We Are Headed for a Government Smackdown
In the face of unprecedented federal scrutiny, the industry continues to act the fool.
The level of regulatory scrutiny in beverage alcohol in this country tends to ebb and flow, and it appears we are back in the thick of a big increase in focus on our industry by three-lettered agencies on both the federal and state levels. And while government agencies typically move slow, when they act it can be sudden and arbitrary. (For example: OSHA very nearly made kegs illegal in 1999 before acquiescing at the last minute.)
This industry we love so much hasn’t done itself any favors in the way it has behaved over the last five years. To say we’ve been poking the sleeping bear is an understatement. In my 30 years covering the industry, I’ve never seen so much shitcannery going on.
Last week we learned that Southern Glazer’s Wine and Spirits is under investigation from the FTC for offering better pricing to larger accounts at the expense of smaller accounts, just months after the IRS and TTB raided their Union City, California office [see WSD 10-28-2022]. According to Politico, the FTC is seeking invoice-level paperwork on “quantity-based discounts, rebates, promotions, as well as marketing, warehousing, merchandising and other services” from SGWS.
This could open a big bag of worms if what we’ve suspected of big w&s distributors’ common trade practices turns out to be true. It also marks a major shift in the FTC’s strategy, from “let’s just make sure the consumer gets the best price” to “big companies shouldn’t engage in behavior that hurts smaller companies.”
You’ll recall the FTC is investigating Pepsi and Coke on favoring large retailers at the expense of smaller ones, in possible violation of the Robinson-Patman Act, the same law under which small California retailers, acting as a class, are suing Southern Glazer’s for allegedly having SGWS employees buy liquor on the plaintiff’s account number/liquor license and then giving the liquor away or selling it at a discount to unlicensed entities, among other allegations.
This is not a new phenom: Don’t forget Provi is suing SGWS and RNDC for alleged anticompetitive behavior. New York sued them for underpaid taxes (which they settled for $3.5 mil); recall in 2015 they tried to plan and help fund Kroger’s Planogram Center of Excellence (PCOE) center, with over 100 people in one building in Cincinnati dedicated to growing the category for Kroger, to be funded by quarterly invoices to suppliers and distributors — a sort of subscription-based slotting fee if you will; and so on.
In the face of increased government scrutiny, if you thought our industry would be getting its act together to put its best foot forward, you would be mistaken. Let us count more ways:
You’ve got a reinvigorated TTB going after pay-to-play schemes with suppliers and bars/venues after the industry has spent years pretending that paying a third-party “marketing firm” or giving to a charity golf tournament doesn’t involve a quid pro quo slotting fee. You’ve got the gray area of suppliers actively paying for “trade media” for choice spots on bev-alc delivery apps (is GoPuff a retailer or an app? I dunno, pay ’em). You’ve got A-B encouraging retailers to auto-generate “recommended orders” going directly to distributors’ route accounting systems. You’ve got the major soft drink companies alcoholizing brands beloved by kids like Simply, Fresca, Mountain Dew, Sunny D, and Coke.
SIDEBAR: This just in: Utah is the latest state to further guardrail spiked soft drink brands. Governor Spencer Cox signed a bill requiring the Utah ABC to reject beer packaging that is “so similar to a label or packaging used on a well-known or widely available nonalcoholic beverage that the label or packaging for the malted beverage is likely to confuse or mislead a patron to believe the malted beverage is a nonalcoholic beverage.”
You’ve got Pepsi contorting itself into a legal pretzel to be a distributor of brands licensed to and formulated by Boston Beer Co. and FIFCO, which happen to have the same marques as their mega-brands Mountain Dew and Lipton, respectively.
You’ve got these same companies paying millions in slotting fees to retailers for their soft drink brands, but somehow we are to expect the TTB to believe those payments are completely separate in the mind of the retail buyer from their hard offerings. You’ve got Constellation shadow-terminating distributors. You’ve got craft brewers finding they no longer have valid routes to market after distributor consolidation. You got the largest beer distributor being called out on local news for leaving local bars in the lurch. You’ve got innumerable social media posts by suppliers blatantly showing young people putting can-to-lips and giveaways that are clearly shady, (don’t forget the FTC already warned A-B, Molson Coors, Constellation, Boston Beer, Heineken USA, Pabst, FIFCO, Gallo, Robert Mondavi, Bacardi, Diageo, Absolut, LVMH about using influencers in their social media posts without disclosing the arrangement).
Part of the problem, you might say, is that the DOJ and the TTB got themselves into this predicament, as some believe the DOJ consent degrees on ABI’s purchase of Grupo Modelo in 2013 and SABMiller in 2016 didn’t go far enough and is unenforced/unenforceable, and the TTB has no jurisdiction over retailers who are the root of pay-to-play.
