Working in the alcohol beverage industry can be especially challenging because alcohol laws vary from state to state. This can make the prospect of launching a new alcohol brand even more daunting. Fortunately, doing your due diligence when it comes to research and preparation upfront can set you up for both short-term and long-term success. Keep reading to learn more about how to launch your alcohol brand and the different considerations you will have to make in control states vs open states.
What Does it Mean to be a Control State vs. Open State?
In 1933, the United States put an end to Prohibition, once again allowing the import, transport and sale of alcohol. The federal government also decided to give individual states control over their own liquor laws. Ultimately, there became two types of approaches to alcohol regulation in the states. One camp decided to give all of the control over liquor sales and distribution to local governments, meaning that control states only sell liquor at government-run Alcohol Beverage Control stores. In total, there are 17 control states vs 33 open states. In the states that are considered “open,” customers can go to privately owned and operated retailers to purchase beer, wine, and liquor.
Why Do We Have Control States vs. Open States?
During the 1820s, the Temperance movement, which focused on discouraging people from drinking, began to gather steam in America. Temperance advocates were adamant about implementing strict liquor policies that would limit consumption. This eventually led to the beginning of Prohibition in 1920. Prohibition was meant to improve life for families, reduce poverty, decrease the population in jails, eliminate crime and corruption, and generally create a better society. However, none of these good intentions came to fruition and crime skyrocketed as the illegal liquor business boomed.
Ultimately, the federal government made the decision to end Prohibition, but some states wanted to continue to put restrictions on liquor sales to try and help support a healthy society. These became control states. In open states, like California, you can visit a drugstore or grocery store to purchase beer, wine or liquor. In Alabama or Idaho, which are control states, you will have to find a local ABC store. Control states don’t allow brands to use promotional strategies like sales limited-time offers or discounts to help sell liquor products.
What are the 17 Control States?
Currently, these are the 17 control states where the state government controls at least some aspect of liquor sales: Alabama, Idaho, Iowa, Maine, Michigan, Mississippi, Montana, New Hampshire, North Carolina, Ohio, Oregon, Pennsylvania, Utah, Vermont, West Virginia, and Wyoming. Although, there are some notable exceptions where individual counties in certain states have chosen to control alcohol sales. Maryland, for example, has 4 counties with government-run stores while both Minnesota and South Dakota have municipalities with their own liquor stores.
Differences Among Control States
Even among the 17 control states, there are two distinct groups. The first group is more strict and completely limits the sale of liquor to state-run ABC stores. These include Alabama, Idaho, New Hampshire, North Carolina, Pennsylvania, Utah, Virginia, and Washington. In New Hampshire, liquor is sold tax-free, which tends to attract out-of-state customers. North Carolina is also somewhat unique in the fact that stores can be run by local county and city governments.
In the second group, the state has a more subtle role in controlling alcohol sales and distribution. Instead of asserting power at the retail level, these states allow liquor to be sold at private retail locations, and work at the distribution/wholesale level, which allows them to determine which products will be sold and pricing minimums. These states include: Iowa, Maine, Michigan, Mississippi, Montana, Ohio, Oregon, Vermont, Wyoming, West Virginia.
For a more detailed look at specific alcohol policies in each state, refer to the comprehensive guide put together by the National Alcohol Beverage Association.
What Does a Control State Look Like in Practice?
When it comes to the selection of liquor in control states vs open states, you will find that there are typically far fewer options on the shelves of ABC stores in control states. Smaller craft brands simply don’t have the resources to navigate the government system to make sure that their products get on the shelves. ABC stores will also have more limited hours and in some states, they are closed on Sunday. So, while you can buy liquor in control states, you will have to make sure you purchase it before closing time.
Liquor stores tend to have a solid profit margin, which means that control states can earn a decent amount of revenue. This capital is then put back into the community to help improve public education and provide affordable healthcare.
In control states, the governments purposely provide fewer points of access to alcohol in the hopes that it will reduce the rate of addiction and alcohol related problems. There are a limited number of ABC stores, so customers may have to go out of their way to purchase liquor instead or be able to simply go to the corner drugstore. The government also tries to control sales through pricing. In control states, prices are usually higher, which is also intended to curb the consumption of alcohol.
Cons of a Control State
Because control states have a strict licensing process, it can be difficult for new distilleries to meet requirements. As a result, they may not prioritize applying for liquor licenses in control states. Even if a small distillery is able to acquire the proper permits and licenses, the state may decide not to put that brand of liquor on ABC store shelves. Ultimately, this discourages new businesses from entering the market and limits innovation.
What is the Three-Tier System?
The beverage alcohol market in the United States can be further complicated by the fact that it follows a three-tier system. Here is how it works:
First Tier – Producers
These are the breweries, wineries, and distilleries that actually create the products. Importers also fall in this category.
Second Tier – Distributors
Essentially, an alcohol producer will sell to a distributor who will then take over storing and selling the products. In control states, distributors will sell to the ABC board. In open states, distributors act as the intermediary between producers and private retailers.
