The three major beer industry trade organizations have submitted comments on the state of competition within the industry as requested by the White House last month after President Joe Biden issued an executive order (EO) calling for increased competition across the economy.
Leaders from the Brewers Association (BA), Beer Institute (BI), and National Beer Wholesalers Association (NBWA) submitted comments to Amy Greenberg, regulations and rulings division director of the Alcohol and Tobacco Tax and Trade Bureau (TTB), detailing each group’s purview of the market and specific requests that would benefit or mitigate harm against their respective members.
The EO requested the heads of several federal agencies study the competitive landscape of the alcohol industry, with a goal “to protect the vibrancy of the American markets for beer, wine, and spirits, and to improve market access for smaller, independent, and new operations.” The deadline for public comments was August 18, but the TTB has extended it to October 1.
Below are summaries of the comments and requests from the BA, which represents the nation’s small and independent brewers; the NBWA, which represents the country’s beer distributors; and the BI, which represents brewers of all sizes.
Brewers Association Focuses on Unlawful Trade Practices, Including Category Management, Venue Sponsorships, Retailer Demands
BA president and CEO Bob Pease wrote that while the BA applauds the TTB’s increased enforcement of unlawful trade practices over the last six years, the organization “believes much more is required to address exclusionary and illegal practices that disadvantage small brewers in the market.”
Pease zeroed his comments in on several areas including “the abuse of category management practices,” in which a retailer turns over control of shelf space and product selection decisions to larger suppliers, or so-called “category captains.” Category captains dictate retailer shelf sets, recommend new product listings and decide which products are discontinued. Pease argued that “these arrangements undermine the retailer’s independent judgement.”
“These captains often abuse their favored position,” he wrote. “Moreover, even where a retailer allocates a section of its shelves to ‘local brands,’ too often the wholesaler serving the retailer will stock such areas with the products of its dominant supplier, such as former craft beer brands purchased by one of the major beer suppliers.”
Another area of concern for the BA is retailers’ demands that suppliers spend money on coupon programs, which Pease called a “de facto condition for placement in or promotion of the supplier’s products.” While these programs save consumers money and are legal under federal law as well as in many states, Pease argued that they serve as “illegal slotting allowance payments” and “such quid pro quo [arrangements] have become commonplace.”
Sponsorships in which large suppliers and wholesalers pay “substantial sums” to sports and entertainment venue operators for advertising within arenas, stadiums and concert halls was another area of focus for the BA. According to Pease, such payments “almost invariably secure exclusive or near-exclusive pouring rights at the venue.”
“While TTB did settle in 2020 a case against Anheuser-Busch InBev for practices designed to secure preferential treatment at several Colorado venues, a visit to almost any major sports or entertainment venue today will demonstrate that such illegal practices remain standard operating procedure,” he wrote.
The BA offered three suggestions for halting “unlawful and exclusionary trade practices
in the industry.” Those included:
- Calibrating penalties and settlement demands by company size and market share to ensure compliance, “as current settlement amounts have been inadequate to deter continued illegal activity;”
- Focusing “investigative resources on competitively-relevant actors and practices, such as category management practices, electronic coupon demands, and majors sports and entertainment venues;”
- Creating a collaboration between the TTB and FTC to hold retailers accountable when they engage “in exclusionary trade practices.” Retailer consolidation and “lower exposure to consequences of exclusionary and illegal trade practice violations” has led modern day retailers to “frequently initiate trade practice violations,” Pease wrote.
Despite investigations and settlements between the TTB and the nation’s largest beer manufacturers ranging from millions of dollars to hundreds of thousands, “illegal exclusionary practices such as the payment of slotting fees remain commonplace in the industry” and those fines amount to “a minor cost to large enterprises like the major brewers, beer importers, and large beer wholesalers,” Pease wrote.
“Large companies can essentially view such amounts as the ‘cost of doing business’ and incorporate them as a (minor) cost component of their overall marketing,” he added.
Pease added that many large modern retailers view their “shelf space, tap lines, and displays as real estate for sale to the highest bidder.” Such attitudes often pit suppliers and/or wholesalers against one another leaving industry members to believe “they have no choice but to succumb to such demands, particularly in an environment with little enforcement of the law.”
As such, Pease wrote that holding “both sides” accountable for illegal arrangements will be a key component in eliminating exclusionary trade practices.
Finally, Pease said smaller producers would benefit from “clarified regulatory language, codification of policies announced in informal documents like Industry Circulars, updates to regulations in order to reflect statutory changes, and the elimination of regulations that no longer substantially advance TTB’s revenue and consumer protection missions.”
Pease concluded saying “the need to foster a competitive beer market free from undue influence and exclusionary practices has never been greater.”
“[W]e look ahead to a time when beer selection is dictated solely by consumer choice and not other factors,” he wrote.
NBWA Asks for Increased Support from Treasury, Parity in Permitting, Vigilance Against Mega-Retailer Integration and Data Collection
NBWA president and CEO Craig Purser asserted that its members are “the lifeline to competition in the U.S. beer marketplace,” according to his organization’s 20-page response.
“A critical benefit of the system is that by independent distributors selling directly to independent retailers, a large supplier is unable to squeeze out its rivals by restricting access to shelf space or by raising costs by impeding access to distribution,” he wrote.
