Alcoholic beverage industry Summary

  • Last updated on November 10, 2022

As the United States became increasingly urbanized and industrialized, alcohol similarly became a mass-produced commodity distributed both in stores and in bars and restaurants. After the enactment and repeal of Prohibition, the federal government created a three-tier distribution system, from suppliers to wholesalers to retailers, to ensure the existence of a layer of distribution between suppliers and retailers.

The alcoholic beverage industry in the United States has evolved over time, both in terms of methods of production and in terms of the typical locations and circumstances of consumption. Alcohol was initially brewed primarily at home. Taverns and small breweries and distilleries began to produce beverages in somewhat greater quantities to serve their own clienteles, and eventually a small number of corporate producers began selling larger quantities.Alcoholic beverage industry

At first, Americans tended to drink alcohol at home and on the job. Later, bars and taverns became popular, until the home again became the primary locale of consumption. This choice of locale had an effect not only on alcohol production but also on distribution and marketing, as during the height of bars’ popularity (1870 to 1920), corporate brewers and distillers could enjoy direct links to consumers through their ownership of or exclusive contracts with bars. Changes in working conditions wrought by industrialization led some workers to engage in binge drinking. Violence against women and workers’ absenteeism increased, leading to an increasing backlash against the alcoholic beverage industry.

The regulation and taxation of alcoholic beverages have also evolved since colonial days. With the practice of corporate bar ownership and exclusive contracts ending after Prohibition, a three-tier distribution system was instituted by the federal government, to be regulated by the states. Wholesalers were introduced into the distribution chain to mediate between suppliers and retailers.

Before Prohibition

Beer came to North America from England with the early seventeenth century Pilgrim settlers, who packed it with them on the Mayflower, and alcohol played an important part in the settlers’ social and political lives. Home brewing was very common. Puritans disliked distilled liquor but felt that beer was acceptable. The first commercial breweries began in the United States in the eighteenth century. New York and Philadelphia had the most, but the Adams family brewery–based in Boston–was a growing business. Taverns were a popular place for people to congregate and discuss the major events of the day, and tavern owners were considered among the most respected businessmen in town. For example, in seventeenth century Massachusetts, Eric Burns writes, “only voters and church members . . . ’the colony’s elite’ were allowed to purchase and operate taverns.” As beer was mainly being manufactured in urban areas, distilled liquor was a rural venture. Early attempts at making wine were unsuccessful, so it was mostly imported (the first successful commercial winery in the United States was established in Pennsylvania in 1818). Drinking was an accepted part of everyday life; workers were encouraged to drink on the job, and shopkeepers offered free drinks to customers.

By the mid-nineteenth century, a number of German immigrants were operating successful breweries throughout the United States, such as Anheuser-Busch, Schlitz, Hamm, and Schmidt. As was true of most businesses during the industrial era, alcohol manufacturing became more centralized, moving from a number of smaller brewers and distillers to fewer, larger manufacturers. In addition to brewing the product, many brewers and liquor distillers owned bars, where they could sell their product directly to their customers. Others offered saloon owners exclusive contracts. The owners agreed to sell only one company’s products. In return, the company provided the bar’s food, equipment, and decorations.

Both bar ownership and exclusive contracts proved to be lucrative for large beer and liquor companies. By 1909, 70 percent of the saloons in the United States had such arrangements. These corporate saloons can be seen as an early example of the chain restaurant: Customers could go to one anywhere and know what kind of food and alcohol they would get.

By this time, the saloon culture of the working class was in full swing, with bars serving as places for workers to organize as well as to indulge. Many unions used bars as meeting places as well as for socializing. In the wake of industrialization, workers found themselves having to drink on an “industrial timetable” instead of drinking small amounts of alcohol all day, as they had done during preindustrial times. As a result, some began to engage in binge drinking.

This binge drinking brought on more noticeable effects of alcohol abuse, such as missed work and violent behavior. The temperance movement, upset over the violence–particularly against women–brought on by drinking, and the anti-immigration movement, which felt that it was immigrants who were doing the drinking, teamed together to put pressure on the government to enact prohibition. This was not the first time that prohibition was advocated by temperance groups. Short-lived state prohibition laws had been passed in Maine and a handful of other northern states during the 1840’s, with short-lived success, as they were either vetoed or eventually stricken down by the state governments. With the creation of the Anti-Saloon League[AntiSaloon League]Anti-Saloon League in 1895, the temperance movement finally had a strong lobbying presence, and it stepped up its push for national prohibition.

