Alcohol in the Prohibition Era
In 1919, the 18th Amendment to the United States Constitution declared the production, distribution, & sale of alcohol illegal. The Amendment was passed in response to vicious competition between suppliers that exerted tremendous pressure on retail outlets to sell and promote their products. This destructive practice led to excessive and harmful drinking, resulting in Prohibition.1
Under Prohibition, the production and distribution of alcohol spurred the expansion of organized crime. These organizations reaped massive profits from the illegal liquor trade, allowing them to bribe police and politicians as they grew in influence and wealth. By the end of the 1920s, Americans had come to blame Prohibition for the increase in moral decay and disorder that it had been enacted to reduce.2
In 1933, the 21st Amendment officially repealed Prohibition.1 To prevent the destructive practices of the pre-Prohibition era, the Three-Tier System was created to regulate the alcohol industry. This system required an independent distributor to serve as an intermediary between the supplier and retailer. Furthermore, the system prohibited suppliers and distributors from having financial interests or influence with retailers.
Digitization of Anheuser-Busch InBev
Digitization has the potential to upend the traditional business and operating models of ABI, but regulation drafted nearly a century ago has stinted progress. Nevertheless, ABI is working with its distribution and retail partners to create more value for and capture more value from consumers.
Supplier: At the supplier level, point of sale data from IRi, Nielson, and other providers allows ABI to better employ their limited resources to combat competitors by understanding the factors that influence consumer buying behavior. ABI is also working with Uber to develop driverless trucks, which would smoothen the supply of and decrease the costs for transport.3
Distributor: ABI is also working with their equity distributors (i.e. distributors that own ABI brand rights within a pre-determined geographic territory) to transition to new customer relationship management (CRM) software that will allow faster and more reliable online ordering by retailers. Distributors, which employ their own sales teams to take orders from retailers, are hesitant to adopt this new technology for several reasons, including resistance to change and concerns regarding job security at the sales rep level.
Retailer: The retail tier is primarily where consumers interact with the alcohol supply chain. Retailers are partnering with alcohol delivery services, such as Minibar & Drizly, to provide greater On Demand services to consumers.4
Work to be Done
Anheuser-Busch has invested heavily in digital technology in recent years. In 2013, Bud Light, which is owned by ABI, released a tap handle that can receive and display tweets using an LED strip that circles the top of the handle.5 The idea was to enhance the consumer experience by allowing the consumer to watch her favorite team at a bar and tweet at a BL handle within that bar to celebrate when her team scored. ABI has also developed a digital fridge that can manage a consumer’s beer inventory, alert them when they are running low, & restock the fridge by ordering through services such as Minibar.
While these digital technologies are eye-catching, ABI can do much more to create value for consumers. They can put greater resources behind educating consumers of the drawbacks of the Three-Tier System. Currently, beer must pass through two intermediaries before reaching the end consumer. In states like NY and PA, beer often passes through an additional intermediary, known as a Home Distributor. These Home D’s not only increase complexity in the supply chain, but also capture value from the supply chain, resulting in higher prices for consumers. Furthermore, alcohol delivery services, such as Drizly and Minibar, must work within the Three-Tier framework to satisfy consumers. Because they are not authorized retailers, they cannot directly transport beer from wholesalers to consumers. They must acquire goods from brick and mortar retail stores, then deliver those goods to consumers.
Laws enacted in the 1930s are destroying value for consumers in the digital era. By mandating the Three-Tier framework, as many as four intermediaries handle beer between supplier and consumer. The elimination of multiple players within the supply chain can dramatically reduce the complexity and price of alcohol delivered to consumers. For the current system to change, major players in the industry must take a greater role in educating consumers of the Three-Tier System.
1 “The History of Beer and the Three-Tier System,” Associated Beer Distributors of Illinois, 2014; <http://www.abdi.org/public/history.htm> accessed 16 November 2016.
2 “18th and 21st Amendments,” History, 2016; <http://www.history.com/topics/18th-and-21st-amendments> accessed 16 November 2016.
3 “Uber and Anheuser-Busch Make First Autonomous Trucking Beer Delivery,” Reuters, 26 October 2016; <http://fortune.com/2016/10/25/uber-anheuser-busch-first-autonomous-truck-beer-delivery> accessed 17 November 2016.
4 “Fans Ask. Bud Light Delivers; Partners With Minibar to Offer Full Line of Popular NFL Team-Specific Cans,” PR Newswire, 8 October 2015; <http://www.prnewswire.com/news-releases/fans-ask-bud-light-delivers-partners-with-minibar-to-offer-full-line-of-popular-nfl-team-specific-cans-300156409.html> accessed 18 November 2016.
5 “Anheuser-Busch and Sprint score big time with interactive tap handles,” Sprint Newsroom, 16 October 2014; <http://newsroom.sprint.com/news-releases/anheuser-busch-and-sprint-score-big-time-with-interactive-tap-handles.htm> accessed 17 November 2016.