If you think trade practices are just a state issue, think again. BBD has learned the U.S. Tax and Trade Bureau, known as the TTB (formerly part of the ATF), is gearing up to start enforcing trade practice violations for brewers and distributors who violate the FAA act, according to a source close to the Bureau. Because it’s expensive and impractical for the TTB to enforce everything everywhere, they have come up with a set of guidelines for acceptable trade practices in three basic levels of acceptability: green light, yellow light, and red light; with green light activities okay, yellow light are questionable but probably unenforceable, and red light activities will be enforced with shock and awe.
So if you buy the refrigeration equipment for a bar with the expectation of some sort of exclusivity, that’s tied house my friend-perfectly acceptable in Belgium, but we’re not in Belgium thankfully-so it’s a red light offense by which you can expect the feds to be at your door with a fine that will make several hundred BBD subscriptions look cheap. Or if you pay a retailer cash for cooler space, that’s a no-no. And remember that the TTB has more bite in their bark for distributors than brewers, because they have no licensing authority over brewers and therefore have nothing to revoke if they don’t behave. The TTB actually has to go to the U.S. Attorney if a brewer doesn’t comply with TTB rules.
But if you play hooky and take a retailer to an afternoon ball game, chances are the feds won’t catch you and don’t care, unless you abuse it. Even retailers need relaxation sometimes.
ALTERNATING PROPRIETORSHIPS. And the TTB is also trying to figure out how to prevent medium-sized brewers from gaming the federal tax system using “alternating proprietorships.” As you know, if you are a brewer selling fewer than two million barrels a year, you pay $7 a barrel on the first 60,000 barrels (compared to $18 a barrel…yes, it’s significant).
So savvy brewers have sliced and diced their volume using alternating proprietorships….i.e. having cousin Willy come up with a brand and contract brew it at your brewery as a separate entity, thereby starting the taxable barrelage meter at 0 again. Or some brewers will even sell their brands to cousin Willy, starting the taxable barrelage meter at 0, and then Willy sells the brewery back to you after you hit the magic 60k barrel mark. Apparently, it happens more than you would think. And the Feds will be clamping down.
REGULATION ENFORCEMENT A GOOD THING. Aside from the fact that everybody should be playing by the same rules, enforcement by the federal and state regulators of the beverage alcohol laws in this country is a good thing for three-tier-because if the laws are on the books but not enforced, courts often treat them as if they’re not on the books at all. Enforcement gives teeth to laws, and laws with teeth are treated with respect even by activist courts. So embrace enforcement of regulation, hug it, give it a pet name, water it daily. It is good for all players in the industry.
SLOTTING FEES. Another area to watch with the TTB is slotting fees. Currently, their regs put the prohibition on brewers or distributors paying slotting fees to retailers under the consignment sale section. The U.S. attorney has suggested that this is the wrong place for it to be, so look for the TTB to issue a circular fixing this problem. It’s important, because anytime you mess with slotting fees, retailers will probe every orifice in the law for a loophole.
NUTRIONAL INFORMATION ON LABELS. And finally, the TTB is considering whether it should require alcohol beverage makers to list nutritional information on the labels. The liquor guys, particularly Diageo, have been gunning hard for this regulation so that they can get closer to an equivalency dream, where alcohol contents per “serving” (and ounce and a half for them, 12 ounces for beer) would be the same.
The ultimate objective, we believe is to nudge the Feds closer to determining a “standard drink” as a precursor to obtaining tax, channel access, and advertising equivalency with beer. (The TTB comment period ends on September 26, and then it will take some time for a ruling, so catch your breath.)
LABEL REAL ESTATE GETTING SCARCE. There is an observation that my preschooler could make that putting all of that information on a 12 ounce beer is a little more difficult than a fifth of vodka for the simple reason that a vodka bottle is bigger than a beer bottle. With the government warning about not breast feeding while drinking and the brand name, where would this nutritional information go? Under the bottle cap on micro-fische?
For bottles there would have to be another label on the back (cha-ching), and for cans it would take another printing turn on the line, reducing line efficiency by 40%, according to our sources. It’s expensive, and we think the TTB is unlikely to make such a drastic addition to packaging costs without careful consideration, just as they didn’t make a drastic change to malternative formulation due to cost considerations. It works both ways.
BEER BRIEFS: SABMILLER CLOSE TO BAVARIA DEAL. SABMiller is very close to acquiring a stake in Bavaria, according to the FT. SABMiller appears to have outbid Heineken to secure control of Bavaria, after almost a year of negotiations.
WSJ: DRINKING GOOD FOR YOUR EARNINGS. The Journal ran a piece last week that claims that drinkers make more money. Says the WSJ: “Economists assert that benefits from alcohol are also financial, showing that moderate drinking is associated with higher earnings. If two workers are identical in education, age, and other characteristics except that the first has a couple of beers each night after work while the second is a teetotaler, the first will tend to enjoy a ‘drinker’s bonus’ in the range of 10% to 25% higher wages.”
Happy earning.
TRANSMITTING FROM SANDESTIN FLORIDA. Speaking to the Mississippi and Louisiana beer wholesalers this morning, following Dr. David Rehr as usual, which is tough duty. Many thanks to Ricky Brown of Mississippi, George Brown of Louisiana, and Paul Bertucci for bringing me to Florida which is, for once, out of the hurricane’s path (My wife opted to stay home in South Texas to avoid hurricanes, and now it’s headed straight her way while I’m sunning on white beaches).Sell Days This Month: 21 Sell Days This Month Last Year: 22
This month ends on a: Fri Last Year this month ended on a: Fri YTD Sell Days over/under: 0