The states, who are in charge of regulating retailers, don’t have the resources and usually lack the jurisdiction and teeth to go after out-of-state retailers for payola schemes.
Regardless, all of the above taken individually aren’t such a big deal, but grouped together they will be viewed against the backdrop of Treasury’s Competition Report on Beverage Alcohol, written with input from the FTC and DOJ, which focuses on market concentration, unfair trade practices, predatory pricing, barriers to entry for smaller producers, and ideas for better regulation — all of which are pertinent to the examples listed above.
Perhaps more importantly, this report has unleashed many arrows in the form of stinging public comments against the nation’s largest producers and distributors, arrows which can be repurposed by an invigorated activist FTC which today — thanks in large part to the varied Ponzi schemes and liquidity crunches unleashed on the public by crypto companies and under-collateralized banks — has the political will and public backing to get super aggressive, super fast.
Even craft brewer employees have lost their innocence. Once starry-eyed Millennials motivated at the prospect of working at a hip and cool brewery, they have had enough and are unionizing after discovering some breweries use their hip status as leverage for offering low wages and, as a bonus, unfettered sexual harassment.
The term “government regulation” for perhaps the first time since the Carter years is not seen as unnecessary red tape but an important component of functioning capitalism by more in the mainstream, particularly regulation of large corporations. It’s going to be a hot summer.
The long and short of it is that the few exemptions the TTB has allowed — most notably in the field of category management — could very likely be closed when all is said and done. ‘Control of the mouse’, even in this metaphorical phrasing, implies control over competitors. Whatever the outcome, the industry has primed itself to endure tightened regulatory guardrails at a minimum (and/or loosened for smaller players), and less likely but completely possible a total re-shuffling of the go-to-market category management practices we take for granted along with stricter and more transparent data, media, and money transfer rules between and among the three tiers.
MOLSON COORS BREAKS INTO THE BOURBON BUSINESS
After wading into the whiskey segment a couple years back with the establishment of Coors Whiskey Co. and its debut line, Five Trail, Molson Coors is now bringing on even more brown water.
INTRODUCING BARMEN 1873 BOURBON. The company’s Beer & Beyond blog reported that Coors Whiskey Co. will release its first bourbon, dubbed Barmen 1873, which is a nod to the birthplace of Adolph Coors (Barmen, Germany) and the year he founded Coors Brewing in Golden, CO (1873).
Barmen 1873, a 92-proof blend of straight bourbon whiskeys will sit in “the approachable super-premium price tier,” carrying a suggested retail price of $39.99 to $42.99.
Recall, the debut product from Coors Whiskey Co., Five Trail, resides in the ultra-premium realm, with a price tag of $59.99.
Barmen 1873 will be available starting today in U.S. markets where Coors Whiskey Co.’s Five Trail is currently sold. Those markets include: CO, GA, IL, KS, KY, MO, NY, NV, PA, OK, TN, TX and WI, per blog.
CROSS PROMOTING BARMEN 1873 WITH BANQUET. As the new bourbon begins to hit these markets, it’s “linking back to another Coors product, Coors Banquet, encouraging consumers to pick up ‘a Barmen 1873 and a Banquet,’” per blog.
This cross promotion follows a discovery from the brand that “nearly 30 percent of Banquet drinkers also drink whiskey and nearly 15 percent of those drinkers sip on bourbon.”
“We’ve got a great opportunity to connect two unique brands that represent the Coors legacy,” MC’s marketing manager for full-strength spirits, Kim Fox, told the blog. “We know consumers are looking for flavor. We know they’re looking for quality. Banquet and Barmen make a perfect pair.”
DISCOVERY UNDERWAY AS OLYMPIC EAGLE/ STZ DISTRIBUTION SUIT MOVES THROUGH APPELLATE COURT
Discovery is officially underway in the distribution contract dispute between Olympic Eagle and Constellation currently playing out in federal and appellate court in Washington that BBD has been monitoring.
In a joint status update lodged by the parties late Friday afternoon, attorneys for Olympic Eagle and STZ wrote that they “served initial disclosures on January 18, 2023” with Olympic Eagle “issu[ing] written discovery to Constellation on February 2, 2023.”
That means document exchange – including written discovery, depositions and expert depositions – is officially underway in the underlying case, with the parties anticipating discovery will be complete in eight months, by December 8, 2023.
