Excerpt from "The Business of Spirits" - America’s Confusing Three-Tier System
For the longest time, I've been meaning to do a story on the
"3-Tier system" which affects the distribution of alcoholic beverages in
the United States - and is the very reason that some tadty beverages are not
available in your state - while they are available right across the
state boundary.
Luckily enough, I was just sent a review copy of a new book by Noah Rothbaum called The Business of Spirits. The book is a great introduction to the byzantine world of Spirits and how they are marketed in the U.S.
In the book, Noah talks to a number of notable folks in the industry and includes backgrounds on many of the personalities and iconic products.
In the first chapter, Noah has an excellent overview of the origin of our 3-tier system. This chapter immediately drew me in to the book. I thought: "Why not just get Noah to do an excerpt of the book for us?"
Below is the except from that first chapter of his book.
America’s Confusing Three-Tier System and the Legacy of Prohibition.
An excerpt from the new book The Business of Spirits by Noah Rothbaum
To get to the storeroom of New York’s legendary ‘21’ Club, cross the dining room with its constellation of corporate and sports memorabilia, slip through the bustling kitchen, and head down a flight of steep stairs. There, in an unremarkable brick-lined hallway, is a pencil-sized hole. Insert an 18-inch piece of wire into it, and like something out of an Indiana Jones movie, a two-and-a-half-ton hidden door swings open, revealing a fine spirits and wine collection. This hidden storeroom was built during Prohibition and is actually below the adjoining townhouse (19 West 52nd Street). It was constructed so the owners could truthfully say that there wasn’t any alcohol on the premises if the restaurant was raided.
But this quaint relic of Prohibition isn’t the only legacy of that era, which still haunts the United States. Almost 75 years after Congress overwhelmingly passed the 21st Amendment ending the 13-year period of Prohibition, the U.S. is still trying to figure out how to regulate the sale of alcohol. This is particularly troublesome given the fact that the spirits industry is now booming and sales are increasing every year.
The problem stems from the fact that the 21st Amendment only repealed the 18th Amendment; it didn’t spell out exactly how alcohol sales would be controlled. Congress left those decisions up to the individual states. As a result, the United States has an almost incomprehensible patchwork of alcohol-related laws that vary greatly from state to state and sometimes county to county. No two states have exactly the same laws regarding alcohol.
But lawmakers were given a hard task. There needed to be a way to sell alcohol without causing the pre-Prohibition problems of the distillers and brewers dominating the industry. Each state created a three-tier system to handle the importation, distribution, and sale of spirits, breaking up these three processes to make sure that the distillers and brewers couldn’t get too powerful. (Eighteen states, including Vermont, Pennsylvania, and Montana, went even further. In those areas the government controls the sale of spirits at the wholesale or retail level by operating the only licensed liquor stores.) The way the system usually works is that one company produces or imports the spirits and another distributes them to independently run retail stores or chains. Spirit producers cannot usually sell directly to consumers or stores.
The three-tier system is supposed to encourage competition. All three types of businesses are also licensed by the government, so that the industry can be closely monitored and held responsible for any abuses. (Licensing also ensures that the appropriate amount of taxes are collected and remitted to the government.) Over the last few years, however, not only has there been a major consolidation among spirit makers but also among distributors. For many years, spirit distribution was handled by small, local companies. Now in most states, just a couple of huge distributors handle all of the brands.
Also, states are finally loosening rules and regulations to make spirits easier to buy. You can now buy alcohol on Sunday in 34 states. Twelve of these states have legalized Sunday liquor sales since 2002. In 42 states, it is now legal to host tastings of spirits in liquor stores. It seems hard to believe, but almost a third of these states have only legalized this practice in the last five years. This is significant because the ability to hand out samples allows stores to introduce buyers to new spirits, which is, of course, especially helpful for selling premium and super-premium bottles.
If you'd like to meet Noah and pick up a signed copy of his book, you only have to be in New York:
He will be signing books at New York WhiskyFest on October 30th and will also be conducting a whisky tasting/book signing at Makor (part of the 92nd Street Y) on November 29th.
About the Author:
For over five years, Noah Rothbaum wrote for SmartMoney: The Wall Street Journal Magazine. He has also written about spirits for Money, Forbes.com, Portfolio.com, the academic food journal Gastronomica and the trade publications Beverage Media and Beverage Dynamics. His work has also appeared in the New York Times, The Wall Street Journal, Food & Wine, Food Arts, O, The Oprah Magazine, Esquire, Details, Men's Journal, Men's Fitness, Fortune Small Business and Life.
| About The Business of Spirits: Walk into a liquor store today and you’ll be faced with an unprecedented variety of vodka, gin, whisky, cognac, rum and even tequila. Celebrating the acumen of the businessmen and craftsmen responsible for this phenomenal sales growth, The Business of Spirits: How Savvy Marketers, Innovative Distillers, and Entrepreneurs Changed How We Drink ($24.95, Kaplan), is a cocktail of history and insight into a rapidly growing industry. Journalist Noah Rothbaum takes readers from the cellars of Cognac, France, to the Scottish Highlands to the agave fields of Mexico to find out what’s now driving this age old industry. The book explores new production techniques, cutting-edge marketing campaigns and introduces a new crop of crafty entrepreneurs. Hardcover: 208 pages Publisher: Kaplan Publishing (September 4, 2007) ISBN-10: 1427754756 ISBN-13: 978-1427754752 SRP: $24.95 |
Thanks for this post. For an outsider , the alcohol business in the states truly does seem byzantine. Might have to get this book.
Posted by: Japanesewhisky | October 22, 2007 at 08:35 PM