It’s the law, thanks in part to something called the three-tier system. Here is a look at how it works…
Amazon delivers any gadget or gift a consumer could imagine. Hello Fresh sends its customers pre-packaged meals complete with ingredients and simple directions. And the United States Postal Service, UPS and FedEx have been shipping packages and parcels to private citizens for decades.
But when it comes to alcoholic beverages, forget about it, at least in Delaware. Whether First Staters are visiting a bourbon distillery outside Louisville or a winery in Napa, it’s illegal for them to purchase the booze on site and have it sitting on their doorsteps when they arrive back home.
So what gives? Well, it’s complicated, but there is a system in place that prevents this, while allowing consumers variety in their choice of alcoholic beverages and protecting them from imbibing products of lower quality. And despite several attempts at passing legislation allowing home delivery of wine in Delaware, the 80-year-old system has survived since the early days of post-Prohibition America.
When the 18th Amendment was mercifully repealed and the 21st Amendment triumphantly ratified in 1933, America’s 13-year dry nightmare was over. Prohibition had gone the way of the dodo, and bottles of booze were popped by celebrating drinkers from coast to coast. Ever since, Delaware’s liquor laws, while confusing, have protected the consumer in every phase of alcohol manufacturing, distribution and sales.
The Three-Tier System
Soon after the new law passed, the three-tier system was developed and adopted by Delaware (and many other states), creating a legal separation among manufacturers, wholesalers and retailers. It presented a structured way to track and tax alcohol from production to consumer and, surprisingly, stemmed from a 1933 report, “Toward Liquor Control,” commissioned by John D. Rockefeller, a staunch teetotaler.
Bob Wiest, deputy commissioner of the Delaware Office of Alcoholic Beverage Control Commission, says that during Prohibition, the temperance movement did its best to encourage American citizens to reduce their alcohol intake. Once Prohibition was repealed, the temperance movement weakened as mass production began in earnest, and the “tied house” law threatened the American way of capitalism in a free market.
“The tied house principal basically tied retail to the manufacturers, so all the large producers of beer at the time basically could tell the bottle shops and liquor stores what they could sell,” says Wiest. “Naturally, they told the stores to sell their products, in many cases exclusively, so the three-tier system was set in place to remove the notion of a tied house, and to allow the states themselves to regulate alcohol sales and distribution.”
Wiest says the three-tier system is purposely inefficient, slowing the process of getting alcoholic beverages from manufacturer to consumer and preventing an inundation of cheap booze. It was meant to help prevent the social ills that alcohol presented in the days before Prohibition, when there was one saloon for every 100 Americans, and beer and whiskey were cheap and plentiful.
For Delawareans, however, the system presents a bit of a double-edged sword. While it reduces their tax burden (distributors cover the excise taxes) and promotes a selection of ever-changing products for consumption, the fact remains that Delawareans still can’t get booze delivered to their front door. Industry folks who work under the system, however, say it protects consumers more than they might realize.
Vote Set for June 30
The issue of home delivery was again brought up last month at the 149th General Assembly of the House of Representatives in Dover. Submitted as House Amendment 1 to House Bill 165, the proposed legislation would essentially allow wine to be shipped directly from producer to consumer, thus eliminating two tiers in the current system. Although it was an amended version of the original legislation proposed in May of 2017, House Bill 165 is just one in a long line of proposals allowing home delivery. (The bill is currently listed as “out of committee” and was scheduled for a vote on June 30.)
“We’ve seen this come up before, and it’s continually gotten shot down, because the three-tier system works and is a big part of the state’s economy,” says Wiest. “It creates an orderly marketplace where the manufacturers are monitored for quality control, the distributors pay the excise taxes, and the retailers are free to sell what they want. All sides benefit, in particular the consumer.”
Ed Mulvihill, managing partner of Peco’s Liquors in North Wilmington, sees “immense benefits” in the system, especially at his level. As a retailer who must stand behind his products, Mulvihill finds that the system helps ensure that he’s selling a quality product that’s been tracked by those in the wholesale tier.
“It’s trendy to say the system is old and needs to be changed, but we’re old, too—we’ve been doing this since 1936, so sometimes being ‘old’ can be a good thing,” he says. “Our system is the best in the world, because if you look at other countries where things aren’t monitored, you never know what you’ll get out of a bottle.”
He cites several stories in the news over the past few years, including one about a factory in China that was caught canning fake Budweiser, reports of counterfeit Russian vodka throughout Europe and even phony Jameson Irish whiskey bottles bought and sold in Mexico.
“You see stories all the time in the news from all over the world, where people are buying what they think is a quality product, but getting swill instead, and in a lot of cases ending up sick,” says Mulvihill. “They don’t have a three-tier system in Europe or South America, so it’s hard to be sure you’re getting what you think you’re purchasing.”
When issues arise in the United States, the system is in place to take care of them. A few years ago, for instance, shards of glass were found in a shipment of Sam Adams Boston Lager. John Leyh, craft and specialty brand manager for NKS Distributors, in New Castle, says that because each shipment had a lot number that could be tracked, he and his team were able to do an instant recall.
Facilitating a Recall
“Because of the sophisticated reporting system,” says Leyh, “every bottle with the laser code N-35 on it had to be recalled. We were able to narrow it down to the warehouse and market and get [the product] off the shelves at Delaware stores. In total, about a thousand cases were destroyed. Without the three-tier system in place, that doesn’t happen, and who knows what the outcome could have been.”
From the manufacturer’s perspective, distributors like NKS (and other local distributors, including Standard, Breakthrough and Southern Wine & Spirits) act as the “boots on the ground” for breweries, wineries and distilleries both within and across state lines. Frank Rio, who serves as wholesale manager for Yards Brewery in Philadelphia, has only one rep employed by Yards in the state of Delaware. But NKS has about 40 reps who also sell Yards in the First State, on behalf of Yards.
“We’re only in four states, but for us to cover all three counties in Delaware, along with the areas we serve in all of Pennsylvania and parts of Maryland and New Jersey, is impossible,” says Rio. “The distributors act as our eyes and ears in the marketplace, helping us get into stores and on shelves.”
Rio understands that consumers are increasingly frustrated about home delivery. They see services like Amazon, Hello Fresh and GoPuff, which delivers snacks and beverages, and they want the same kind of service for their adult beverages. But he also points out that, with more and more craft breweries, wineries and distilleries popping up, there’s plenty to choose from locally.
“We’re canning our Signature IPA, Philly Pale ale and Brawler now, and people have been lining up for it,” says Rio. “And with so many other craft spots and taprooms opening regularly, you’re gonna see more and more of that. There is just so much to choose from right in our own backyard, that not being able get a specific beer from, say, California, delivered right to your door, won’t be that big a deal.”
Aside from consumer choice, the three-tier system helps contribute to the local economy as well. According to a 2017 study by the Center for Applied Business & Economic Research at the Alfred Lerner College of Business & Economics at the University of Delaware, the six largest distributors in Delaware employ 414 people, handle a payroll of more than $40 million, pay nearly $37.7 million in federal, state and local taxes, and are responsible for $208.7 million in total economic impact.
If House Bill 165 were to pass this summer, the act will only permit wine producers holding a valid license to ship wine directly to Delaware consumers so long as it is done through a common carrier with a carrier permit. Whether or not beer or spirits could be next is up for debate, but in the interim, the three-tier system will continue protecting consumers as it has done for the past 85 years.