Arizona’s Three-Tier Distribution System

Tier 1 is composed of the producers – the makers of the beer, wine and spirit beverage alcohol products enjoyed by millions of responsible, adult Arizonans.

Tier 2 is composed of the distributors – the wholesalers who buy these products from producers and sell and distribute these products to retailers.

Tier 3 is composed of the retailers who sell these products to the public.

This system was born out of the end of Prohibition when the 21st Amendment to the U.S. Constitution gave each state the power to regulate alcohol sales inside its borders. In response to the grant of this authority, all states adopted versions of the 3-tier system.

Under Title 4 of the Arizona Revised Statutes, with the exception of the ability of wineries to ship very limited amounts of product directly into Arizona, the 3-tier system is fully implemented under the state’s regulatory framework for these unique products (i.e., beverage alcohol).

The 3-tier system provides critical benefits on multiple levels, and it should be a priority for Arizona to maintain the integrity of this system.

The critical value point in the 3-tier system is the 2nd tier where distributors ensure product safety, consumer choice, fair competition, an infusion of economic vitality to the state and its communities, product affordability and convenience.

What’s Good for Beer Is Good for the Country

By EDUARDO PORTER The New York Times, Published: January 24, 2009

Legally, at least, getting drunk was not an option at the onset of the Great Depression. Prohibition, in effect from 1920 through 1933, stopped hordes of unemployed Americans from lawfully getting sloshed. The forces of temperance needn’t have bothered. As the world skids deeper into recession today, workers are resisting the temptation to drown their sorrows in booze.

SABMiller, the second-biggest brewer in the world, reported a surprise 1 percent drop in volume shipments in the last three months of 2008, compared with a year earlier. Its lager volumes in Europe fell 1 percent, led by a 22 percent drop in Russia. In the United States, volume sales of its MillerCoors joint venture with Canada’s Molson dropped 2.3 percent.

The Danish brewer Carlsberg announced it was cutting about 275 jobs in Europe. Diageo, which makes everything from Cuervo tequila to Guinness, put on hold an $840 million expansion of beer production in Ireland. The British Beer and Pub Association reported that pubs were struggling across the country as beer sales fell to their lowest in 70 years.

Makers of other forms of tipple are getting worried too. Rob Sands, president and chief executive of Constellation Brands, the world’s biggest wine company, warned this month that he was “recalibrating our sales expectations” to account for the weak macroeconomic environment.

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Product safety – Beverage alcohol is a unique product, and it is important to “know what’s in that bottle.” Thanks to the middle tier, those companies licensed to distribute are importers of record who provide for inspection, traceability and the ability for recall of substandard product. Public safety demands a system that works to protect consumers from inferior and dangerous beverage alcohol products.

Consumer Choice, Fair Competition and Product Affordability – Because distributors buy a wide variety of products in large quantities, consumers are afforded choices of products at reasonable prices that simply would not exist if individual retailers were forced to take shipments directly – absorbing higher costs for lower volume as well as high shipping rates.

The exception may be “big box” stores that buy in larger quantities, but the untenable trade-off is that those retailers often tend to carry a very limited variety, ignoring specialty brands that do not move off the shelves in voluminous quantities.

This also highlights the notion of fair competition. Distributors that provide for variety at reasonable cost allow producers (the 1st tier) to get their products to the consumers who want to enjoy them and give smaller specialty retailers the opportunities to compete.

Economic Vitality and Stability – Because distributors deliver choice, affordability and competition, they provide an enormous amount of economic vitality and stability across Arizona. They give both smaller producers and retailers a chance to succeed in the marketplace. The competition that is fostered is an significant boon to the overall economic health in the industry and generally.

Just as important are the jobs and economic stimulation the distributors’ businesses create within the communities they serve. They also provide advertising dollars which are the lifeblood for many other businesses in the area.

Convenience – This benefit created by the 2nd tier in the 3-tier system is really a by-product of what has already been mentioned. Without the opportunities for success provided by distributors, the smaller neighborhood family-run stores would disappear. Consumers would not be able to “run down to the corner” to quickly get what they want. Communities would also lose the uniqueness and sense of place these local stores provide.

In recognition that beverage alcohol products are unique in the marketplace, and in consideration for the great number of tangible safeguards and benefits provided by distributors, it is clear that the merits of Arizona’s 3-tier system should be applauded and its framework kept intact.