The Three Tier Distribution System – What you must know as a wine exporter

Let’s take a quick detour from our wine exporting series to discuss the domestic distribution system.

Our alcohol regulation system in the US is commonly called the ‘three tier’ system.  It creates the infrastructure for each US state to regulate and tax alcohol.  The 3 tier system has its roots in the repeal of prohibition. Remarkably, the system is still with us today, and influences nearly every decision that is made in the alcohol distribution business. Selling wine in the US can be like exporting to 50 different little countries, since alcohol is controlled at the state level.  You will need a license in every state where you sell or ship your products if you decide to go it alone.

The 3 Tiers 

Three tier cake is fun and delicious.  Three tier distribution is not.

Three tier cake is fun and delicious.  Three tier distribution is not.

Generally speaking, there are three types of business in alcohol distribution, and they are broken into three tiers.  In the US, you can only own a business at one of these levels. This is what is known as a ‘tied house restriction’.  The three tiers are:

Producer: A winery, brewery, or distillery.  There are carve-outs that allow wineries, micro-breweries, and micro-distilleries to sell direct to consumers.  For the most part, producers must sell only to distributors.

Distributor: A wholesaler who buys directly from producers and sells to a retailer.  This includes companies like Best Coast Wines, as we source our wines directly from top wineries around the state, blending together small lot gems to create our Eight Sides family of wines.  There are carve-outs for certain types of distributors to sell directly to consumers, but this is rare. 

Retailer: a store, web site, restaurant, or bar who buys wine, beer, or liquor from a distributor and sells it directly to consumers.

Exciting stuff, isn’t it? 

Remember; always consult a lawyer or an industry expert when considering where you should enter the alcohol business.  It is heavily regulated, and can be a bit of a minefield if you’re not careful!  Feel free to contact us if you’ve got any questions or are looking for some help. And good luck out there!

If you'd like to learn more about exporting wines, take a look at our free Wine Exporting eBook.