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Old 10-18-2011, 12:36 AM   #1
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Default What is the point of the three-tier distribution system?

I was reading another thread today about a small brewery here in Michigan, and the owner was talking about how they only sell on-site because Michigan has the RIDICULOUS 3 tier distribution requirement. What is the purpose of not allowing small breweries to self distribute? I have heard that it was origionally to prevent monopolies somehow, but it seems to me it actually promotes monopolies by favoring the huge corporate breweries that produce enough to afford distribution. Isn't our country supposed to be based on a FREE MARKET ECONOMY? The three tier system pretty much makes it impossible to distribute your product unless you are a gigantic operation that makes a ton of beer. Not only do distributors have huge minimum production requirements for what they'll distribute, but you also have to sell a lot of beer to be able to make money after the distributor takes their cut. I understand that alcohol is a heavily regulated business, but why is it that it is O.K. for a big brewery to sell tons of beer, but not O.K. for a tiny operation to sell a litttle bit of beer? With the distribution requirements, that basically means that for all intents and purposes, operating a small brewery(I'm talking brewery, not brew pub) is illegal. It just seems to go against everything that the American economy is supposed to be. It is a dream of mine to open a small, local production brewery at some point in the future. The sad thing is that I will have to move to a state that allows self distribution to do so. With Michigan's economy in the state that it is, they should be trying to make it as easy as possible for small businesses to start up (and bring tax revenue to the state). But apparently they would rather our beer drinking residents send their dollars to Missouri and Wisconsin (Anheuser-Busch and Miller). Bell's brewery here in Kalamazoo is one of the great microbrewery success stories. And guess what? Under today's laws they never would have opened. They were able to get going back in the 80's because Michigan allowed self distribution back then. Sorry for the long rant, I just can't for the life of me figure out what the 3 tier system is supposed to accomplish, other than protecting the interests of big brewing companies.

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Old 10-18-2011, 12:41 AM   #2
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I believe you answered your own question...

And anyone who thinks this is a free market economy doesn't know the meaning of the term.

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Old 10-18-2011, 12:43 AM   #3
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Old 10-18-2011, 01:23 AM   #4
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I believe you answered your own question...
so it is just to protect the interests of big brewing companies? How can laws that favor big business over small be legal? Even if it's not true, they have to at least have some sort of rationalization for why they say distributors are necessary. What would the official government response be if asked why?

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And anyone who thinks this is a free market economy doesn't know the meaning of the term.
To me, a free market economy should mean that as long as what you make is legal, you are licensed to make it, and you pay taxes on your sales, you should be able to sell it however and wherever you see fit (within reason, obviously - you can't sell to minors and whatnot). To me, requiring you to go through an established distributor and pay them a cut is like having to pay the mafia for "protection".
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Old 10-18-2011, 01:47 AM   #5
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so it is just to protect the interests of big brewing companies? How can laws that favor big business over small be legal? Even if it's not true, they have to at least have some sort of rationalization for why they say distributors are necessary. What would the official government response be if asked why?
After prohibition the big breweries saw that they had a unique opportunity to control their market shares and lobbied to create the three tier distribution system because it would prevent new breweries from popping up since the large brewers had an oligopoly on the distributors and could prevent them from carrying small brewery products. They could prevent breweries from operating brewpubs and selling direct to retailers or the public. Now they own the distributors and use that to their advantage.

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To me, a free market economy should mean that as long as what you make is legal, you are licensed to make it, and you pay taxes on your sales, you should be able to sell it however and wherever you see fit (within reason, obviously - you can't sell to minors and whatnot). To me, requiring you to go through an established distributor and pay them a cut is like having to pay the mafia for "protection".
This is the effect of a "free market" -- power and wealth is consolidated until businesses have the power to buy government protection from competitors by giving perks and campaign contributions in exchange for favorable legislation. Then those same legislatures create subsidies and tax breaks for the same businesses. If you were to "hit the reset" on government regulation by wiping it all out, all these regulations would reappear and those regulations intended to protect public health and safety would not. Large businesses don't want free markets, they want markets regulated in their favor with heavy subsidies to protect their market share and profits.
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Old 10-18-2011, 01:49 AM   #6
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I think I just found my answer. In a thread by Revvy I found this quote:

"The National Beer Wholesalers Association maintains the nation's 3rd largest political action committee. Since 2000, they have donated 15.4 MILLION dollars to candidates for federal office."

So there you have it. The distribution lobby has poured money into maintaining such laws. But I'm still curious as to what the "official" reasoning is. I mean, they can't just come out and say "it is so our friends in the beer distribution lobby can keep making money at consumers' expense".

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Old 10-18-2011, 01:51 AM   #7
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I'm sure the response would be to protect the consumer from "dangers" of under regulated goods. Similar to the usda crackdown on the Amish selling raw milk...

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Old 10-18-2011, 02:11 AM   #8
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I'm sure the response would be to protect the consumer from "dangers" of under regulated goods.
You're probably right. The thing is, it's not like beer from a large brewery is any safer or more regulated than that of a small brewery. The actual brewery operations are not the part of the business that is tightly controlled - just the sales and distribution part. So between a large brewery and a tiny one, the only difference is that the large brewery makes enough beer to be able to afford paying the distributor's cut and the small one doesn't. What a racket. Maybe my dream of opening a brewery should be replaced by opening a distribution company!(but then again, I bet they have plenty of laws in place to make it tough to get into that business as well)
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Old 10-18-2011, 01:37 PM   #9
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Quote:
Originally Posted by AdamWiz View Post
I think I just found my answer. In a thread by Revvy I found this quote:

"The National Beer Wholesalers Association maintains the nation's 3rd largest political action committee. Since 2000, they have donated 15.4 MILLION dollars to candidates for federal office."

So there you have it. The distribution lobby has poured money into maintaining such laws. But I'm still curious as to what the "official" reasoning is. I mean, they can't just come out and say "it is so our friends in the beer distribution lobby can keep making money at consumers' expense".
You'd get some sort of flimsy explanation like it prevents a return to a pre-prohibition distribution problem, it ensures fair distribution, the system works so there's no reason to change it, etc. The official excuse is pretty worthless if you can understand the underlying basis.
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Old 10-18-2011, 01:46 PM   #10
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I'm sure the response would be to protect the consumer from "dangers" of under regulated goods. Similar to the usda crackdown on the Amish selling raw milk...
Milk is one of the reasons we have food regulations. We've lived for nearly 100 years without having to worry about the quality, sanitation, or content of "milk" at the store. When you go to the store you get Grade A milk -- it's 100% dairy cow milk that meets sanitation requirements, fat requirements, labeling requirements, etc. You don't have to try to figure out what you're being sold. If you go back 100 years or so, before regulation, milk was scandalous. When you bought milk it might be rotten. It might be impure. It might be cow milk mixed with milk from other animals. It might not have been stored at cool temperatures. Maybe worst of all, it might not even be animal milk at all. There was a time when "milk" producers would mix coconut oil (or other forms of oil) with water and a little bit of fat (and not always milk fat) and sell it as milk. In places like Wisconsin the cities would require the local grocers to only sell local milk, which often meant people had no choice but to buy what would be Grade B or C milk.

I might agree that the Amish are likely selling real milk and have taken proper care of it but not every dairy farmer has the same ethical standards.
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