The Impact of Alcohol Beverage "Tied-House" Laws on the Hotel Industry
By Michael B. Newman Partner, Holland & Knight | December 2019
In the postwar period following the Civil War, the United States saw a great proliferation of saloons and a myriad of social problems were attributed to this development. By 1872, about 100,000 saloons had sprung up across the country, and by the end of the century that number had climbed to almost 300,000. This increase has been linked to the introduction of the English "tied- house" system of manufacturer-owned pubs.
Under the tied-house system, an alcohol producer, usually a brewer, would set up saloonkeepers, providing them with premises and equipment, and the saloonkeepers, in exchange, agreed to sell only that producer's products and to meet set sales requirements. In England, this came to be known as a "tied house" due to the fact that bars in England were known as "public houses" (i.e., "pubs"). A pub would "tie" itself to a particular brewery and be entirely controlled by such brewery.
By the turn of the 20th century, the U.S. alcohol beverage industry was thus thriving in saloons, a majority of which were under the dominion of suppliers of alcohol beverages to those very same establishments. These suppliers were, however, in many cases absentee owners and viewed as knowing nothing and caring nothing about the community in which the saloon was located and only interested in increased sales. Suppliers either directly owned or maintained exclusive relationships with retail outlets and, as a result, cost savings were passed on to consumers and a culture of over consumption prospered.
With the "tied-house" structure, in order to meet the strict sales requirements imposed by manufacturers, saloonkeepers often encouraged irresponsible drinking. The "saloon" institution, with its reputation for drunkenness, gambling, prostitution, and violence, was seen as a root cause for the backlash that spawned the temperance movement. The issue of intemperance led to considerable social protest and the call for reform.
Intemperance and other societal abuses caused by alcohol beverages ultimately led to Prohibition, which became law in 1920 through the ratification of the 18th Amendment to the U.S. Constitution. However, as we all know, for various reasons Prohibition failed to indoctrinate a culture of temperance in the United States. And, as far as tied-house issues were concerned, even during Prohibition organized crime alcohol beverage bootleggers and distribution networks often used various forms of coercion to control the "speakeasy" establishments that became popular during the time. While Prohibition ultimately lasted only 13 years, following its repeal (pursuant to the 21st Amendment) many states adopted a tiered distribution model at least in large part to preclude the tied houses.
The 21st Amendment not only repealed the 18th Amendment but also broadly empowered the states to enact their own laws. Section Two of the 21st Amendment reads: "The transportation or importation into any state, territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited." Accordingly, with the table set for state regulation, several states endeavored to enact laws to address the evils of the alcohol beverage industry that persisted immediately prior to the implementation of Prohibition and even during Prohibition.