Three Tier System

WBDT Issues

Three Tier System

Posted on: Friday, February 25, 2000 at 15:20:02 (CST)

In 1992, the Texas Sunset Commission staff prepared a background evaluation for the members of the Sunset Commission who were reviewing the Texas Alcoholic Beverage Commission. That Staff Evaluation contained the following background report on the Three-Tier System:

Three-Tiered System

The alcoholic beverage industry in Texas and throughout the United States consists of three distinct levels: manufacturing, wholesale or distribution, and retailers. Provisions in the Texas Alcoholic Beverage Code are designed to prevent “tied house” relationships from developing between the different levels. A tied house relationship, which was legal in the United States before prohibition, is a condition where a manufacturer has overlapping ownership, influence and control of the wholesale and retail levels of the alcoholic beverage industry. In these cases, a manufacturer can require retailers to sell only that manufacturer’s brands and products, to the exclusion of other manufacturer’s brands and products. Tied house relationships allow a manufacturer to dominate one segment of the marketplace thereby eliminating competition between companies. Tied house relationships can result in fewer brands and products being available in the marketplace and higher prices for the consumer. Tied houses currently exist in England where the brewery owns the retail outlets and requires these outlets to sell the brewery’s brands to the exclusion of others, at prices set by the brewery. As an extension of the tied house prohibitions, provisions of the Alcoholic Beverage Code and the TABC rules are designed to ensure that no level of the industry, specifically the manufacturer, wholesaler or distributor, exerts undue influence on another level, primarily the retailer. For example, no “services” may be provided to the retailer from the wholesaler which would induce the retailer to purchase a particular brand of liquor or beer over those provided by another wholesaler who does not offer such services. By maintaining a distinct three level system, the Alcoholic Beverage Code prevents any intra-industry relationships that could result in undesirable trade practices such as restrictions on trade.

(Excerpts from Page 11, Sunset Advisory Committee Staff Evaluation on the
Texas Alcoholic Beverage Commission, April 1992)

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