LESSONS OF HISTORY

The alcoholic beverage industry has been a major part of the American economy since colonial days.

One of Thomas Jefferson’s first acts as President was to repeal a federal whiskey tax, stating that “an excise tax on distilled spirits is hostile to the genius of a free people.” Congress did not dare tax alcohol again until the Civil War.

It was the revenue from the income tax that made Prohibition possible. But Prohibition was a spectacular failure. The saloon was replaced by the speakeasy, a free market was replaced by an ocean of corruption and organized crime flourished. By the presidential election of 1932, both political parties were committed to repeal.

To America’s lasting benefit, however, some of the lessons of history were learned. Prohibition was initially popular because the alcohol industry was out of control. In pre-Prohibition days, brewers, vintners and distillers often sold their products through their own retail outlets, called “tied houses,” using any marketing means possible to sell excessive amounts of their product (including the infamous “free lunches” laced with salt).

So federal alcohol prohibition was replaced by state-based systems of alcohol control. It was a stroke of genius.

THE THREE TIER SYSTEM

At the heart of the control system in all fifty states is the Three Tier System, with the industry broken into three separate, state-regulated components:

Licensed distillers, brewers and vintners
Licensed wholesalers
Licensed retailers

Generally, each tier must remain independent of Generally, each tier must remain independent of the other two. Every manufacturer must sell through a licensed wholesaler, and every retailer must buy from a licensed wholesaler. With very limited exceptions, including Virginia's Consumer-Direct Beer and Wine Shipment Law, manufacturers cannot sell directly to retailers or the public. They cannot own retail outlets. Virginia's wine and beer wholesalers are strong supporters of the Three Tier System as a mechanism for maintaining product choice, regulatory control and tax collection.

BENEFITS OF THE THREE TIER SYSTEM

The Three Tier System prevents vertical integration of the alcohol industry, thereby protecting competition and consumer choice from the corrosive effects of conglomerate monopolies. Why is this in the public interest? Alcohol products enjoy widespread consumer appeal but at the same time generate widespread demands for regulation.

The Three Tier System effectively requires the alcohol industry to consist of a large number of competitors. Those engaged in distribution and retailing are mostly small businesses and virtually all are located here in Virginia. Thus, they are easier to regulate than huge, remote conglomerates, some of which might be located overseas. This helps ensure that every product sold in Virginia pays its fair share of Virginia taxes, collected by the licensees themselves.

Most importantly, since the distribution tier cannot be controlled by manufacturers, it is relatively easy for new products to enter the industry and gain market access through such independent distributors. Witness, for example, the Virginia craft-brewed products and wines that have arrived in the marketplace in recent years and enjoy considerable consumer appeal.

The Virginia Winery Distribution Company, established in 2007 by the General Assembly, is an example of how the three tier system can accommodate change. The VWDC, a unique public-private partnership, works with wineries and wholesalers to provide market access for products not already enjoying robust distribution.

The Three Tier System also provides "rules of the road" that guarantee consumer choice and competition by restricting unfair competition:



Retailers can operate free from undue pressure to buy (or not buy) particular products or use particular marketing techniques.
It is illegal for big retailers to pressure wholesalers for concessions not available to "mom and pop" grocery stores and convenience stores.
Wholesalers cannot be pressured to "buy" retail Wholesalers cannot be pressured to "buy" retail shelf space for wine or beer. If allowed, this would restrict consumer choice to only those products sold by the wealthiest wholesalers.



AN ECONOMIC SUCCESS STORY

The independence of Virginia's licensed beer distributors and licensed wine distributors is at the heart of the Three Tier System.

They are responsible for thousands of jobs, generate hundreds of millions of dollars in economic activity and annually pay or generate millions of dollars in state and local taxes.
Consumer choice is phenomenal. No other consumer products industry distributes as many product choices as wine and beer wholesalers. The ABC Board, for example, has currently registered more than 30,000 wine products for sale in the Commonwealth. The ABC Board has registered more than 5,500 different brands of beer for sale in the state.
Competition in the beer and wine industries enables these products, despite their high taxes, to sell consistently at prices lower than inflation.

Any way you measure it, the
Three Tier System is working for
consumers and for the Commonwealth.

ALCOHOL AWARENESS & RESPONSIBILITY

Virginia's beer wholesalers believe that education, public awareness and community service are key components in the prevention of alcohol abuse.

At the same time, the Virginia Beer Wholesalers Association has consistently supported policy decisions of the General Assembly and ABC Board that emphasize moderation and the responsible use of alcoholic beverages.


JUST HOW SERIOUS ARE VIRGINIA BEER WHOLESALERS
ABOUT MODERATION AND THE RESPONSIBLE USE OF ALCOHOLIC BEVERAGES?


Beer distributors in Virginia are proud to support:

EDUCATION - A broad spectrum of community services to:

  • provide family-centered materials designed to help
    parents communicate with their children about alcohol
    and prevent underage drinking;
  • furnish no-nonsense underage drinking messages
    to schools and retail markets; and
  • underwrite campus-based programs encouraging
    responsible decision-making by college students.

PREVENTION - Vigilant action in the marketplace to:

  • convince our retail customers that beer wholesalers:
    (i) are committed to responsible promotional and marketing practices; (ii) don't want underage purchasers; and (iii) won't tolerate trade practices that contribute to alcohol abuse;
  • provide our customers with a huge array of informational
    tools and point-of-service materials that underscore
    wholesalers' commitments to prevent underage 
    consumption and alcohol abuse; and
  • coordinate designated driver and cab programs with
    the public sector, the volunteer community and our
    customers to remove drunk drivers from the highways.

TRAINING - A vigorous marketplace presence to:

  • train alcohol sellers in responsible serving techniques by providing TIPS (Training for Intervention Procedures by Servers);
  • encourage alcohol servers and event planners to create environments that encourage the responsible consumption of alcoholic beverages; and
  • educate wholesaler personnel about the need for sales and marketing techniques that emphasize moderation and responsible decision-making.

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