WBWWA's Three-Tier System

How the System Works:

The 21st Amendment of the U.S. Constitution, enacted when Prohibition ended, vests the individual states with the power and right to control all aspects of alcohol production, consumption and distribution within their borders. Most state legislatures made a deliberate public policy decision to incorporate three-tier systems into their regulatory schemes as a way to responsibly bring alcoholic products to market.
The role of the three-tier system is to facilitate and maintain a fair, orderly and regulated marketplace, to discourage over-consumption and to promote public safety. It serves as an efficient way to collect state excise taxes and to provide for responsible access to alcohol.
Washington’s three-tier system requires out-of-state suppliers (i.e. primarily wineries and breweries) to sell their products to distributors, who then sell them to retailers.
Washington’s three-tier system enforces a uniform pricing structure, which is overseen by the Washington State Liquor Control Board and prevents price discrimination. Price discrimination would put small businesses at an economic disadvantage against larger businesses and encourage over-promotion of sales.
Under this regulatory framework, a supplier sets its prices independently, subject to the state requirement for a minimum 10% markup over its cost, and must sell its products at the same price to all its distributors who carry that brand. Each supplier also is required to post its prices with the Washington State Liquor Control Board (WSLCB)."
Like suppliers, each distributor likewise sets its prices independently, subject to the state requirement for a minimum 10% markup over its cost, and is required to post with the WSLCB its prices that will be charged the same to every one of its retail accounts in its marketing area.
Washington, in exercising its authority to regulate importation and distribution of alcohol within the state, permits in-state breweries and wineries to either use distributors or sell their own product directly to Washington retailers and consumers. The state has a regulatory framework in place to govern this activity to ensure control of consumption, enforceability of licensing and distribution laws, and revenue collection.
Washington is one of 13 states that has enacted, under its 21st Amendment powers, a "reciprocity" law that permits Washington wineries to sell and ship limited amounts of their products directly to consumers living in the 12 other states. Conversely, the law also allows wine producers in those 12 states to sell and ship their wine directly to Washington consumers.
The effect of the state’s control system is to (1) balance public safety/health concerns with public demand for alcohol products, (2) provide a non-discriminatory pricing structure that does not favor large retailers over smaller ones, and (3) ensure that retailers have access to diverse products at competitive prices.
The system purposefully places significant restraints on how entities in one tier do business with entities in other tiers – such as, restricting volume discounts to distributors and retailers. Or extending credit to retailers. The intent is to prohibit large retailers from using their huge purchasing volume to wring price concessions and other special terms from vendors. This non-discriminatory pricing structure allows small retailers to compete with large retailers, thereby serving the goal of stabilizing prices as a means to control over-consumption. The system also prevents large producers and large retailers from using their economic muscle to control the market and market access.
Distributors fulfill a vital role in the three-tier system. They track alcohol shipments into and within the state. They ensure that products are tracked and taxed appropriately, and they collect taxes for the state. Distributors guarantee the quality and freshness of products delivered, and that they are free from product tampering.

Benefits of the System

The state’s regulatory system serves an important role in Washington State. It ensures:

A regulated system for the sale of a product with a history of abuse.
Small brewers and small wineries have access to the marketplace and large brewers or vintners are prevented from forcing smaller ones out of business.
Washington consumers have a wide choice of products, including a variety of wines and beers produced by small craft breweries and wineries in Washington, available at a range of retail outlets at competitive prices.
A competitive playing field for small grocers who otherwise could not afford to compete with the chain box stores.
An important check on the relationship between retailers and manufacturers – a check which ultimately benefits the consumer.
Sales are made only to licensed entities.
The State receives the excise taxes it imposes on beer and wine. In 2003, Washington’s distributors collected $47 million in beer and wine taxes on behalf of the state.



