The Alcohol Industry

Following the repeal of national prohibition in 1933, legislation was passed requiring that the production, distribution and retailing of alcohol beverages be conducted within a three tier system.

The three tier system means that producers of alcohol cannot own either wholesale operations or retail operations. Similarly, wholesalers cannot own producers or retailers, nor can retailers own wholesalers or producers. This separation into three completely different groups ensures that the economic and political interests of producers, distributors and retailers are fundamentally different and are often in conflict with each other.

Producers

Producers of alcohol beverages consist of brewers, vintners and distillers. Brewers produce beer, ale and other malt beverages. Vintners produce wine and distillers make distilled spirits products such as rum, whiskey, tequila, gin and liqueurs.

A standard beer, glass of wine or drink of a distilled beverage each contain equivalent amounts of alcohol. To a breathalyzer they're identical.

In spite of their alcohol equivalence, the three product categories tend to be viewed and treated very differently in society. For example, laws often treat them unequally, they are taxed at very different rates, and some people oppose the advertising of liquor on TV while finding the advertising of beer and wine to be completely normal and acceptable.

Such differences in treatment mean that producers of the three beverage categories tend to have very unique problems and opposing interests. As a result they are often in conflict with each other.

But there are also conflicting interests within each segment of producers. For example, small vintners, because of their low production outputs, find it difficult to market their products through wholesalers. Therefore, they depend heavily upon direct mail order sales to customers around the country. However, larger vintners experience no problems marketing through wholesalers and oppose the competition posed by direct mail-order sales. Similar conflicts of interest occur among brewers and among distillers.

Producers are further broken into divisions along the lines of foreign vs. domestic distillers, California wine producers vs. New York State and other American producers, large brewers vs. micro brewers, and so on. These divisions are reflected in the nature of trade groups. For example, the Wine Institute represents only California vintners; those in other states or regions have their own trade groups. Thus, American vintners don't speak with one voice. The same is true of both brewers and disillers.

Wholesalers

After national prohibition was repealed, a number of states became "control states," in which the government owns all alcohol-beverage wholesaling operations and the employees are state workers. The interests of control state operations are different in many ways from those of privately-owned operations. Within free enterprise states, wholesalers may experience competition, heavy regulation and other concerns not experienced by government employees. The fact that wholesalers often specialize further reduces the possibility of significant mutual self-interest among wholesalers. And the interests of wholesalers tend to differ from those of producers on the one hand and of retailers on the other. This is reflected in the frequent political and llegal battles that occur between distributors and both producers and retailers

Retailers

The retail segment is highly segmented. It includes restaurants, taverns, grocery stores, liquor stores, wine shops, filling stations, "quick stops," and in control states, Alcohol Beverage Control (ABC) retail stores. The latter are not to be confused with proprietary stores of the same name operating in some free enterprise states.

"Dram shops," or retailers who can sell alcohol beverages by the serving differ from package stores that can only sell unopened containers of alcohol beverages.The problems and interests of these sales categories differ dramatically and the two tend to have little in common.

In some states grocery stores can sell beer but not wine while spirits can only be purchased at liquor stores that can also sell wine. In some states grocery stores can sell both beer and wine but spirits can only be purchased at hard-to-find ABC stores that cannot sell either beer or wine.The often stark and drab ABC stores sometimes resemble state stores in Communist countries that operate with no competition. Not surprisingly, the problems and interests of the various retailers differ dramatically.

That which benefits producers or wholesalers may not benefit retailers. Or what harms package stores may not harm dram shops. What benefits grocery stores that sell wine many harm wine shops. And what harms a mom-and-pop tavern may benefit a chain restaurant that offers alcohol beferages. For some retailers, selling alcohol beverages is their only business, while for most, such as restaurants, it is only a fraction of their business income and interest.

Conclusion

Clearly alcohol retailers are a highly diverse category that doesn't, indeed can't, operate with a single voice or united front.

The three-tier system insures that there is no "The Alcohol Industry," but rather a conglomeration of fragmented and competing alcohol mini-industries that is unable to speak with one voice or act together.

In spite of this clear fact, anti-alcohol activists often incorrectly refer to The Alcohol Industry, Big Alcohol, or The Booze Merchants.This may well serve to inflame emotions, but it's factually incorrect and misleading. Those who use these terms would appear to be either uninformed or attempting to deceive the public.

filed under: Alcohol Economics

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