This is Part 1 of a series on Texas’s Three Tier System of beer regulation.
If you follow beer in the U.S., you’ve probably heard a thing or two about regulatory reform. Since Prohibition, the beer industry has been highly regulated, mostly at the state level. The most contentious provisions often involve the compulsory use of distributors to sell alcohol. For example, in many states, it’s illegal for a brewery to sell beer directly to retailers (bars / restaurants) – instead, it must sell its product to a distributor, who then sells that product onto a retailer. The Brewer, the distributor, and the retailer constitute the three tiers of the Three Tier System (3T System).
To distributors, the 3T System is sacrosanct. It is the system that has allowed us all to survive. This is partly true – it has certainly allowed them to survive. Without it, distributors might still be relied upon for their services, but to a lesser extent than today – where their services are mandated by law, and their dealings with brewers are on an incredibly uneven playing field (thanks to Franchise Laws, which we’ll discuss later). Just as Wall Street assures us that government bailouts are necessary for our survival (not just theirs), we’re assured by distributors that the 3T System continually saves us from social and economic calamity. Pam Erickson, head of a think tank advising alcohol regulators, wrote a piece crediting the 3T System with preventing contaminated products from reaching the market, and with ensuring consumer confidence in the alcohol industry. On the economic front, she also advised that since the craft beer market is “already crowded”, rolling back regulations and allowing new entrants might destabilize current businesses. It has saved lives and our economy. Thank
God the 3T System!
Because The Three Tier System, That’s Why!
When someone tells you, “You can’t buy beer to-go from a brewery because it threatens the integrity of the 3T System,” your BS detector should go off. How is the integrity of the 3T System important in its own right, on par with, say, defending the Alamo? Why is the need to protect the 3T System at any cost a foregone conclusion?
It isn’t, unless you’re a distributor. In fact, this is the argument that distributors in Texas have been making when being asked to explain why Texans shouldn’t be able to buy beer to-go from breweries. “The more carve outs you make for a system the weaker it becomes,” Tom Spilman of the Wholesale Beer Distributors of Texas offered as rationale for preventing breweries from being able to sell beer to-go in Texas.
Distributors are, understandably, so protective of the 3T System that the question of the system’s usefulness is rarely confronted directly. Hence, while states have offered various exceptions to the system (self-distribution within some limits, tap rooms where breweries can sell direct to consumers, etc.), none of them have eliminated the system outright. Because the 3T System commands such a religious devotion by an intolerant and powerful minority, advocating for its demise is at best unreasonable and at worst heresy. Suggesting that the 3T System needs to be “updated” or “modified” is much more diplomatic than suggesting that the 3T System is completely ineffective. But what if it is?
What if it’s all a lie?
What if the integrity of the 3T System were already compromised? What if it has costly unintended consequences and nothing to compensate us for them? What if it’s not doing what it was supposed to do? If so, that would mean that the argument of “Because we must protect the 3T System,” is no longer a means to undermine an otherwise good idea, like allowing breweries to sell beer to-go in Texas1.
My intention is to make the radical argument, although I’m far from the first to do so, that the 3T System is not only unworthy of unconditional devotion, but that it’s a broken and unfixable system that abandoned its usefulness and betrayed the public it set out to serve years ago. Not only does it fail to serve its purpose, but it has imposed harm to beer drinkers and taxpayers at large for the benefit of a protected elite. The 3T System is not a cure, but a disease. It’s not a “necessary evil”, but an unnecessary one.
In spite of my conviction in regard to its malice, my intention is not to advocate for the 3T System’s abolishment, per se. Instead, I merely wish to convince you, the reader, that its defense should not be a priority – that we should strive to accomplish good governance without regard to the integrity of the 3T System.
Speaking of governance, how might something so dysfunctional persist in a liberal democracy – why would we, a self-governing people, impose a harmful apparatus on ourselves? It is a textbook case of a special interest co-opting the legislative process at the expense of the general interest. This is done, mostly, through lobbying, which we’ll cover in more detail later. However, while bemoaning the evils of lobbying, we often overlook that lobbying cannot work by itself. Rather, it’s only effective when used in conjunction with a successful misinformation campaign. To pay a lawmaker to exert your will against the public is much easier when you’ve armed him with justifications, even bad ones. (The worse they are, the more money you pay!) Better yet, you can carefully disseminate these justifications to the public as a preliminary measure to prevent the public’s outrage from uncovering your scheme. Thus, if you, as a member of said public, do some Googling on why the 3T System exists, you’ll encounter several soothing stories manufactured by the distributors’ propaganda machine. Here are some of my favorites…
Spurious Three Tier Justifications
#1: Distributors are important! We provide a valuable service to brewers!2
Irrelevant. Whether distributors are important is something their customers can decide. In fact, the more important they are, the less necessary a 3T System would be to mandate their use.
#2: The 3T System is great for small brewers because it gives them the same access as large brewers.3
False. This argument never comes from small brewers. When someone tells you it’s good for you, and that person isn’t your mother, your priest, or your neighborhood brewer, it’s not good for you.
#3: The 3T System has been responsible for the craft beer revolution in the U.S.!4
False. This is the most insane argument I’ve encountered yet it persists in many forms. It goes something like: Look at the boom of craft beer in the U.S. – it happened here, in the only country with the 3T System, therefore the 3T System is (at least partially) responsible for craft beer! Most will recognize this as correlation implying causation – it’s equally valid to conclude that the craft beer revolution happened here because, say, we have baseball here. But it’s worse, because the correlation isn’t that strong: Consider that under the same 3T System, the U.S. experienced an incredible decline in the number of breweries operating, from 684 in 1940 to 92 in 1980. If the 3T System insists on taking credit for the craft beer boom, it must also take credit for this “Mega-beer boom” that happened on its watch.
It would be unfair for me to present these simplistic talking points as the only justifications of the 3T System. We’ve addressed them here for two reasons: (1) out of convenience, because they’re easy to debunk, and (2) to demonstrate how disingenuous the propaganda supporting this system can be. There are other justifications of the 3T System that seem more sophisticated and are often offered as genuine defenses rather than propaganda. However, given enough investigation, these too can be reduced to flawed excuses for protecting bad laws. We will address them in due course – in the next post, actually.
In the next post, we will describe how the 3T System is not doing what it was intended to do.
1My dog in the fight: I care about your liberty to buy beer to-go. Also, I own a brewery currently barred from selling beer to-go.
2″The three-tier system provides the infrastructure, capital and personnel small brewers need to reach a wide network of retailers. Distributors’ infrastructure includes state-of-the-art warehouses and fleets of temperature-controlled trucks and vehicles that preserve these perishable products.” National Beer Wholesalers Association (https://www.nbwa.org/about/what-beer-distributor)
3″State laws requiring distributors to be independent provide regional and small brewers the immediate ability to get their beer to retailers around the state, allowing brands to proliferate. A walk through a retailer’s beer aisle proves this point.” Tom Spillman, Wholesale Beer Distributors of Texas (https://www.dallasnews.com/opinion/commentary/2018/04/23/texas-craft-beer-thrives-good-regulation)
4″The existence of a strong, independent middle tier has helped facilitate the explosion of craft distilleries, wineries and breweries.” Tim Kent, NC Beer & Wine Wholesalers Association (https://www.charlotteobserver.com/opinion/op-ed/article208593599.html)