The Three Tiers of the Alcohol Industry

If you are interested in entering the alcohol industry, you will have to understand the workings of the alcohol industry’s three-tier system. 

The three-tier system in the alcohol industry follows a chain of production, distribution and sales that is not unusual across industries. What sets the three-tier system apart in the alcohol industry is that, in many states, the system is required by law. It was established post-prohibition, as an attempt to separate alcohol producers and retailers and break up the saloon-based system that was credited at the time with many social ills.

Today, the three-tier system helps producers and importers to focus on the supply end of the alcohol industry while distributors and retailers focus on marketing and sales. 

To understand the three tiers of the alcohol industry, you will have to understand each tier – producer/importer, distributor and retailer – and their functions.

Tier 1: Producer/ Importer

The top tier of the alcohol industry is the producer. This includes brewers, distillers and vintners, as well as importers of foreign beers, wines and spirits. While some states allow producers to sell directly to retailers, a great number of producers sell their goods to distributors. Distributors have the warehouse space, the network and connections, and the sales knowledge to market alcohol to retailers. 

Even though sales will be handled by a distributor in the United States, importers are still required to house offices and staff in the U.S. and obtain a Federal Basic Importer’s Permit.

Tier 2: Distributor

Distributors serve as the intermediary in the alcohol sales system. Distributors carry a lineup of products from producers that they will sell to a network of liquor stores, grocery stores, bars and restaurants. For producers, distributors handle the logistics of transporting products to retailers, the footwork of marketing products to retail spaces and hard work of making sure products get adequate shelf, cooler or tap space within retail establishments. 

For retailers, distributors bring a wide range of curated products that creates more convenient product selection. Because of their positioning, distributors have to build and maintain quality relationships with both producers and retailers. To distribute wine, beer and alcohol legally businesses must hold state-issued permits to transport and store alcohol, as well as a federally-issued permit from the Alcohol Tobacco Tax and Trade Bureau.

Tier 3: Retailer

Alcohol retailers vary by state but generally include businesses like liquor stores, bars, and restaurants. In some states, laws do not categorize beer sales as alcohol sales, allowing grocery stores and convenience stores to have beer on the shelves. Some states also allow grocery stores to sell wine or alcohol with an additional permit. Once products make their way from the producer through to distributor to the retailer, the retailer sells and markets the product to the final consumer.

While there are exceptions, the three-tier alcohol industry system is how most producers get their products to retailers and how most retailers prefer to stock their shelves, coolers and bars. With changes in alcohol industry trends, such as the emergence of microbreweries and microdistilleries over the past few decades, the system does evolve, but the basics remain the same. Understanding how the three tiers work together to get alcohol to consumers can help alcohol-related businesses navigate the system and thrive.

FAQs

How does the three-tier system work?

In the alcohol industry’s three-tier system, brewers, distillers or vintners create the product – or importers import beer, wine and liquor from other countries – which are then sold to distributors. Distributors in turn sell the goods to retailers, such as bars, restaurants, liquor stores and grocery stores.

How do I become a liquor importer?

To import beer, wine or liquor to the United States legally, importers must have offices, staff and warehouse space within the country. Importers must obtain a Federal Basic Importers Permit, a Certificate of Label Approval (COLA) from the Alcohol and Tobacco Tax and Trade Bureau for every item imported and a Letter of Intent from a foreign supplier. Once the business is ready to import, you will have to be prepared to follow customs laws, pay tariffs on imports and notify the FDA.

How do I become a liquor distributor?

To become a liquor distributor, you need to start by acquiring retail space and obtaining the state permits required to buy, store, transport and sell alcohol at a wholesale level. Operators of alcohol wholesale businesses also must have a federal license from the Alcohol and Tobacco Tax and Trade Bureau (TTB).

How can I sell more alcohol in a retail setting?

By advocating for producers’ and importers’ products, distributors can have a major impact on how well they sell in a retail store. Distributors work with retailers to advocate for products and ensure that they have representation in the following key places: store windows, coolers, eye-catching in-store displays and near the registers.