UNDERSTANDING OUR INDUSTRY (PART 2 OF 3)

Company Proprietary and Confidential Information

THREE-TIER SYSTEM, PROFESSIONAL INDUSTRY

ORGANIZATIONS & ALCOHOL TRADE PRACTICES

UNDERSTANDING OUR INDUSTRY (PART 2 OF 3)

June 2021

Company Proprietary and Confidential Information 2

MODULE CONTENT

This material is part of RNDC University. RNDC-U provides a

structured and blended learning experience for RNDC Associates.

Our learning programs are based on a progressive training concept

anchored to the RNDC Leadership Competency Models. This

learning curriculum is for new supervisors, managers, and middle-

management roles.

© 2021 Republic National Distributing Company

Version 2

All rights reserved. This material or any portion thereof may not be

reproduced or used in any manner whatsoever without the express

written permission of the copyright holder except for the use of brief

quotations in a business review.

www.rndc-usa.com

Understanding our Industry (Part 2 of 3)

Our Talent Philosophy

Three-Tier System, Professional Industry Organizations & Alcohol Trade Practices

http://www.rndc-usa.com/


RNDC TALENT PHILOSOPHY

Our Talent Philosophy drives the RNDC Associate Success Roadmap which provides guidance on how to successfully

manage your career and workplace experience. We encourage our Associates to perform at their personal best so they

can achieve an enriching and progressive career at RNDC.

We believe every Associate is a role

model of our Core Values and

Leadership Competencies which

define how we behave as the

beverage alcohol industry leader.

Successful job performance and

leadership potential provide clear

distinction for our financial

investment on an Associate’s career

development and total

compensation.

Associates are rewarded for taking

accountability to continually grow

and learn. Conversely, a leader’s

proven ability to build a bench of

strong talent drives our success as

the Distributor of Choice.

Our talent philosophy is transparent so

that our Associates strive for career

success. As a result, the differentiation

that RNDC provides is a rewarding and

engaging career experience for our

Associates.

We are providing you this specialized learning experience to ensure you perform

at “your personal best”. Understanding our human capital practices will

enable you to build a strong and sustainable bench of talented and engaged Associates.


ABOUT OUR INDUSTRY

A Message from Bob Hendrickson, Chief Operating Officer & Executive Vice President

Speakeasy. Al Capone. Prohibition. What do these three have in common? They are all part of the beverage alcohol

industry’s colorful history.

Here at RNDC we feel it’s important you understand where we came from. The Industry Immersion Training courses will

provide you a new perspective on how the three-tier system came about and all the politics that got us here. It’s a

history full of drama, fighting, mobs and finally, true law and order. The beverage alcohol industry’s history is America’s

history. We made our mark on the Constitution—twice—and now help keep the industry respectable.

I hope you do more than check off the box in this training. Take the time to understand why our laws vary from state to

state and why the three-tier system is so important. We provide something of value to Americans and I hope this

training helps you feel a sense of pride for what we do.

Thank you for doing your part to learn more about where we came from.


INDUSTRY IMMERSION EDUCATION (Part 2 of 3)

Industry History & Company History (Part 1 of 3)

• Prohibition and Constitutional Amendments

• Prohibition

• Temperance Movement

• Organized Crime

• 18th Amendment

• 21st Amendment

• Our Company History

• The Story of RNDC

• Federal Alcohol Administration Act

• Further Reading/Other Resources

Three-Tier System, Professional Industry Organizations & Alcohol

Trade Practices (Part 2 of 3)

• The Three-Tier System

• Overview of the Three-Tier System

• Threats to the Three-Tier System

• Understanding what Control States are

• Alcohol Beverage Commission (ABC) or similar state control boards

• Professional Industry Organizations

• National Alcohol Beverage Control Association (NABCA)

• National Conference of State Liquor Administrators (NCSLA)

• Wine and Spirits Wholesalers of America (WSWA)

• Alcohol Trade Practices

• State Laws and Regulations

• Further Reading/Other Resources

The Distributor (Part 3 of 3)

• Second Tier – The Distributor

• Second Tier – The Distributor

• Know the Competition

• RNDC Top Suppliers - Spirits

• RNDC Top Suppliers – Wine

• Industry Terms

• RNDC Terms


THE THREE-TIER SYSTEM

6


After Prohibition was repealed, this allowed

states to regulate alcohol within their

borders which established the Three-Tier

System. This system mandated complete

separation of:

1. Alcohol Production

2. Wholesalers/Distributors

3. Retail

Within the three-tier system, no entity may

occupy more than one tier.

• For example, a brewery cannot own a

bar, and a distillery isn’t allowed to sell

directly to a liquor store.

7

OVERVIEW OF THE THREE-TIER SYSTEM

ProducersTIER 1

Thousands of distilleries, breweries and wineries

around the world produce

alcohol beverages, but they still need to reach local retailers and American

consumers. Enter wholesalers.