After summarizing the effects of the 21st Amendment and the Federal Alcohol Administration Act (FAAA) and how the consumer projections they ensure establish “the U.S. alcohol marketplace [as] the envy of the world,” Purser explained that the Department of Treasury could strengthen the FAAA through “greater support, outreach and education, as well as trade practice investigation transparency and flexibility in enforcement resources.”
Most NBWA members are required to hold TTB wholesaler permits, but retailers and some breweries do not, which “can create inequities in the marketplace,” especially when all three tiers violate trade practice, Purser wrote.
“For example, in the case of an enforcement proceeding that involves a distributor,
a potential trade practice violation could be, in whole or in part, the direct or indirect result of
the behavior or practice of a large multi-state brewer or a large multi-state retailer,” Purser wrote. “However, because the local distributor is the only party holding a TTB permit subject to suspension, the distributor bears the brunt of the TTB enforcement consequences.”
The TTB could combat this by offering “robust education and easy-to-understand guidance of specific violations,” he added.
Many of the country’s nearly 8,900 craft breweries rely on taproom sales and self-distribution to sell their products locally, so much of their volume never flows through the middle tier. Self-distributing breweries do not need TTB wholesaler permits to conduct intrastate business
and are subject to less oversight than federally permitted distributors, which creates “problems in the marketplace,” Purser wrote.
To provide parity, the TTB should require brewers or importers engaging in distribution “to follow the FAAA and secure a basic federal permit.”
Purser also proposed an objective flowmeter requirement to measure the flow of beer to ensure that taproom breweries are paying appropriate taxes.
“With the increase in breweries comes the increase in opportunities for tax evasion,” he wrote. “Breweries failing to pay taxes have an unfair competitive advantage over compliant breweries and retailers that compete with taprooms.”
Purser cautioned that the boom in e-commerce sales during the pandemic had the potential to blur the lines between tiers, and urged the TTB to remain vigilant against items of value given to online marketplaces Amazon, Drizly, Gopuff and MiniBar.
“Internet platforms like Amazon and other mega-retailers seek to vertically integrate the alcohol industry by developing distribution infrastructure and buying directly from suppliers,” he wrote. “Further vertical integration will not only dramatically raise the barriers to entry for new market players like craft suppliers but will also disrupt and reduce effective alcohol regulation.”
In particular, both online sales and mandated technology systems that large suppliers require wholesaler partners to use generate valuable data, which gives these suppliers a significant advantage over smaller competitors, Purser said.
“The danger of this data collection by suppliers is that it is also shared with retailers in violation of state and federal tied house laws,” he wrote. “It is an item of value that only the largest suppliers own and control and to the exclusion of competitors and to the potential punishment of distributors who try to sell additional products by other breweries.”
Beer Institute Calls for Streamlined Bureaucratic Requirements, Aluminum Tariff Repeal
BI president and CEO Jim McGreevy described the beer industry as an exception to the EO’s claim that “excessive market concentration” across the economy limits market access and dulls vibrancy.
“The beer industry stands in contrast to the concerns laid out in the Executive Order,” he wrote. “In the last 10 years alone, the number of breweries in the U.S. grew by nearly 400%. This vibrant, competitive industry has not only deconcentrated over the previous several years, with the largest brewers experiencing a decline in share and small or mid-sized brewers (including craft brewers) commanding more significant share, but the amount of innovation in the U.S. beer market is staggering and shows no signs of slowing.”
BI members include the country’s largest brewers, such as Anheuser-Busch InBev, Molson Coors, Constellation Brands, as well as regional and local craft breweries. McGreevy’s requests for the TTB centered on economic, tax and regulatory relief, which would benefit all members regardless of size.
McGreevy urged the Biden Administration to repeal aluminum tariffs and collaborate with the Federal Trade Commission and Department of Justice’s Antitrust Division to review aluminum benchmarking, as well as to push Congress to approve the Aluminum Pricing Examination Act to bring oversight to aluminum benchmarking entities.
The BI also requested the TTB and Customs and Border Protection to extend tax payment intervals for small and large brewers “to assist with the cash flow and regulatory burdens.” McGreevy recommended increasing federal excise tax payment intervals from once every quarter to twice a year for small brewers and from biweekly to monthly for large brewers.
Similarly, the BI asked the TTB to lengthen intervals for breweries to submit operational reports “to rescue the reporting complexity and regulatory burdens for brewers of all sizes.” It proposed that small brewers submit operational reports twice a year instead of quarterly, and large brewers submit quarterly instead of monthly.
“Given their smaller workforces, small brewers, especially, should be allowed to spend less time submitting time-consuming and complicated reports and more time brewing beer for
their customers,” McGreevy wrote.
Recognizing the increased blurring of lines between alcohol categories and the rise of ready-to-drink offerings, McGreevy implored the TTB to ease the complexity brewers face when applying to add a distillery or winery to their existing business.
“Unfortunately, brewers of all sizes face complex, burdensome, and sometimes prohibitive requirements when attempting to add a federally licensed distillery or winery to their brewery premises,” he wrote. “For example, eliminating the obligation to identify permanently dedicated/segregated areas for distilled spirits or winery operations within the bonded brewery premises would increase brewers’ operational flexibility and maximize their premises’ efficient use.”