Third Tier – Retailers
How to Register an Alcohol Brand
The Alcohol & Tobacco Tax & Trade Bureau (TTB) is the organization that oversees alcohol brand registrations. Before you can sell any products, you will have to register every product and container size you plan to sell. All TTB registrations must be completed before you can take the next step of starting to sell to distributors. This is true for both US producers and importers.
As part of the TTB registration process, you will be required to provide documentation of where the product is made, what ingredients are included, the age of the product, alcohol percentage, and a unique SKU or barcode. This may not be a complete list of requirements depending on the type of alcohol. Just know that you will have to have a detailed and organized application put together in order to register your products and take the next step to launching your brand.
How to Launch Your Alcohol Brand
1. Identify Your Target Customers
No matter how delicious and compelling your alcohol brand may be, it simply won’t appeal to every customer, especially when there are so many options on the market to choose from. That means that you will have to put some thought into exactly who you want to market your products to. It helps to start by researching any underdeveloped niches where you may be able to offer a new solution to an old problem. You may be able to use your brand to fill in some gaps in the market.
2. Tell a Story
Creating a brand also means creating a story. Customers want to learn about the history and story behind your product. In some cases, brands are able to leverage a celebrity association to gain exposure. Having a famous actor or musician prefer your brand can do wonders for sales, but this isn’t a realistic marketing strategy for every alcohol brand. Instead, tell the story of how the brand came about or draw on regional or historical narratives to build a brand story.
3. Have Your Finances in Order
Starting any new business comes with unexpected costs and you will want to make sure that you have a significant amount of capital on hand. There are a variety of laws and regulations regarding liquor sales and branding. You will want an experienced lawyer to help you navigate these complications and make sure that you are compliant. This is especially true if you are launching in a control state, which will have even more regulations and vary state by state.
4. Sell Your Liquor to a Wholesaler
Once you have perfected your recipe, it is time to find a buyer for your products. In the United States, liquor is sold through a three-tier system. You will have to sell to wholesalers who will then sell your products to liquor stores and retailers. It is important to approach wholesalers with an exciting distribution plan so that they will want to take on your brand.
5. Start Marketing Your Brand
Marketing starts with letting people know your brand exists and getting them excited about trying your products. A full-scale, go-to-market strategy will include field marketing, retail marketing, and digital marketing. However, it is important to remember that you may not be able to engage in retail marketing in control states. Keep reading to learn more about possible marketing restrictions.
In open states, products can be sold at a great number of locations, but increased consumer access can also mean more competition and lower pricing. While it can be harder to get your product on the shelves in control states, the prices will be controlled by the state and not the market conditions. So if your spirit category is in high demand and you have the opportunity to raise your prices on your product, you will only be able to control those price fluctuations in open states.
Another difference in control states vs open states is the amount of sales information you’ll receive from your distributors. In a control state such as Utah, you may only receive a total number of depletions. Whereas in an open state such as Florida, you may receive more granular account-level depletion data that shows you precisely where the bulk of your sales are coming from.
Launching an alcohol brand can be a daunting task, but it is nowhere near impossible. If you are passionate about your product and willing to put in the work, you can successfully launch your brand in both control and open states.
How do you launch your alcohol brand?
Identify your target customers, tell your brand’s story, have your finances in order, start selling your products to wholesalers, and implement a strategic marketing plan.
What does control state mean?
In control states, the government is involved in some aspect of the sales and distribution process. In the strict control states, you can only purchase liquor at state-run ABC retail stores.
Why do we have control states?
Once the federal government ended Prohibition, they gave each state the power to set their own laws around alcohol sales and distribution. Some states wanted to retain control over this industry in order to limit access and hopefully reduce consumption by residents.
What are the 17 control states?
Alabama, Idaho, Iowa, Maine, Michigan, Mississippi, Montana, New Hampshire, North Carolina, Ohio, Oregon, Pennsylvania, Utah, Vermont, West Virginia, and Wyoming are all classified as control states.
What’s the difference between all the control states?
In some control states, the government intervenes at the distribution level to choose brands and set prices. Other control states exercise their power at the retail level by limiting sales to ABC retail locations.
What does a control state in practice look like?
If a customer wants to purchase liquor, they will have to find an ABC store near them. They can’t simply walk into a gas station or grocery store to buy liquor. In addition, ABC stores have more limited hours, so you will have to visit during a set period of time.
What are the benefits of a liquor control state?
Revenue earned by control states can then be put back into government programs that help benefit the local community. Since states run the retailers, they are able to fix pricing amounts. They can use this power to try and keep sales reasonable.
What are the cons of a liquor control state?
For brands hoping to enter the market in a control state, it is important to be aware that the licensing process can be more difficult in the control states vs open states. If you do obtain a license, the state board may pass on the chance to sell your products at their stores.
What is the three-tier system?
The three-tier system consists of producers, distributors, and retailers.
How do I register my alcohol brand?
You will need to register each product, including different sizes and vintages, with the Alcohol & Tobacco Tax & Trade Bureau (TTB). This step must be completed before you can sell to wholesalers.
How is launching your brand different for control states?
In open states, you will be able to sell at more locations, but there will also be more competition. In control states, the ABC board decides which brands are sold and decides the price of products instead of letting the market dictate prices.