One primary purpose of the three-tiered system of beer and wine regulation is to keep the financial interest amongst manufacturers, distributors, and retailers separate and independent. Though Idaho currently has no “brewery owned branches,” there is ambiguity in the law as to whether a brewery can own a distributorship. An overwhelming majority of states have a branch-ban. Keeping distribution chains financially independent from large suppliers helps ensure a healthy market place for products and prices. It helps keep Idaho decisions about alcohol local, and protects our Idaho distributors and thousands of Idaho jobs.
The Three Tier System
Idaho Cash Law Statute
Prevents unfair marketing practices.
Ensures fair competition.
Assures funds are available to meet state tax obligations.
Eases the enforcement burden at both the state and federal level.
Allows for accurate and expedient transactions.
Eliminates the incentive to promote the abuse of alcoholic beverages.
23-1031. EXTENSION OF CREDIT. (1) No sale or delivery of beer shall be made to any licensed retailer, except for cash paid at the time of or prior to delivery thereof, or except as provided by electronic funds transfer in accordance with subsection (3) of this section, and in no event shall any brewer, wholesaler or dealer licensed in the state and engaged in the sale of beer for resale extend any credit on account of such beer to a licensed retailer, nor shall any licensed retailer accept or receive delivery of such beer except when payment therefor is made in cash at the time of or prior to delivery thereof, or by electronic funds transfer in accordance with subsection (3) of this section.
(2) The acceptance of a first party check from a licensed retailer by a brewer, wholesaler or dealer licensed in the state and engaged in the sale of beer for resale, or the use of a debit card by a licensed retailer, shall not be deemed an extension or acceptance of credit pursuant to this section.
(3) The acceptance and use of an electronic funds transfer shall not be deemed an extension or acceptance of credit pursuant to this section, provided such transfer is initiated and completed as promptly as is reasonably practical, and in no event completed later than five (5) business days following delivery of such beer. Any attempt by a licensed retailer to delay payment of an electronic funds transfer pursuant to this section for any period of time beyond the time set forth in this subsection, shall be deemed an acceptance of credit by the licensed retailer.
(4) Any extension or acceptance of credit in violation hereof shall constitute the giving and receiving of aid or assistance to or by a licensed retailer prohibited by the provisions of section 23-1033
The 21st Amendment to the Constitution repealed Prohibition and gave each state, individually, broad authority to regulate alcohol sales within their borders. Most states (including Idaho) established a three-tier structure: manufacturers (brewers/wineries), wholesalers/distributors and retailers. States included restrictions on wholesaler pricing practices intended to strengthen the three-tier system, reduce the amount of low-price alcohol products in society, and combat corruption and crime in the alcohol market.
Research suggests that the specific wholesaler pricing restrictions stabilize the price of alcohol to consumers and help prevent society’s access to cheap alcohol. Research also shows that underage consumption and problems are strongly influenced by alcohol prices. One study has suggested that restrictions on certain wholesale pricing practices may have a stronger effect on alcohol pricing than do alcohol taxes.
Types of Wholesaler Pricing Policies
In general, wholesaler pricing regulations include: restrictions on volume discounts, restrictions on discounting practices, price posting requirements and restrictions on the ability of wholesalers to provide credit extensions to retailers.
Volume Discounting Restrictions
Large retailers often have an advantage over smaller retailers due to the large volumes they are able to purchase at once. This purchasing power allows them to negotiate lower prices on most commodities and therefore offer items at lower prices to consumers. Many states (including Idaho) have imposed restrictions on the ability of wholesalers to provide volume discounts. The same price must be charged for products regardless of the amount purchased by individual retailers. The primary purpose of these laws is to protect small retailers from predatory marketing practices of large volume competitors and to prevent corruption. They have a secondary effect of increasing retail prices generally by making retail price discounting more difficult.
Credit Extension Restrictions
Many states, including Idaho, restrict alcoholic beverage wholesalers’ ability to provide credit to retailers, by banning loans and limiting the period of time required for retailers to pay invoices – sometimes called the “cash law.” The primary purpose of the restrictions is to limit the influence of suppliers and wholesalers on retailer practices. When a retailer is relying on a wholesaler’s credit, the retailer is more likely to promote the wholesaler’s products and to agree to the wholesaler’s demands regarding product placement and pricing. The restrictions have a secondary effect of limiting the retailer’s ability to operate on credit, indirectly stabilizing retail prices.