3 Tier system Flashcards
Volstead Act. When was it and what did it do?
Between 1919 and 1933. It prohibited the production, sale and consumption of alcohol in the USA (except religious purposes)
When was the 3TS introduced in the USA. What was its aim?
Introduced in 1933, aim of preventing a retourn to the pre-prohibition saloons (gambling, prostitution, crime, drunkness)
Many saloons were…. houses. What does this mean?
Tied houses were obliged to buy all products from a particular brewer or distiller
Many saloons were…. houses. What does this mean?
Tied houses obliged to buy all products from a particular brewer or distiller
Why was the three tier system introduced?
1 - To prevent direct sales from the producer to the retailer
2 - To avoid monopolies and increased prices
What were the other benefits of the 3TS?
- creation of additional jobs
- easier regulation
- easier taxes collection
- tax revenue generated by these additional businesses
The Three tiers are?
- SUPPLIER (inc producer and importer)
- DISTRIBUTOR (inc wholesalers, brokers)
- RETAILER (inc off-premises licenses come supermarket + on-premises come bar)
Come si dice proprietà incrociata?
Cross Ownership
Talking about cross ownership, what does this mean?
Cross ownership is forbidden between most retailers and the upper two tiers. A producer can be an importer but not a wholesaler (EJ Gallo). In principle a producer cannot bypass the wholesaler and sell direct to retailers
Are wineries allowed to sell to consumers in some states?
Yes, both inside and outside the state
Each state of USA has different laws. What is a compliance officer?
A role within alcoholic beverage companies to help with all the different laws
Are there dry states today?
No, just some counties
There are 3 categories of states in the 3TS. Which are they?
- CONTROL STATES
- FREE STATES
- FRANCHISE STATE
What is a control state?
States in which the state itself hold monopoly over one or more of the 3 tiers. In general the only licensed off-premises retailer of alcohol is the state itself, though is some states this might be only for spirits and not wine.
How many control states are there?
17
What happens in IDAHO?
Monopoly on off premises sales of beverages with more than 16% abv
What happens in MICHIGAN?
It has a monopoly on wholesale sales and only for spirits
What happens in NEW HAMPSHIRE?
It allows beer and wine to be sold in Grocery and convenience shops only + operates state package shops (negozi che vendono beverages alcoliche pre-packaged). Inoltre: allows in a small number of private off- premises permits (smaller brand specialists)
What happens in PENNSYLVANIA?
Super strict control, all spirits sold in state package shops. Bar and restaurants must buy from the state package shops
Open states and franchise state are states…
… in which the state does not participate directly in the sale of alcohol
How is the state involvement in the regulation of the 3TS in an open state?
Minimal, suppliers and distributors are free to enter into and exit out of agreements to sell and distribute brands freely.
What about franchise states?
They have strong franchise laws that severely restrict the freedom of suppliers to change distributors arrangements. In a franchise state an appointment btw distributor and supplier is a Lifetime one due to the strength of the laws
Franchise laws protect…
Distributors from sudden changes ( it might renounce on distributing other brands, invest in marketing, invest in staff, infrastructures…)
For the supplier the franchise law is not a benefit. Why?
Because he/she might not be satisfied with the performance of a distributor but he/she may decide not to release the peoducer. The producer can appoint an additional distributor in the same state. In some cases a brand can be sold by multiple distributors
All the states (control, open, franchise) have their own…
Unique LAWS and REGULATIONS
Connecticut is an example of…
Franchise law
Connecticut has a lot of strict rules. List them
1 - Resteicts the number of off-premises licenses held by any entity
2 - Restricts the number of licenses per town or city (according to population). Grandi entities comprano piccoli
3 - prohibits quantity discounts given by distributors (limit the competitive advantage of big shops)
4 - sets minimum bottle pricing
5 - IN THE PAST: no alcohol sold on Sundays by off-premises (small business prospered)
Connecticut and “border wars”, explain
It is a “war” between the shops of Connecticut and shops across the border lines where prices might be lower, hours of operation may vary and availability of products greater.
One challenging characteristic of USA wine market is …
CONSOLIDATION
What happened in the last 20 years to the number of distributors and wineries?
The number of distributors decreased of 2/3 (da 3000 a 1200) and USA wineries seeking to enter the market has increased 5 times (da 2000 a 9500)
This created a BOTTLENECK at disadvantage of small producers : their products get lost among the massive portfolio of brands held by major distributors.
No marketing and sales control
What is the role of conglomerates in the wine industry growth of the recent years? What the benefits?
USA wineries increased and many of the largest companies involved in wine production have also become bigger through acquisition of small wineries.
The benefits:
- attractive array of products for large distributors
- need to deal with 1 big company to gain a range of brands
- the multiple retailer can provide a range of products
What can small producer do against consolidations?
They can look for smaller specialist distributors that may be better equipped to sell low-volume, boutique brands (BUT less coverage across so many states e distribution contracts can be hard to break and might not be able to be represented by anyone else)
What has consolidation stimulated?
- Activities in the direct-to-consumer category (shipping and cellar door sales)
(For Wineries with too small volumes for 3TS, but has associated costs of labour, adv, shipping…)
What is the meaning of CONSOLIDATION?
In the United States’ three-tier system for alcohol distribution, “consolidation” refers to the trend where fewer, larger companies dominate each of the three tiers (producers, distributors, and retailers). This happens through mergers and acquisitions, leading to a reduction in the number of independent players in the industry.
Advantages of 3TS
Disadvantages of 3TS
Disadvantages of 3TS
One of the vestiges of the prohibition in 1933 is that … ?
The Federal government left the control of beverage alcohol sales to the individual states
One of the vestiges of the prohibition in 1933 is that … ?
The Federal government left the control of beverage alcohol sales to the individual states
