Why does the world have Three-Tier systems for alcohol supply?

The United States of America has a Three-Tier alcohol distribution system, so that each commercial bottle of wine has a producer, a distributor and a retailer; and I cannot see why it is compulsory to have the distributor. Why can’t the producer sell directly to the retailer (or even the consumer), and thus save the consumer a lot of money? It seems to me that the distributor is not absolutely necessary, except to make money.

Now Sweden, where I live, also has a Three-tier system, but people in the USA usually describe it, disparagingly, as having a “government-owned retail monopoly”. Here, there is a freedom of choice for the producer and an importer / distributor, but not for the retailer — the latter is a national chain called Systembolaget, which is wholly owned by, and operated on behalf of, the Swedish government. However, the producer cannot sell directly to the retailer, any more than they can in the USA. So, the two systems are pretty much the same, in practice.

The US system is thus worth looking at here, from the perspective of its similarity to Sweden, and the European Union in general.

Now Sweden (and the rest of Scandinavia) and the USA actually created their Three-tier systems for effectively the same reason. Most of the US states (Three-tier system):

chose to become alcoholic beverage control jurisdictions after Prohibition. In these states, part or all of the distribution tier, and sometimes also the retailing tier, are operated by the state government itself (or by contractors operating under its authority) rather than by independent private entities.

By contrast, in Scandinavia the national governments took control of the retail Tier, on the claimed basis of public health with respect to the previous cultural tradition of binge drinking (Why are there wine monopolies in Scandinavia?). So, the influence of the Temperance world was at the root in both cases.

This does not mean that there is much wrong with wine availability in Sweden, almost all of which has to be imported (because of climate constraints), and where there is thus an importer by default. I have noted before that Sweden has a good wine selection (Wine monopolies, and the availability of wine), and that Systembolaget operates without profit motive, so that the wine is relatively cheap (Why is wine often cheaper in Sweden than elsewhere?).

Mind you, beer is freely available in the supermarkets, but not wine or spirits (Sweden is not actually restricted to a government alcohol retail monopoly). In the USA, by contrast, there are apparently 10 states that ban wine sales in supermarkets and 3 that ban beer (Maryland lawmakers clash over lifting ban on beer and wine sales in grocery stores).

It is also worth pointing out that, between countries within the European Union, receiving alcoholic drinks by mail or courier from online shops is perfectly legal (Eurosender). So, I can bypass Systembolaget when I want to, and I have occasionally done so. On the other hand, me sending alcohol as a private individual is another matter, which can depend on the circumstances.

Now, as I have hinted above, I cannot understand the US Three-Tier System for alcohol, as I cannot believe that Americans see this system as free trade. It clearly favours large retailers over smaller ones, as they get bulk discounts; and it also favours large wholesalers / distributors. The only exception to this, called Direct to Consumer, apparently accounts for less than 5% of sales by dollar, and almost all of these sales are for domestic wine (see also: DtC wine shipping in 2024: a year-in-review). [Note: Sweden is allowing farm sales of alcohol from June 1. Hurray!]

In the case of US wholesalers, there has been a major consolidation over recent decades. It has been noted (America’s incredible shrinking wholesale landscape):

The current wholesaler landscape is far different than it was 25 years ago. In 1995, at the beginning of the US wine boom, there were about 1,800 U.S. wineries and some 3,000 wholesalers. In 2023, there were almost 12,000 wineries and only about 1,000 wholesalers. That translates to staggering market share numbers, according to the annual Impact Databank report (which includes spirit sales, but doesn’t include beer): No. 1 Southern Glazer’s and No. 2 RNDC with a projected 53% of the market in 2024, and the top 10 companies with a projected 81.5%. That compares to some 72% for the top 10 in 2017.

This situation has all sorts of consequences. For example in politics (Follow the money: alcohol campaign contributions the last election cycle):

Wine, beer, and spirit wholesalers contributed over $17,000,000 to state-level candidates and causes in 2023 and 2024. This is more than double the entire rest of the alcohol industry combined. The explanation for why alcohol wholesalers contributed far and away more than the rest of the industry is explained by the fact that wholesalers, supported and protected by the three-tier system, have the most to lose through reform. The entire goal of wholesaler giving is to block any and all reforms to the three-tier system, and keep the alcohol flowing almost exclusively (and by legal mandate) through the wholesalers in each state.

There is also the problem of staff concentration (Giant US distributor sheds staff):

The news that Southern-Glazers (SGWS), the biggest wine distributor in the US, with a market share of over 50%, has laid off around 3,000 of its staff, including a large proportion of its fine wine and craft division, has sent shock waves through the US wine industry.

Clearly, consolidation can ultimately cause the actual market to shrink, as well, because of decreasing customer choice (Adapt or fade: the critical turning point for wholesalers).

Moving on to retail, non-Swedes sometimes rant about the fact that Sweden has a single government—mandated national alcohol retailer. But Swedes clearly get a better deal than the American system of two large wholesalers controlling nearly 50% of the alcohol market, because Systembolaget acts as both a large and a specialist retailer, simultaneously, since it does not act out of any form of profit motive (as described above).

In the US case, we would expect the wholesalers to rely, for volume sales, on a handful of big supermarket chains and a very few other big retailers. In particular, we would expect that the wholesalers would extend significant discounts to those gigantic chain retailers that buy large volumes of wines, beers and spirits. Indeed, the existence of this situation has recently been tackled by the US Federal Trade Commission, which is claiming in a lawsuit that this violates the Robinson Patman Act of 1936 (The Fed's lawsuit against wine wholesalers can’t fix the problem). With a legal outcome either way, it has been pointed out that You’re about to hear more about the evils of big alcohol, because alcohol harms are primarily a consequence of the alcohol industry pursuing profit.

We would also expect some sort of alignment between the biggest wholesalers and the biggest wine brands. In this case, it has been reported that the US wine market is clogged with thousands of brands that are proving hard to sell (US distributors awash with wine).

Finally, there is this business of on-line sales. Apparently, we need to understand Why Gen Z isn’t buying wine online. Clearly, these people are the future of US retailing, and the Three-tier distribution system is showing its limitations. The younger people apparently prefer strategic influencer partnerships and precision–targeted marketing (Investing in social influence: 44% of Millennials and 52% of Gen Z were influenced by social media when it came to wine purchasing). This may represent a paradigm shift, particularly with Gen Z and Millennials gravitating towards non-alcoholic drinks.

Finally, I cannot believe that US states still differ in whether Americans can buy from within other states than their own. [Note: Canada apparently has the same issue between some provinces.] As I noted above, I can buy from anywhere in the European Union, equally, which is between countries (the so-called Schengen zone). The European Union apparently is more united than the United States! So, it is good to see that just released was the: First-ever white paper on interstate wine retailer shipping.

As far as wholesale is concerned in the USA, Southern Glazer’s operates in only 45 states plus DC, while both RNDC and Breakthru Beverage operate in only 34 states plus DC (these are the top three companies by dollar). To a European this seems rather limited. Furthermore, there are still states that continue to block DtC shipping of wine (Where DtC wine shipping is still limited in 2025).

I should end by noting that the US is not necessarily alone in its behaviour. For example (Devil’s Advocate):

If you want to sell in the UK, there’s a limited number of importers, agents and wholesalers who rely, for volume sales, on a handful of big supermarket chains and a very few other big retailers.