My knowledge of the three tier system comes from currently attempting to open a brewery in South Carolina. The problem with the system, in my opinion, is that it decreases the ease with which to enter the brewing industry by decreasing the amount of profit small breweries can potentially make and thus make the chance of success less likely.
For example, in the state of South Carolina self distribution is illegal (which isn't the case for all states) so I have to find a distributor. However, according to the wonderful laws in this state, I can only choose one distributor and never move my business to another distributor, ever. The only way a brewery can choose a new distributor is if the brewery were to relocate to another state for more than three years and then move back.
This causes a problem because distributors, like breweries, are large and small. So, do you go with a large distributor with a huge portfolio where the chances of getting noticed by retailers is small? Or, go with a local distributor were your beer will get some attention at the cost of less exposure to retailers in the greater region.
Another dilemma the three tier system creates is the amount of profitability from sales. Let's say my small brewery only distributes in 1/8 bbl kegs (or cornie kegs) and it costs me $25 total to produce one keg. I sell that keg to the distributor (the only one I can sell it to) for $50. Not bad, that's a 100% mark up. However, the distributor then sells it to the retailer for $80 and the retailer sells it to it's customers for $5 a pint. Which means the retailer just sold the same keg of beer for $200 that originally cost $25 to produce. Of course we could make this more technical and add taxes into this but lets just keep it simple.
The other thing is it's practically hopeless for any of these laws to change due to the amount of lobbyists distributors tend to have. In the beginning, distributorships were given to the largest breweries in the country following the fall of prohibition in an effort to control alcohol sales. Thus Budweiser, Coors, and Miller held all of the distributing power. To this day they still wield that power and it is evident in many places across the country.
A local here in Charleston who has been around the block a few times gave me this advice; "Choosing a distributorship is difficult and they are going to try and screw you. You just have to choose the one your willing to put up with and will get you the furthest."
For the record, I'm no expert and I'm sure there are things that I'm missing but these are just some of the tidbits of info I've been learning during my fun adventure in brewery building. Hope it helps!
Steve
anyhow, I am writing a paper for an English class on the Three Tier System and how it may be failing the smaller breweries and brewers alike. Would love to get some input from all sides regarding this issue and any more insight would be greatly appreciated! Thanks!
