The Alcohol Distribution System
With passage of the 21st amendment in 1933 ending the 16-year-long Prohibition era, Illinois and other U.S. states needed a system to effectively regulate the alcohol market. Illinois, like most other states, chose a three-tier distribution system that requires alcohol products to be transported from manufacturer to licensed distributor to licensed retailer. This system continues to effectively serve Illinois’ alcohol market with a number of significant benefits: consumer choice, transparency and accountability, product integrity, and reduced access to minors. Other states are referred to as control states because they choose to operate as their own distributors or as the second tier in the system. Illinois’ alcohol distributors serve as the state’s partner in tax collections and retail law enforcement.
Consumer Choice - Wine and spirits distributors ensure that manufacturers and retailers don’t form exclusive ties, which would limit the variety of products available at liquor stores and other retailers. Illinois distributors stock thousands of different products and operate world-class distribution systems, enabling retailers to receive shipments within 24 hours of placing an order in many cases. With the three-tier distribution system, consumers can walk into nearly any liquor store or other retailer and find their preferred beverage either on the shelf or a phone call to the distributor away.
Transparency and Accountability - The three-tier system ensures that all deliveries and sales are tracked and recorded. Through this partnership with the state, Illinois alcohol distributors assure the excise police and revenue departments that every transaction involving alcohol in Illinois is appropriately taxed and only sold through licensed establishments. This also protects consumers against counterfeiting and tainted products.
Distributors also provide an efficient and accountable process for collecting the significant state taxes levied on alcohol products. They have the ability to monitor the sale of a product from the time it leaves the manufacturer to the time it arrives at the retailer, which makes distributors the best equipped for collecting state taxes. Like Illinois, most states find it much easier to collect taxes from a limited number of distributors rather than from the thousands of retail establishments selling alcohol or the thousands of alcohol manufacturers.
In addition, the three-tier system allows for proper regulation of Illinois’ alcohol laws. The system regulates retail sales, ensuring that retailers have obtained appropriate permits, are not able to purchase alcohol if they have open invoices that are 30 days or more delinquent, do not sell to those under the legal drinking age, pay state and local taxes, and generally comply with state and federal alcohol beverage laws.
Product Integrity - Because distributors maintain such a transparent and accountable process, the risk of product tampering is reduced and the ability for unsafe or substandard products to make their way into Illinois’ alcohol market is minimized.
Reduced Access to Minors - With the three-tier system in place, manufacturers cannot sell alcohol products directly to consumers. Rather, distributors ensure that products are delivered only to licensed retailers who are known to be in compliance with state laws. Only retailers who, to the distributors’ knowledge, check consumers for proper identification can sell alcohol to consumers.