The History of Beer and the Three-Tier System

A Long Tradition

The tradition of beer dates back more than 10,000 years. When archeologists discovered a Mesopotamian clay tablet, they were naturally curious to decipher its cryptic markings. It was history's first known recipe for beer! The recipe had been handed down from the Mesopotamian God Enki himself. This probably came as no surprise to the archeologists, since the subject of beer pops up regularly in their work. Images of people brewing, storing, and drinking beer are found in ruined cities and tombs scattered throughout the ancient world.

The Babylonians made sixteen kinds of beer, using everything from black barley to wheat and honey. Egyptians made it from barley, Incas made it from corn. The Pilgrims cut their voyage short because they ran out of beer. By 1770 the American brewing industry was so well established that George Washington, Patrick Henry, and other patriots argued for a boycott of English beer imports. The Boston Tea Party almost became the Boston Beer Party.

The Present Regulatory System

At the turn of the 20th century, the beer industry was booming. Local brewers often had ownership ties to the taverns - selling to them on extended credit terms, furnishing them with equipment and supplies, charging low or no interest, and paying rebates for pushing their brand or carrying it exclusively. This relationship became known as "tied-houses." Competition for control of the retail outlets was fierce and tremendous pressure was exerted on retailers to maximize sales without regard to the well being of customers or the general public. These abusive practices led to a campaign for laws prohibiting all drinking. In 1919, the 18th Amendment to the United States Constitution was passed beginning a 14-year dry spell known as Prohibition.

In 1933, the 21st Amendment to the United States Constitution repealed Prohibition and also gave states the authority to regulate the production, importation, distribution, sale and consumption of alcohol beverages within their own borders. A new regulatory system known as the Three-Tier System was created. This system was established to eliminate tied-house abuses. "Tied-houses" would no longer exist - instead beer would be sold through independent distributors.

While each state has its own set of laws governing the three-tier system, the separation of the three-tiers by inserting an independent distributor between the brewers and the retailers is a common thread. The three tiers (brewer, distributor, retailer) are also further separated by other laws and regulations prohibiting suppliers and distributors from having any financial interest or influence with retailers - for example, beer sales on credit are not allowed and consignment sales are banned.

This system has four primary goals:

  • To avoid the overly aggressive marketing and sales practices of the pre-Prohibition era;
  • To generate tax revenues that can be collected efficiently from the beer distribution industry;
  • To facilitate state and local control of alcoholic beverages; and
  • To encourage moderate consumption (temperance).

The three-tier system allows the state to control alcoholic beverages through licensing. Without the three-tier system, increased government regulation and enforcements efforts would be needed resulting in increased costs.