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Disrupting the three-tier distribution system: new routes to the USA market

Market Bulletin | Issue 135
Photo: Adobe Stock
27 Nov 2018
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In June 2017, Issue 63 of the Market Bulletin summarised how to Navigate the USA distribution system. The three-tier system in the United States of America (USA) is a hold-over from the days of Prohibition. It ensures that the sale of alcohol is highly regulated and controlled.

Over the past several years, barriers in the traditional route to market have increased  for small producers through consolidation at the distributor level (tier two) as large companies merge and then rationalise their offerings, as illustrated by Figure 1. According to the Wines & Vines ‘Distributor Market 2018’ report, today there are 9700 USA wineries (excluding imported wines) that are fighting for space with 1200 wine distributors. The top 3 companies account for nearly half of the USA wine market value (US$30 billion of US$62 billion in 2017).[i]

Figure 1: Consolidation of USA distributors

New solutions are emerging in-market

With the help of technology, more creative ways to reach the American consumer have been developing over the past decade. USA online alcohol sales topped US$1.7 billion in 2017, according to Rabobank’s ‘The Times They Are E-Changin’ report. Online routes to market are growing each year, but brands will need to decide which channel will best suit their brand.


Direct-to-consumer (DtC) sales in the USA grew by 15.5 per cent to US$2.69 billion in 2017, according to the annual Direct to Consumer Wine Shipping Report. This number is expected to top $3 billion in 2018. Forty-five states currently allow direct shipments of wine, but it must be emphasised that those currently benefitting from this channel are mainly America’s domestic wine producers. While it is difficult for imported wines to gain part of this market share due to legal restrictions, there are companies that assist in bringing your wines straight to consumers, domestic and imported wines alike.

In California, there is a licence combination that has been created as an exception to the three-tier system, which allows a business to import and sell wine to wholesalers and retailers. This licence also allows sales of wine DtC, without a requirement to have a physical store. A company can thus be granted a Type 9 (beer and wine importer) licence, a Type 17 (beer and wine wholesaler licence), and a limited Type 20 (allowing internet-only sales of wine DtC).

The Types 9/17/20 licences allow access to 14 states (see footnote)[ii]. Other than California, these do not include many significant Australian wine markets (but bear in mind that it California has a population of 39 million people).


While DtC is growing and is a good avenue to explore, it does limit brands from reaching restaurant wine lists and retail shelves. Direct to trade (DtT), which is surging in popularity, provides an option to bypass the more traditional distributors. These online companies will act as your intermediary, providing a new generation of ‘distributors’ for smaller players. There is a wide range of services offered by these new distributors including liaising with traditional distributor networks for compliance on your behalf, logistical support, and providing online platforms to display and sell products directly to restaurants and retailers.

Looking to enter the USA market?

Growing Wine Exports Program

Navigating the USA market, along with China, is a key focus of Wine Australia’s national ‘Growing Wine Exports’ program for new and experienced wine exporters.

The full-day ‘Export Ready Sessions’ and two-day ‘Export Plan Workshops’ offer new tools and strategies – as well as case studies and market insights – to help exporters fine-tune their export plans and grow international sales. The two-day workshop includes a live video hook-up with Wine Australia’s USA Market Entry Program Manager Damon Musha, who offers the ins and outs of identifying and pitching to importers and distributors and preparing for a market visit. See Growing Wine Exports at a glance for more information and email with any questions.

USA Market Entry Program

To help new exporters navigate the nuances of the USA market, Wine Australia’s annual Market Entry Program provides services designed to educate Australian wine exporters about the intricacies of the market’s unique compliance, marketing, pricing and logistics challenges, as well as assisting to secure importation. Registrations for the 2018–19 program have now closed, but information about the program and contact details for the 2019–20 program can be found here or you can contact Damon Musha in our San Francisco office.

[i] Forbes Magazine

[ii] States that allow access with a 9/17/20 licence combination are Alaska, California, District of Columbia (DC), Idaho, Louisiana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Oregon, Virginia, West Virginia and Wyoming.

This content is restricted to wine exporters and levy-payers. Some reports are available for purchase to non-levy payers/exporters.

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This content is restricted to wine exporters and levy-payers. Some reports are available for purchase to non-levy payers/exporters.