The Three Tier System

What Is The Three-Tier System?

Since the repeal of prohibition, alcoholic beverages in Illinois have been controlled by a three-tier, state-based regulatory system, which provides “check and balances” in the way that alcohol is distributed and sold. 

Why Is IT Worth Protecting?

Each tier has separate ownership and operates independently, which helps to keep manufacturers, distributors and retailers distinct and independent from one another. The three-tier system makes sure that alcohol is not sold to minors, or delivered through improper or unlawful channels. 

The three-tier system also protects the economy because licensed distributors act in cooperation with federal and state governments to help ensure that alcoholic beverages are reliably collected, allowing large and small retailers alike can profit and thrive. 

The Present Regulatory System

At the turn of the 20th century, the beer industry was booming. Local brewers often had ownership ties to the taverns - selling to them on extended credit terms, furnishing them with equipment and supplies, charging low or no interest, and paying rebates for pushing their brand or carrying it exclusively. This relationship became known as "tied-houses." Competition for control of the retail outlets was fierce and tremendous pressure was exerted on retailers to maximize sales without regard to the well being of customers or the general public. These abusive practices led to a campaign for laws prohibiting all drinking. In 1919, the 18th Amendment to the United States Constitution was passed beginning a 14-year dry spell known as Prohibition.

In 1933, the 21st Amendment to the United States Constitution repealed Prohibition and also gave states the authority to regulate the production, importation, distribution, sale and consumption of alcohol beverages within their own borders. A new regulatory system known as the Three-Tier System was created. This system was established to eliminate tied-house abuses. "Tied-houses" would no longer exist - instead beer would be sold through independent distributors.

This system has four primary goals:

• To avoid the overly aggressive marketing and sales practices of the pre-Prohibition era;

• To generate tax revenues that can be collected efficiently from the beer distribution industry;

• To facilitate state and local control of alcoholic beverages; and

• To encourage moderate consumption.

The three-tier system allows the state to control alcoholic beverages through licensing. Without the three-tier system, increased government regulation and enforcements efforts would be needed resulting in increased costs.