The beer industry’s trade groups have been a (mostly) united front in recent years, with leadership from the Beer Institute (BI), Brewers Association (BA) and National Beer Wholesalers Association (NBWA) sharing the stage several times to promote the need for a unified industry and banding together to advocate and pass the Craft Beverage Modernization and Tax Reform Act (CBMTRA) in 2017 and made permanent in 2020.
However, these groups still aren’t entirely on the same page when it comes to all issues impacting beer, as evident in comments submitted to the Alcohol and Tobacco Tax and Trade Bureau (TTB) earlier this month.
The TTB’s comment period for updated trade practice regulations closed July 7. Brewbound has obtained comments from the BI, BA and NBWA. Here are some of the core issues they shared differing opinions on, including category management, digital marketplace regulations and sponsorship deals:
The Need to Update Trade Practice Regulations
The core of the TTB’s inquiry is whether the beer industry needs updated regulations. Even that question is up for debate among beer trade groups.
BA: The BA “strongly supports” efforts to update TTB’s trade practice regulations, as the industry has “significantly evolved” since the last “comprehensive review” that took place “nearly thirty years ago,” BA general counsel Marc Sorini wrote in the trade group’s 23-page submission.
The BA outlined three core elements it believes needs to be addressed:
- A “clear and expansive definition of a ‘slotting allowance’ (aka slotting fee);”
- An expansion of the “types of activities deemed to constitute a per se risk to retailer independence,” such as the use of “category captains;”
- And “establish presumptions that retailer or trade buyer independence is at risk in some circumstances,” such as when “an inducement, whether direct or indirect, is coupled with evidence” that a retailer or buyer is providing favorable and disproportionate “purchasing, shelving, display or warehousing” decisions.
BI: There is no need to “update, clarify, or modernize trade practice regulations generally,” according to the BI in its nine-page submission, the shortest of the three trade group’s comments.
“The pace of competition among all U.S. brewers increases daily, even in the face of new categories of beverage alcohol products competing head-on with beer. U.S. beer consumers can access more breweries, styles, and flavors than ever,” BI president Brian Crawford wrote.
“Enforcement of existing trade practice rules is more than adequate to maintain the current elevated level of growth and competition,” Crawford continued.
The BI also criticized the Treasury report that sparked the TTB’s comment period, calling it a “disjointed collection of misperceptions, conjecture, speculation, and outdated data to support preconceived notions about the state of competition in the alcohol industry.”
The BI called the report an “excellent example of confirmation bias” that “ignored the reality of today’s beer marketplace,” including its economic contributions and the roles of the other tiers in the industry beyond producers.
NBWA: The NBWA was open to trade practice updates in its 38-page filing, but emphasized that the TTB should be more transparent with its enforcement process, particularly in regards to the Federal Alcohol Administration Act (FAAA), that beer wholesalers, but not retailers or suppliers, must adhere to.
“NBWA supports TTB enforcement of the FAAA and has been a leader in seeking additional congressional support for TTB trade practice education and enforcement efforts,” NBWA general counsel Paul Pisano wrote. “However, the current trade practice investigation process is often opaque, inconsistent and violates due process expectations of regulated wholesalers.”
Additionally, the NBWA believes the TTB “should be rejected out of hand is any attempt by small producers to exempt themselves from the coverage of the FAAA,” comparing exemptions for smaller producers like ticketing speeding vehicles differently based on size rather than the speeding offense.
“It is improper and beyond TTB’s authority to consider granting such a competitive advantage to one (growing) part of the industry,” Pisano wrote.
Category Management
The TTB raised the concern of category management impacting retailer independence and asked for clarity on existing category management activities to make sure they “do not lead to exclusion”
BA: The craft brewer trade group noted the alleged negative impact of category management on smaller producers and cited a recent survey of “leading craft brewers,” which found that 77% of respondents reported feeling “that category management practices exclude or marginalize their products from retailers.”
“Most perniciously, many Brewers Association members have been forced to present sales and marketing pitches to a retailer in the presence of the so-called ‘category captain’ – usually a competing brewer but also at times a wholesaler competing with the presenting brewer’s wholesaler,” Sorini wrote.
BI: The BI had an opposite response, writing that category management “does not endanger a retailer’s independent decision-making or lead to the exclusion of a competitor’s products.”
Crawford noted that “retailers control whether to accept the information or use it for any purpose,” and, from a brewery perspective, “category management is a brand-agnostic exercise, with recommendations to lift the entire beer category.”
NBWA: The NBWA toed the line slightly on category management, noting that concerns over the practice “impacting retailer independence and retailer buying decisions” is problematic, as it can also “threaten wholesaler independence.” However, the NBWA encouraged the TTB to do more research on the issue and practices before ruling.
“The best approach for TTB on category management is to study the issue,” Pisano wrote. “However, if any changes are made, the TTB must default toward supporting wholesaler independence.”
The Digital Marketplace
With the emergence of more digital marketplaces from both physical retailers, and entirely digital outlets such as Drizly, the TTB asked for guidance on how regulations should be updated to keep up with new technologies.
BA: The BA emphasized the need to more highly scrutinize practices in the digital marketplace to make sure regulations from the physical space are being followed in the digital space.
“The Brewers Association believes that the regulations need to make more explicit references to electronic forms of promotions and communications,” Sorini wrote.
“Today, virtual space sometimes is ‘rented’ to industry members in exchange for ensuring that the industry members’ products are “recommended” to a virtual consumer or are given prominent placement in the virtual list of products available to a consumer,” he continued. “We view this practice as diametrically contrary to the FAA Act’s tied house statute.”
BI: The trade group expressed the opposite opinion in a very short response, writing: “There is no need for special rules for the digital market and digital marketing strategies. Existing trade practice rules can and should apply to these activities.”