INFORMATION SOUGHT. Attorneys for both sides wrote in the status update they are seeking information related to the subject distribution agreement, “Constellation’s notice and attempted termination of Olympic Eagle’s distribution rights,” the wholesaler’s performance under the contract, “the alleged irreparable harm to Olympic from the termination of its distribution rights,” and Olympic Eagle’s relationship with its customers.
SETTLEMENT ON THE HORIZON? Attorneys for both parties indicated they “are open to engaging in settlement discussions at some point in the future, after the parties have taken at least some discovery.” They also indicated they “are open to engaging in future alternate dispute resolution.”
That is telling, in particular as the industry seems very curious as to any indemnification agreements Constellation may have with purchasing distributors which could see sunshine, as well as any other potentially embarrassing texts or messages floating around, (just ask News Corp).
They’ve got at least a year to figure it out. The parties have apparently agreed to an April 8, 2024 trial date, though they could be available for an estimated 10-day trial as early as March 25, 2024. Counsel indicated they “anticipate a non-jury trial,” otherwise known as a “bench” trial where the judge will listen to witness testimony and issue a verdict.
ANOTHER AMICUS BRIEF IN STZ APPEAL. As for the latest on STZ’s pending appeal in the Ninth Circuit (stemming from the federal judge’s refusal to allow it to terminate Olympic Eagle’s distribution rights while the case is pending), another amicus brief has been filed.
Recall, the National Beer Wholesalers Association filed an amicus brief in support of Olympic Eagle a couple weeks ago, prompting STZ’s would-be wholesaler successor, Columbia, to resign as a member of the trade association [see BBD 03-22-2023].
Now, California Family Beer Distributors (distributor group created in the wake of Constellation’s first California shadow terminations years ago) has filed an amicus brief in support of Olympic Eagle, arguing that Washington state’s franchise law protects Olympic Eagle, especially in light of the wholesaler’s investment in advertising STZ’s brands in the state.
Because “like many large suppliers” STZ requires Olympic Eagle to use its “best efforts” to market STZ’s brand, and Olympic Eagle complied “by splashing giant advertisements for Constellation’s flagship brands, Modelo and Corona, on its own trucks” and using “Constellation’s brands in local advertising campaigns,” STZ referred to Olympic Eagle as “a Constellation house,” indicating just how integral the brand is to the wholesaler.
“Constellation cannot require one thing in its contract and even pronounce it to the beer public, and then come before this court to say with a straight face there is no ‘substantial association’ between the supplier and distributor,” CFBD’s attorney Mark Slater wrote, calling for the preliminary injunction to be “affirmed on franchise law grounds.”
A hearing date in the appeal has not been set. We’ll keep you updated when it is scheduled. Stay tuned.
BUMP: SPRING SHELF SETS GOING SLOOOOOW
“Spring Sets have been deliberately slow in being rolled out as I think there is a lot of concern on the part of the Retail community in the decisions that were made at the end of 2022 in terms of adds/deletes are in a ‘holding pattern’ to see how price increases, legislative changes re RTD beverages, Cannabis availability, the overall economy, and certain new product launches are faring,” writes Bump Williams to clients. In fact, this is the slowest rollout of new shelf sets in Bump’s 43 years in the business, but even so there are some early winners to call out, including:
-Anything that is (Quality) FLAVOR Forward/Flavor First
-Anything with the word “Modelo/Corona” on it
-Single Serve, especially if it’s a 19.2 ounce
-Non-Alcoholic/Better Lifestyle characteristics
One thing retailers are wary of is the word “innovation,” as Bump reminds us that simply creating a new line extension or formulation that doesn’t create incremental buying occasions rather than merely brand switching is not cool, not cool at all, even though that’s what’s been largely happening.
Last year, per NielsenIQ, A-B offered 87 new offerings, Molson Coors 56, and Boston Beer 47, and those brewers suffered share losses. The winners did more with less, with Mark Anthony offering 21 and Constellation only 14 new brand innovations.
CIDER RISING. “One other interesting thing that developed in this exercise was the high prevalence of Cider manufacturers among the most efficient innovators, claiming 6 of the top 30 spots. There has been a lot of talk (and performance) lately surrounding Hard Cider and the expansion into new flavor frontiers, ABV levels, Gluten-Free, packaging and/or styles…and clearly there have been returns on the incrementality side to back up those efforts.”
LATE BRIEF: Social media was a’blaze Sunday evening with the news that A-B had partnered with transgender activist Dylan Mulvaney to promote Bud Light during March Madness. A-B sent her cans of Bud Light featuring the influencer’s face to celebrate the “365 Days of Girlhood” milestone she has been chronicling on TikTok.
Harry, Jenn, Jordan, Bianca
“When the going gets weird, the weird turn pro.”
– Hunter S. Thompson
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