Explaining Kentucky’s Three Tier Alcohol System

Explaining Kentucky’s Three Tier Alcohol System

Happy New Year Friends!

This month I am letting you in on a not-so-known secret.

On December 5th, 1933, Kentucky’s liquor laws were written to make it pretty hard to buy any alcohol. The end of Prohibition meant that every state had to develop their own rules on selling liquor, and Kentucky’s are pretty unique.

Let me break it down to each level and how that affects you & I buying bourbon!

The Three Tier System

Tier 1 Suppliers / Producers

This tier includes anyone who makes the alcohol. They include Beam Inc, Brown-Forman, and any other liquor company you’re familiar with.

Tier 2 – Distributors / Wholesalers

This is where the laws written at end of prohibition take over. Legislators ruled that distributors must receive alcohol from the supplier and deliver it to your local liquor store, effectively making them a middle man. In most states, the distributor is a privately owned company separate from the producer or supplier, (one of the biggest distributors in Kentucky is Southern Wine & Spirits) but in some states the actual state itself buys the alcohol.

Tier 3 – Retailers

This includes anywhere you can buy liquor, from your corner store to the big name liquor stores.

Why does this matter?

This system prevents producers from selling directly to retailers which means a producer and/or the retailer can not play favorites, preventing the large producers from buying up liquor stores or bars to only sell their brands. The distributor must act like a independent unbiased middle man. The purpose of this system was to promote fair market practices, for the most part it has worked!

Now what if you try to find your favorite bourbon in another state but that local store doesn’t have it?  This is because of the biggest downside of the system, producers large or small have to make deals with a distributor in each state! If you are not one of those large producers previously mentioned it is very hard to get your brand to all 50 states. That makes it difficult to find your favorite small brand bottle in a faraway place.

How does this affect the way we buy bourbon? At each of these levels the bourbon is taxed. Before the bottle even hits the shelves, it has been taxed for every year in the barrel by the local and state government! After that the distributors are taxed by the state, then as the final sales tax that we pay with each drink at a bar or bottle from Kroger. Last year that was $825 million in taxes per the Kentucky Distillers Association. All in all nearly 60 percent of every bottle of liquor in Kentucky goes to taxes or fees, with seven different taxes on Bourbon – including a tax on barrels each and one for every year it ages.


So next time you go in to buy your bourbon of choice, that bottle went through a lot more than just the normal aging process! If you want to learn more about the three tier system or liquor laws in Kentucky, check out this site!  Cheers!

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