Tied House Laws
Tied-house laws prohibit any one tier from owning an interest in another. A consequence of these laws is that distributors and retailers are local entities deeply rooted in their host communities. Locally-based sellers of alcohol are more likely to be responsive to community norms and standards and more responsible with regard to their sales and promotion practices than absentee sellers.
“The ‘tied house’ system had all of the vices of absentee ownership. The manufacturer knew nothing and cared nothing about the community. All he wanted was increased sales. He saw none of the abuses, and as a non-resident he was beyond local social influence. The ‘tied house’ system also involved a multiplicity of outlets, because each manufacturer had to have a sales agency in a given locality. In this respect the system was not unlike that used now in the sale of gasoline, and with the same result: a large excess of sales outlets. Whether or not this is of concern to the public in the case of gasoline, in relation to the liquor problem it is a matter of crucial importance because of its effects in stimulating competition in the retail sale of alcoholic beverages.”
– Fosdick and Scott, Toward Liquor Control at 43 (Hansen & Bros. Publishers 1st Ed. 1933).
Three-tier and tied-house laws are more needed today than at any time in recent history. The threat of vertical integration is greater today than at any time since prohibition. Two foreign-owned companies now control over 85% of the American beer market. One company, ABI, has expressed its intent to dramatically increase their branch volume from the current 7% to 25% or even 50% of its volume. It has recently purchased very large distributorships in metro markets. The other company, MillerCoors, has expressed its intent to significantly consolidate its distribution network and have, in fact, taken significant steps in achieving that goal.
The Three-Tier System and Tied-House laws have worked remarkably well for over 75 years. As recently noted by the United States Supreme Court, “the three-tier system itself is unquestionably legitimate.” Granholm v. Heald, 544 U.S. 460, 488-89 (2005). It is impossible to have an effective three-tier system and tied-house prohibitions without separating the industry into three tiers and without safeguarding the independence of the middle tier. Beer Franchise Laws support three-tier and tied-house laws by safeguarding the independence and relative bargaining power of distributors vis-à-vis suppliers, thereby ensuring that distributors may fulfill their public policy functions of serving as a buffer between suppliers and retailers, preventing vertical integration of the industry, and ensuring local control and accountability of alcohol distribution channels.