NBWA: The NBWA was in-line with the BA’s opinion that regulations should be updated to “keep pace with technological advances,” such as digital marketplaces.
These platforms raise concerns about commercial bribery, tied house violations and consignment sales, as well as supplier micromanagement of wholesaler personnel,” Pisano wrote. “The TTB should also make clear that new technologies must be freely accepted by independent wholesalers and not unilaterally imposed by suppliers, retailers, or unlicensed third-party companies.
“Additionally, these technologies should in no way impair a wholesaler’s independence in running its business, or its ability to promote competition with other brands,” he continued.
Shelf Plans
The TTB asked if it should remove exceptions allowing industry members to provide retailers with shelf plans, expressing concerns over retailer independence.
BA: The BA raised concerns above shelf plans at retailers being impacted by proprietary data, which smaller producers may not be able to access.
“If the retailer wants recommendations from industry members, those recommendations should not be the product of industry members processing and analyzing proprietary retailer data,” Sorini wrote.
“If retailers believe that the modern retail environment demands that shelf placements rely on such granular data, then creating plans and schematics from such data clearly constitutes a thing of value to the retailer,” he continued. “As such, data processing of proprietary retailer data provides an inducement to the retailer and, when coupled with exclusion, is something the tied house law does not permit.”
BI: The BI maintained that retailers still have independence, despite supplier shelf plans, regardless of data access.
“Retailers who receive a shelf plan and the rationale behind it from a supplier or group of suppliers are free to determine and decide independently whether to implement none, part, or all of the recommendations they receive,” Crawford wrote.
NBWA: The NBWA “believes the system works best when wholesalers are able to work with local retailers to set local shelf sets.” The trade groups added that retailers can “ultimately decide for themselves how they want their products sold.”
The NBWA also said it opposes any efforts to create a “veto” for store resets “by disappointed wholesalers or suppliers,” as “a system that does not allow any changes unless everyone is in total agreement undermines the independence of the retailer to make its own decision, is contrary to the FAAA and will prevent new brands from reaching the market.”
Sponsorships
Sponsorships at sporting and concert venues have raised concerns over “exclusionary” pouring practices based on sponsorship payments. The TTB asked for clarification on those perceived practices.
BA: “Few other practices appear more exclusionary” toward craft brewers than sponsorship fees at venues, according to the BA, criticizing practices in which larger brewers get placement and sale priority through sponsorship deals. The BA called for updated regulations that address “exclusive outlet and tied house violations” happening through sponsorships.
In the previously mentioned BA survey, 88% of respondents reported being “excluded or marginalized in placements at large sports, music or entertainment venues due to the sponsorship of the venue by a competing brewer or importer.”
“Few ‘independent’ (as in not owned or operated by an industry member) retailers in America look more like tied houses today than sports and entertainment venues,” Sorini wrote.
“Even a cursory look at the beverage selection at most ballparks, arenas, stadiums, and concert venues quickly reveals that one or a handful of suppliers – usually large suppliers – represent the vast majority of the alcohol beverages sold at the venue,” he continued. “Not surprisingly, the same supplier or suppliers invariably turn out to ‘sponsor’ the venue, paying significant sums supposedly for the limited right to place their advertising on message boards, banners, and the like. Clearly something else is going on.”
BI: The BI raised concerns over the clarity of the TTB’s questions on sponsorships, emphasizing that existing regulations already prohibit the tie in of “pouring rights with “marketing sponsorships.”
“Any attempt to prohibit marketing sponsorships to promote competition somehow would be unconstitutional, beyond the scope of TTB’s authority, and have a negative economic impact on local communities,” Crawford wrote.
NBWA: “Sponsorships by themselves are an important promotional activity for companies,” Pisano wrote. “However, the use of sponsorships at venues with retail alcohol licenses raises thorny FAAA issues.”
Pisano noted that wholesalers can be “punished” for problematic sponsorship deals they “have no prior knowledge of and that “wholesalers deserve clearer TTB guidance so they can avoid future involvement in activities that may violate TTB standards.”
Convergence and Crossover Products
The TTB did not specifically ask for comments on crossover or convergence products such as Hard MTN Dew or Simply Spiked, where large non-alc beverage producers are entering the bev-alc space. However, many comments – beyond just the trade groups – addressed the trend and raised concerns.
A reading of TTB submissions before the comment period closed revealed dozens of comments from individuals allegedly not involved directly with the bev-alc industry, each expressing concerns over crossover products. Many cited the need for more regulations over where crossover products can be placed in stores and how they are branded and marketed, drawing attention to possible consumer confusion and the targeting of consumers under legal drinking age.
BA: “We do not endorse prohibiting industry members from participating in the non-alcohol beverage business, or vice versa,” Sorini wrote. “Nevertheless, the trade practice regulations should address the potential for a company to, directly or indirectly, use its non-alcohol business activities to induce retailers to purchase their alcohol beverage products to the exclusion of competing industry members.”
The BA suggested the TTB establish a “record-keeping rule” that would require “any industry member involved in the production, sale, or distribution of products not subject to the FAA Act to keep and make available to TTB all records concerning its activities with retailers,” with the exception of “small operators that would not possess a sufficiently large sales force to segregate sales and marketing functions in this way.”
BI: The BI did not mention crossover products in its comment submission.
NBWA: The NBWA raised concerns of crossover products violating slotting fee prohibitions due to involved non-alc companies’ existing relationship with retailers.
“As these large soft drink and food companies enter the alcohol industry, it is important to emphasize this industry’s unique bans on vertical integration as well as slotting fees,” Pisano wrote. “The renewed effort to collapse supplier and wholesaler functions creates much friction with state and federal laws and the TTB must work to keep the marketplace balanced.”