WholesalersTIER 2

American distributors are experts in logistics and brand-building,

representing tens of thousands of

brands from around the world. They work with retailers to bring a tailored set of products that serve each community and satisfy the

needs of all consumers.

RetailersTIER 3

Retailers sell wine and spirits to American consumers.

These outlets are classified

into two categories: on-premise (bars, restaurants, and hotels) or off-premise establishments (grocery, liquor, and convenience

stores).

• The federal government regulates licenses for producers, importers, distributors and wholesalers. However, it is the

states responsibilities to license retailers.

• States also decide exactly how they want to regulate distribution:

o Most impose additional licensing on distributors and wholesalers

o Local taxation and sales of alcohol – for example, restricting sales on Sundays or banning happy hour discounts


THREATS TO THE THREE-TIER SYSTEM

• Deregulating the alcohol industry is seen as a way to increase state revenue

and replace what is considered to be an out-of-date system.

o A deregulated industry would remove marketing restrictions and can

lead to the dominance of certain companies in a geographic area,

eliminating the consumer choice.

o There is also potential for tainted alcohol to get into the distribution

stream as the checks and balances of the system would be removed.

• Direct-to-consumer (DTC) sales and online wine retailers are two additional

hot topics currently threatening the foundations of the three-tier system.

o In most states, it is now legal for consumers to buy wine directly from

wineries, provided that the purchase doesn’t breach interstate shipping

laws.

o Online retailers, on the other hand, do not enjoy the same freedoms as

wineries when it comes to shipping wine across state lines.


UNDERSTANDING WHAT CONTROL STATES ARE

Alcohol beverage control states (aka control states) are

comprised of 17 states and jurisdictions in the United States.

• They control the sale of distilled spirits and, in some

cases, wine and beer through government agencies at

the wholesale level.

• Instead of a single marketplace, the United States

functions as 50 different markets.

• Producers (distilleries, breweries & wineries) have to

work with each state on an individual basis in order to

sell their product with takes a lot of time and money.

o For smaller producers or those with limited

amounts of product, it’s often not worth it to go

through the process in every single state,

especially in states where the system is onerous, or

product demand is not promising.

Due to the separation of tiers, most states don’t allow

producers in-state or out-of-state to sell and ship you a bottle.

And because each state has its own system, few allow out-of-

state retailers to ship spirits across state lines.

To learn more about the RNDC control states refer to the NABCA website for control state directory and

information.

There are downloadable PDF Information Sheets available.

https://www.nabca.org/control-state-directory-and-info


ALCOHOL BEVERAGE COMMISSION (ABC) OR SIMILAR STATE CONTROL BOARDS

Every state has an Alcohol Beverage Commission (ABC) or similar control board that provides

alcohol and drinking laws and regulations for the state.

At the national level, alcohol is regulated by the Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau (TTB). The mission of the TTB is to collect Federal excise taxes on alcohol, tobacco, firearms, and ammunition and to ensure compliance with Federal tobacco permitting and alcohol permitting, labeling, and marketing requirements to protect consumers.

Learn more about the government agencies in your home state from the US Treasury, Alcohol, Tobacco, Tax and Trade Bureau.

https://www.ttb.gov/wine/alcohol-beverage-control-boards#US


PROFESSIONAL INDUSTRY ORGANIZATIONS

11


NATIONAL ALCOHOL BEVERAGE CONTROL ASSOCIATION

About: Founded in 1938, NABCA is the national association representing the Control

State Systems - those jurisdictions that directly control the distribution and sale of

beverage alcohol within their borders. Headquartered in the Washington, D.C.

area, NABCA serves its members by providing research, analytics and alcohol

regulatory information, and acts as liaison to federal, state and local governments,

research groups, public health associations, the media and other organizations

impacting alcohol policy.

Mission Statement: To support member jurisdictions in their efforts to protect public

health and safety and ensure responsible and efficient systems for beverage

alcohol distribution and sales.

Resources: Provide resources and research on regulatory, operational, policy and

public health issues to member jurisdictions and other organizations.


NATIONAL CONFERENCE OF STATE LIQUOR ADMINISTRATORS

About: The purposes of the Association shall be to promote the enactment of the most

effective and equitable types of state alcoholic beverage control laws; to devise and

promote the use of the methods which provide the best enforcement of the particular

alcoholic beverage control laws in each state; to work for the adoption of uniform

laws insofar as they may be practicable; to promote harmony with the federal

government in its administration of the Federal Alcohol Administration Act; and to

strive for harmony in the administration of the alcoholic beverage control laws among

the several states.

Mission Statement: To further effective beverage alcohol policy and regulation by

educating its members about beverage alcohol policies and regulation within our

communities, states and nation. Further, the NCSLA provides a forum for its members

to openly communicate and learn about the creation and maintenance of successful

systems of beverage alcohol regulation in service of the public interest.


