THE AMERICAN BEER DISTRIBUTION SYSTEM

The modern system of beer distribution is an efficient system that provides consumers with immense choice, retailers with customized inventory, encourages innovation and competition in the marketplace and allows states to regulate where and how alcohol is sold, giving law enforcement effective tools to fight underage purchase and consumption.

Beer distributors provide transportation, refrigerated storage and maintenance for perishable beer from the time it leaves the brewer until it arrives at the retailer. After delivery, the distributor continues to monitor retailer shelves to ensure product freshness and integrity.

This beer distribution system provides the best method for smaller breweries to get their beers into a diverse marketplace and provides small retailers and consumers the best variety of choice and value of beer. It has given consumers and retailers unparallel access to a tremendous variety of beers.

The distribution system also provides a clear chain of custody and accountability in the sale of malt beverage products, making it easier to police and penalize establishments that are found guilty of serving to underage patrons or otherwise violating the terms of their liquor license.

The same regulations that provide accountability in malt beverage sales also ensure states can efficiently collect taxes on alcohol products. Because they retain the ability to monitor the sale of the products from the time the beer leaves the brewery until it arrives at a licensed retail outlet, distributors are often best equipped to collect state taxes. and many states find it easier to collect taxes from a limited number of federally licensed beer distributors than the hundreds or thousands of retail establishments in their state that sell alcohol products.

But control of alcohol beverages and local beer distribution has not always been so efficient and effective, causing alcohol to be the subject of two amendments to the U.S. Constitution.
PROHIBITION

In 1920, Congress enacted the 18th Amendment to the U.S. Constitution: the National Prohibition Act. However, as a result of the lack of enforcement of the Prohibition Act and the creation of an illegal industry, an increase in crime transpired. The crime rate soon skyrocketed to nearly twice that of the pre-prohibition period. It can be argued that prohibition destroyed legal jobs, created black-market violence, and diverted resources from enforcement of other laws.

In 1933, the 21st Amendment was ratified, repealing the failed experiment of Prohibition. While Prohibition did not end alcohol consumption, it dramatically changed the conditions under which it was sold and consumed. Section 2 of the Amendment gives states authority to regulate the production, importation, distribution, retail sale and consumption of alcohol beverages inside their borders.
Congress recognized that the importance of maintaining effective state alcohol regulation is critical. It allows states the flexibility to deal with local circumstances. A one-size-fits-all approach to alcohol regulation simply doesn’t work. People in New York feel very differently about alcohol than those in Kentucky. The 21st Amendment was designed to reflect local thought on the level of regulation needed for alcohol.

BIRTH OF A NEW DISTRIBUTION SYSTEM

Federal and state lawmakers realized that Prohibition did not work, but they did not want a return of the promotion and sales patterns that characterized the pre-Prohibition era. Consequently, they put together a distribution system that utilizes distributors to help facilitate a balanced and orderly marketplace and to ensure local control of alcohol beverages. This system has worked well for more than 70 years, providing a level playing field for large and small producers and retailers and providing consumers with immense choice of product at a great value.

CURRENT CHALLENGES TO THE SYSTEM

In May 2005, the Supreme Court’s Granholm v. Heald decision ruled on the narrow issue of discrimination as it relates to wine sales. The plaintiffs, aided by the $45 billion wine industry, sought to overturn state alcohol distribution laws to allow out-of-state wineries to offer unregulated, door-step delivery of alcohol to consumers across the country. The defendants–the states and their regulatory agencies–sought to have their laws upheld in accordance with the 21st Amendment which gives states the right to regulate the sale and distribution of alcohol within their borders.

The Supreme Court landed somewhere in the middle. In a 5-4 decision, the justices decided on what ultimately was a compromise: states may prohibit wineries from shipping wines to the door-step of their citizens. However, a state cannot grant in-state wineries the ability to ship while at the same time preventing out-of-state wineries from doing so. The Supreme Court upheld the alcohol distribution system (known as the “three-tier system”) calling it “unquestionably legitimate.”

Unfortunately this decision is being twisted by those that wish to see alcohol deregulated. Those that want alcohol available anytime, anywhere and to anyone are using the Granholm decision to misinform the public and convince federal judges and state legislators that the Supreme Court has rejected state-based alcohol regulation.

In April 2006, a U.S. District Judge in Washington State ruled on a lawsuit brought against the Washington State Liquor Control Board by a large national retailer. This retailer sought to break down existing alcohol laws to advance its economic interests.

The judge ruled that eight long-standing alcohol control statutes were antitrust violations and not permitted under the 21st Amendment, even though the 21st Amendment gives states the explicit authority to regulate alcohol beverages within their borders in a manner appropriate for their citizens. The state is appealing this ruling.

While not every state has all of the laws challenged in Washington, many states have certain provisions that are now at risk due to this judicial activism. Alcohol regulations differ by state because there is no “one size fits all” approach to alcohol control. What is appropriate for one state’s citizens may not be appropriate for another state.

The Washington State Liquor Control Board contends that the judge’s ruling is a gross misapplication of antitrust laws and, “failed to balance legitimate societal concerns about the negative effect of alcohol consumption with the interests of large corporations that profit from the sale of alcohol.”

HOW DOES THIS AFFECT YOU?

It is of concern that activist judges – not elected by the people – may take over decision making on alcohol law from the states and allow large corporations to weaken the alcohol beverage control system.

The 18th and 21st Amendments to the U.S. Constitution reflect a very heated debate which resulted in a compromise that has worked well for over 70 years: the states will regulate alcohol through their legislative and regulatory process. Now, non-elected judges are upsetting a well-structured constitutional balance. Consumers, small brewers and retailers will be adversely affected by this trend.

In addition to loosening alcohol beverage regulations, decisions such as that in Washington State would give mega-retailers even greater competitive advantages to muscle out smaller retailers. When independent retailers suffer at the hand of huge corporations, consumers are also impacted through the loss of choice and convenience.

Providing the transportation, logistics, refrigerated storage, sales, marketing, delivery and constant maintenance of a perishable product, such as beer, is costly. This is especially true if the infrastructure for this system does not already exist.

Americans place a high priority on having convenient access to the numerous choices of quality beer and other alcohol beverages available in the marketplace today. If large retailers begin dealing with producers as a result of this ruling, the smaller businesses – microbreweries, mom and pop stores and independent retailers – will be left in the lurch. Smaller brewers and wineries do not have the market power or profit margins to deal with the enormous clout of large retailers. The retailers, not consumers, distributors or brewers, will determine what beer options are available.

The strength of state alcohol regulation is the key to a safe and viable system of alcohol control and distribution. Serving in numerous roles and performing an array of tasks, beer distributors serve as a critical link in an efficient system that allows smaller, more unique beers a vehicle to market, provides consumers with the choice they desire at a great value and ensures a safe and orderly marketplace.