Protecting Consumer Choice
What is the Three Tier System?
At the heart of the control system in all 50 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 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 Wine and Beer Shipment Law, manufacturers cannot sell directly to retailers or the public, nor can they own retail outlets.
Virginia’s 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 that have arrived in the marketplace in recent years and enjoy considerable consumer appeal.
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 shelf space for beer. If allowed, this would restrict consumer choice to only those products sold by the wealthiest wholesalers.