WINE AND SPIRITS WHOLESALERS OF AMERICA

About: As the only national membership organization of wine and spirits distributors, WSWA

advocates on federal, state, regulatory, and legal issues impacting distributors and the

beverage alcohol industry. Focuses include taxation of family-owned businesses, state-

based alcohol regulation, social responsibility and impaired driving prevention.

Mission: WSWA is dedicated to advancing the interests and independence of wine and

spirits distributors to support a robust industry. WSWA's advocacy has generated millions of

dollars in annual savings to wine and spirits wholesalers. Without WSWA's strong Washington

presence, wholesalers would be strapped with burdensome regulations and increased

costs, hampering their ability to compete. The collective clout of WSWA and its members

enables the wholesale tier to speak with one strong, unified voice. Your involvement makes

this voice stronger.

Leadership & Staff: The WSWA Executive Committee is comprised of ten-member leaders

representing family-owned wholesalers operating in markets across the nation.


ALCOHOL TRADE PRACTICES

15


TRADE PRACTICES OVERVIEW

Commercial Bribery: It is unlawful for an industry member to induce any “trade buyer” (wholesaler/retailer) to purchase alcohol from the industry member to the exclusion of those

sold by others by commercial bribery; or offering or giving any bonus, premium or compensation to employees, officers, or

representatives of trade buyer.

Consignment Sales: Unlawful to sell, offer to sell, or contract to sell alcoholic beverages to trade buyer (or for trade buyer to purchase or offer/contract to purchase): on consignment, or under conditional sale, or with the privilege of return, or on any basis other than a bona

fide sale, or where any part of the transaction involves the acquisition of other wine, distilled spirits, or malt beverages from the trade buyer

Tied House: it is unlawful for an industry member to induce, directly or indirectly, a

retailer to purchase alcohol beverages from the industry member to the exclusion of

alcoholic beverages offered for sale by other persons.

Exclusive Outlet: It is unlawful for an industry member to directly or indirectly require a retailer, “by agreement or otherwise” to

purchase alcohol from that industry member to the exclusion of alcohol sold or offered for

sale in interstate or foreign commerce by others.

There are four trade practices that are

PROHIBITED for producers, wholesalers

and importers

Purpose of Trade Practices:

1. Prevent wholesaler,

importer and producer

control over retailer

(and accompanying

corruption and

overconsumption)

2. Help keep the playing

field level among

industry members


STATE LAWS AND REGULATIONS

National Alcohol Beverage Control Association (NABCA) and the National

Conference of State Liquor Administrators (NCSLA) include the important

issues of Alcohol Trade Practice Laws, Regulations, Violations, and

Enforcement as part of their many national and regional meetings.

• NABCA has for several years captured information concerning these

regulations and laws in their Survey Book.

• The information needs to be expanded to provide further assistance to

regulators and the alcohol industry in assuring they have as complete and

timely information as possible on these regulations and laws.

• NABCA hopes to implement a new and expanded survey on Trade

Practice Regulation and Law with the hopes of gaining responses from as

many of the state alcohol regulatory agencies as possible.

To review the Trade Practices Survey, see the Further Reading/Other Resources slide for a link to the survey


FURTHER READING/OTHER RESOURCES

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• Read the article titled, The Three-Tier System: A Modern View.

• Watch this video related to the industry with a perspective from thebeer industry…Three-Tier System Education Video.

• Be informed about challenges to the three-tier system. Read this Forbes

2020 article…The 3-Tier U.S. Alcohol Distribution System Faces NewThreats.

• Learn more about the industry threats and read these opinions: The

Great Debate: The Three-Tier System Is Fundamentally Broken.

• Review the industry organizations to better understand their role and

purpose in the industry.

o National Alcohol Beverage Control Association (NABCA)

o National Conference of State Liquor Administrators (NCSLA)

o Wine and Spirits Wholesalers of America (WSWA)

• To gain a better understanding of the laws and regulations in the

state(s) that you support, click here to reference the Alcohol Trade

Practice of State Laws and Regulation.

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FURTHER READING/OTHER RESOURCES

https://www.nabca.org/three-tier-system-modern-view-0

https://www.nbwa.org/news/three-tier-system-education-video

https://www.forbes.com/sites/thomaspellechia/2020/04/23/the-3-tier-us-alcohol-distribution-system-faces-new-threats/#61f80eb629b2

https://growlermag.com/the-great-debate-the-three-tier-system-is-fundamentally-broken/

https://www.nabca.org/about-us

https://www.ncsla.org/

https://www.wswa.org/

https://www.nabca.org/assets/Docs/TradePractices_2017.pdf


ADDITIONAL TRAINING TO COME

Documents

UNDERSTANDING OUR INDUSTRY (PART 2 OF 3)