Navigating the 3-Tier System
The United States alcohol distribution system is traditionally a 3-tier system. The first tier is the producers or importers of foreign products. The second tier consists of distributors and wholesalers, and the third tier is retail. In ecommerce, alcohol is sold directly to consumers, sometimes eliminating or replacing that second tier—but not always.
Michael Weiss, CEO and founder of Spirit Hub, is committed to connecting consumers to independent distilleries without going against the laws of the 3-tier distribution system. The business built its model in 2015, but spent 2016—before officially launching the company—lobbying to determine how their business could operate within the 3-tier system.
“Before we even got to lobbying, we had to look at ‘What is the 3-tier distribution system and how does it operate and how does it differ by state and market?’” says Weiss.
He believes the existence of the 3-tier system makes sense, but acknowledges that it can be confusing. “It’s something that becomes difficult for people with limited resources to tackle,” he says. “That difficulty creates barriers for people with small businesses to expand. Producers have to work with distributors, and if distributors don’t want to pick them up, it becomes impossible for them to grow.”
With a desire to help small producers and the commitment to do work through the 3-tier system, Spirit Hub launched in Illinois with the ability to ship spirits only within the state. Working through the established distribution system, it buys spirits from small independent, craft distilleries throughout the country. Spirit Hub works with the producers, taking them through licensing and onboarding them to the Spirit Hub system.
The company then develops its own content, writing bios and interviews with producers as well as creating education pieces. It also creates descriptions of each product, which helps consumers make educated decisions on the products they’re buying.
“We want to make sure we’re doing this in the right way,” says Weiss, “so our customers can comfortably make a purchase.”
Spirit Hub has plans to come to Florida, Michigan, and Massachusetts in 2020, working within each state’s unique laws and bringing independent, craft spirits that would otherwise be unavailable to consumers in those states. “Companies like mine are at the forefront of the ecommerce world,” says Weiss. “We’re the kind of company the industry needs.”
Working within the 3-tier system may be necessary for ecommerce platforms that want to sell spirits, but as Spirit Hub is proving, it can be done.
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