• History of the Three-Tier System • How Washington's System Works • What Retailers & Producers Say About the System		Washington’s Three-Tier System: Responsible Access through a Regulated System that Works How the System Works \| Benefits of the System How the System Works: The 21st Amendment of the U.S. Constitution, enacted when Prohibition ended, vests the individual states with the power and right to control all aspects of alcohol production, consumption and distribution within their borders. Most state legislatures made a deliberate public policy decision to incorporate three-tier systems into their regulatory schemes as a way to responsibly bring alcoholic products to market. The role of the three-tier system is to facilitate and maintain a fair, orderly and regulated marketplace, to discourage over-consumption and to promote public safety. It serves as an efficient way to collect state excise taxes and to provide for responsible access to alcohol. Washington’s three-tier system requires out-of-state suppliers (i.e. primarily wineries and breweries) to sell their products to distributors, who then sell them to retailers. Washington’s three-tier system enforces a uniform pricing structure, which is overseen by the Washington State Liquor Control Board and prevents price discrimination. Price discrimination would put small businesses at an economic disadvantage against larger businesses and encourage over-promotion of sales. Under this regulatory framework, a supplier sets its prices independently, subject to the state requirement for a minimum 10% markup over its cost, and must sell its products at the same price to all its distributors who carry that brand. Each supplier also is required to post its prices with the Washington State Liquor Control Board (WSLCB)." Like suppliers, each distributor likewise sets its prices independently, subject to the state requirement for a minimum 10% markup over its cost, and is required to post with the WSLCB its prices that will be charged the same to every one of its retail accounts in its marketing area. Washington, in exercising its authority to regulate importation and distribution of alcohol within the state, permits in-state breweries and wineries to either use distributors or sell their own product directly to Washington retailers and consumers. The state has a regulatory framework in place to govern this activity to ensure control of consumption, enforceability of licensing and distribution laws, and revenue collection. Washington is one of 13 states that has enacted, under its 21st Amendment powers, a "reciprocity" law that permits Washington wineries to sell and ship limited amounts of their products directly to consumers living in the 12 other states. Conversely, the law also allows wine producers in those 12 states to sell and ship their wine directly to Washington consumers. The effect of the state’s control system is to (1) balance public safety/health concerns with public demand for alcohol products, (2) provide a non-discriminatory pricing structure that does not favor large retailers over smaller ones, and (3) ensure that retailers have access to diverse products at competitive prices. The system purposefully places significant restraints on how entities in one tier do business with entities in other tiers – such as, restricting volume discounts to distributors and retailers. Or extending credit to retailers. The intent is to prohibit large retailers from using their huge purchasing volume to wring price concessions and other special terms from vendors. This non-discriminatory pricing structure allows small retailers to compete with large retailers, thereby serving the goal of stabilizing prices as a means to control over-consumption. The system also prevents large producers and large retailers from using their economic muscle to control the market and market access. Distributors fulfill a vital role in the three-tier system. They track alcohol shipments into and within the state. They ensure that products are tracked and taxed appropriately, and they collect taxes for the state. Distributors guarantee the quality and freshness of products delivered, and that they are free from product tampering. Benefits of the System The state’s regulatory system serves an important role in Washington State. It ensures: A regulated system for the sale of a product with a history of abuse. Small brewers and small wineries have access to the marketplace and large brewers or vintners are prevented from forcing smaller ones out of business. Washington consumers have a wide choice of products, including a variety of wines and beers produced by small craft breweries and wineries in Washington, available at a range of retail outlets at competitive prices. A competitive playing field for small grocers who otherwise could not afford to compete with the chain box stores. An important check on the relationship between retailers and manufacturers – a check which ultimately benefits the consumer. Sales are made only to licensed entities. The State receives the excise taxes it imposes on beer and wine. In 2003, Washington’s distributors collected $47 million in beer and wine taxes on behalf of the state.
		Contact us at phil@wbwwa.com 915 Trosper Rd., Suite #102, Tumwater, WA 98512 Voice: 360-352-5252 \| Fax: 360-943-9784 © 2004