate separation of the industry members in different tiers.
Following the repeal of Prohibition, and in the nearly 100 years since Prohibition ended, a complicated patchwork of state laws has arisen, in some cases to further the three-tier concept and in other cases providing exceptions to these general principles.