Next time you’re at the grocery store, take a minute to study the options. How many brands of pickles? Of mobile devices? Of soda pop?

Then, walk down the beer aisle. National beers, local beers, imports, regional beers. Beers enjoyed by your grandfather, your mother and your brother. Beers you’ve never tried and some you’ve never heard of and many you’ll probably never try. In fact, Iowa consumers could drink a different beer brand every day for three years before they’d have to try a repeat.

This selection is brought to you by Iowa’s brand of alcohol market regulation, primarily known as the three-tier distribution system. It’s a complex, yet thoughtful, set of laws and rules that govern the way alcohol travels from manufacturer to consumers. The system provides protection for each tier – manufacturers, distributors, and retailers– from undue influence by any other tier. It has roots in prohibition repeal, but has evolved as consumers have demanded more options and producers and retailers have demanded more flexibility in the sale and distribution of their products.

The 21st Amendment gives states the power to regulate alcohol and most states accomplished this using a state-based, independent three-tier system to separate the industry’s segments and avoid the pitfalls of unchecked power in the alcohol market, which largely led to the Prohibition movement.

Without the three-tier system of checks and balances, there would be about as much selection as you see when ordering a soft drink in a restaurant. Producers could limit competition by using tied-house clauses, ensuring only one brewer’s product could be sold in-house. Retailers could institute pay-to-play clauses, where the brewer with the deepest pockets could buy all the shelf space or tap lines.

That’s not a free market. That’s survival of the fittest.

But the independent three-tier system protects consumer choice and it protects Iowa brewers and Iowa retailers. It also protects beer distributors, who are free to carry brands of their choice. The nature of beer distribution also requires the industry to stay local. Beer distributor warehouses must be located in the state and most of Iowa’s beer distribution system is owned by Iowans and employs Iowans – in fact 1,600 of them commanding collective wages of nearly $100 million.

The three-tier system allows the smallest brewers have access to the biggest retailers. Distributors must offer products and services (like tap line cleaning) with uniformity and are prohibited from taking action that would compromise independence of the other tiers. With this system, consumers have more choice in beer than in any other product.

Some critics say the system hasn’t evolved and hasn’t kept up with the times, which is an unfair attack. Three-tier caveats and exceptions exist to allow small manufacturers to grow their businesses. Brewpubs operate as a brewery and as a retailer. Native breweries and wineries operate as distributors. Distillers can sell at retail – all exceptions to the independent three-tier system that have allowed Iowa beer, wine and spirits to mature into a fabulous compliment to Iowa’s healthy alcohol market. There was a time in the not-so-distant past where there was a single Iowa brewery. Now? More than 60. The three-tier system doesn’t stifle innovation. It promotes innovation.

But to preserve market access for all manufacturers and the Iowa distribution industry, the foundation of the system must not devolve into a block of Swiss cheese, rife with exceptions that undermine safeguards for Iowans and Iowa businesses provided by three-tier system.

Cheers to Three Tiers!
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Cheers to Three Tiers!
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