The federal government tried to avoid making any laws that would regulate alcohol distribution and sales, and many politicians avoided the question as being politically dangerous. The prohibition movement earned financial support from industrialists such as Henry Ford and John Rockefeller, who felt that workers who drank were bad for their businesses. The beer industry tried to separate itself from distilled liquor and wine to be seen as a more moderate choice, but it was unsuccessful. The movement gained steam during the early twentieth century, with states such as Mississippi and Alabama voting to become dry. Once World War I started, the prohibition movement had its best political argument yet–that the alcoholic beverage industry used resources needed for food. Prohibition advocates also took advantage of anti-German sentiment (most major brewers being of German descent), and the movement gained the pull with government that it needed to push ProhibitionProhibition through. It lasted fourteen years.

Prohibition was not a success. Bootleggers, who manufactured liquor or smuggled it into the country from Canada or from the Caribbean, were in high demand, and organized crime soon got involved in the smuggling. Distilled liquor during this time was often made from dubious sources and could be lethal. Distilled spirits rose in popularity over beer, simply because it was easier to move. Many people began home brewing beer again, as this activity was not outlawed. (The home distilling of hard liquor or “moonshine” was prohibited, however.) Since the federal government did not provide sufficient funds for Prohibition enforcement, illegal manufacturing and consumption of alcohol continued throughout the era, and Prohibition was finally repealed in 1933.

After Prohibition

In 1933, the Federal Alcohol Administration (FAA) was established to enforce the newly mandated three-tier system of distribution to avoid the problems encountered when suppliers had direct contact with retailers. Although the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) oversees the FAA, specific regulations vary from state to state. For example, the majority of states are “open” states, allowing licensed retailers and wholesalers to sell all kinds of alcoholic beverages. Other states, by contrast, are “control” states, which buy and sell alcohol through their own stores. This too can vary, as some states sell only distilled liquor from their stores, allowing wine to be sold at other retail outlets.

Every state allows beer to be sold in stores. In addition, thirty-two states allow counties and municipalities to decide whether alcohol may be sold in their jurisdictions. Local and state governments also determine sales taxes on alcoholic beverages.

Another outcome of Prohibition was a decrease in the number of breweries and distillers in business, as the major companies in both categories took over larger shares of the market. The wine industry had the hardest time bouncing back from Prohibition, but it has grown steadily since World War II, especially after the release of information about the possible health benefits of drinking wine in moderation.

Further Reading
  • Burns, Eric. The Spirits of America: A Social History of Alcohol. Philadelphia: Temple University Press, 2004. Covers the history of alcohol consumption in the United States and how it was affected by politics and culture.
  • Holleran, Joan. “Drinking Up.” Beverage Industry 90, no. 5 (May, 1999): 17-21. Provides a summary of “The Maxwell Report: The Liquor Industry in 1998.” Gives a good overview of the state of the alcohol industry during the 1990’s.
  • Holt, Mack P., ed. Alcohol: A Social and Cultural History. New York: Berg, 2006. Collection of essays related to international alcohol consumption; includes two important essays on the history of drinking in America: Madelon Powers’s “The Lore of the Brotherhood,” which covers the “saloon culture” era of pre-Prohibition, and Jack S. Blocker, Jr.’s “Kaleidoscope in Motion,” a history of drinking in the United States from the colonial period to the early twenty-first century.
  • McGowan, Richard. Government Regulation of the Alcohol Industry: The Search for Revenue and the Common Good. Westport, Conn.: Quorum Books, 1997. Explores the three-tier distribution system and government regulation of alcohol. Provides an excellent historical overview of the beer and distilled liquor industries in the United States.
  • Whitman, Douglas Glen. Strange Brew: Alcohol and Government Monopoly. Oakland, Calif.: Independent Institute, 2003. Brief work that looks at problems with the three-tier distribution system and notes the attempts by small wineries to sell directly to consumers.

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