Time to Cut Out the Middle-Man in Beer Sales

WASHINGTON, D.C., June 3, 2013 – Prohibition ended in 1933, but we’re still stuck with an unfortunate legacy of the era—a government-enforced, anti-competitive mandatory “three-tier system” for beer distribution. In every state, most beer sales are subject to rules whereby brewers can sell only to wholesalers, wholesalers only to retailers, and retailers only to consumers. Although the three-tier system ostensibly was created to diminish a disproportionate influence of brewers over retail establishments, the time has come to cut out this antiquated middle-man mandate.

CEI’s new OnPoint report, “Don’t Forget the Beer,” focuses on Pennsylvania, a state on the verge of overhauling its government-run liquor and package store system. As the report illustrates, providing regulatory relief to brewers and instilling a more efficient and competitive market could bring real savings to the state. The current system adds as much as 25 percent to the cost of bringing beer to market.

Moreover, the current system may not even be legal. Eight years ago, in Granholm v. Heald, the U.S. Supreme Court struck down Michigan’s protectionist wine distribution system as unconstitutional because it exempted in-state alcohol manufacturers from the three-tier system but still required out-of-state manufacturers to go through wholesalers.

Pennsylvania uses essentially the same system, and legislation was introduced in 2009 that would have brought the state into compliance with that decision. But the legislation died in the state senate. 

Lobbying interests that support the status quo are powerful. Beer wholesalers maintain the third-largest political action committee in the nation and are quick to intervene in any legal action that threatens their legally protected industry.

“The time is ripe for the Pennsylvania legislature to remove the chains of [the] three-tier system,” concludes report author David Scott, a Philadelphia attorney. “Allowing all brewers, regardless of geographic origin or size, to self-distribute …is the best method of promoting free enterprise and competition.”

>> Read the full report: “Don’t Forget the Beer: Pennsylvania Must Reform its Beer Distribution Laws to Comply with the Supreme Court’s Landmark Decision in Granholm v. Heald