Brewers Association (BA) general counsel Marc Sorini previewed the trade organization’s upcoming comments on modernizing trade practice regulations during the Craft Brewers Conference in Nashville on Monday.
A June 7 deadline is looming to submit comments on modernizing trade practice rules. President Joe Biden’s 2021 executive order on competition required the U.S. Department of Treasury’s Alcohol and Tobacco Tax and Trade Bureau (TTB) to consider new trade practice regulations, which led to an open comment period.
Sorini said the organization will work with state guilds on its comments and recommendations and submit them right before the deadline expires.
At the top of the list for the BA are category management practices in which retailers, especially in large off-premise chain states, are allowed to appoint so-called “category captains” at larger breweries or wholesalers to set shelf schematics. The BA is seeking “significant reform,” eliminating the “captain” as the “gatekeeper” between a retailer and other industry members who are competitors.
“To prove a [trade practice] case, TTB has to say that there’s a threat to retailer independence,” Sorini said. “There could be nothing more fundamental than threatening a retailer’s independence in what they buy than putting a competitor of yours between you and that retailer.”
Sponsorships at large sports and entertainment venues will also be a target of the BA’s reform commentary. Existing regulations allow industry members to pay a sponsorship fee to stadiums, arenas, music venues and other entertainment venues for marketing rights. The BA argues those sponsorships end up securing “near-exclusivity” over pouring rights at those venues.
The BA will argue for stronger rules and a crackdown at venues where sponsorships lead to an outsized share of sales, with “a presumption” that the sponsorship paid for those tap placements and is thus an illegal slotting fee.
“By strange coincidence, the people paying the biggest sponsorship dollars always have all the taps and virtually all the sales,” Sorini said. He noted that the TTB made a sponsorship case against Anheuser-Busch InBev in Colorado that led to a record $5 million settlement in 2020.
“And yet if you have been to a sporting event or a large concert of late, you will notice that this practice is still widespread,” he continued.
Third on the BA’s planned commentary list is digital marketing practices in which “third-party platforms” act as a virtual salesforce, directing consumers to products and channeling sales to retailers. The BA argues “this salesforce is for sale to the highest bidder,” with platforms requiring money to be recommended and some platforms being partially owned by large wine and spirits wholesalers.
The BA will argue for regulations that make it clear that the existing rules apply in the digital realm, with payments to these services directing consumers to buy products from specific retailers being treated as commercial bribery.
“Websites have become more places for pay to play,” Sorini said. “Oh, you want the consumer to search IPA? You’re gonna have to pay for that to come up to the top of the searches.
“Surely you would not allow the retailer to say, ‘Oh, I’ve given a third-party company the job of running my salesforce, bribed the hell out of them and nothing’s going to happen,’ right?” Sorini said. “That would clearly be doing indirectly what you can’t do directly, kind of a big mantra in trade practice law. So why should we allow the fact that this is just an electronic platform to do exactly that?”
Finally, the BA will argue in favor of giving the TTB more enforcement teeth. A 1992 court ruling required the TTB to show that a practice must put a retailer’s independence at risk in order to make a case. The BA is asking for a more clearly laid out list of what practices can risk retailer independence.
“You can’t tell me that a retailer that has outsourced the interface between it and all other industry members to a single industry member hasn’t lost its independence in its buying decisions,” Sorini said of category management practices.
Additionally, Sorini told brewers to expect more consumer disclosure requirements from the TTB in regards to labeling, including mandatory allergen labeling, mandatory “alcohol facts” labeling and ingredient labeling.
BA Encourages TTB to Direct Focus on Bigger Industry Members
As the federal government appears to be sharpening its regulatory focus, the BA is encouraging the TTB to direct its enforcement actions on larger industry players.
“The point is, they need to be focusing, we think, their efforts on stopping really competitively significant conduct, as opposed to going after minnows,” Sorini said.
There are already signs that the TTB is doing this, with the TTB and IRS raid of Southern Glazer’s Wine and Spirits in California and a reported investigation into the wholesaler in regards to alcohol pricing.
The Federal Trade Commission’s (FTC) recent antitrust investigations under the Robinson-Patman Act – a 1930s law that requires sellers to treat commercial buyers equally – on Coca-Cola, PepsiCo and Southern Glazer’s are also an encouraging sign of federal agencies focusing more on “big fish,” Sorini added. So too is the increased government scrutiny of the pending merger of grocery chain giants Kroger and Albertsons, which was announced in October.
Additional coverage of the Brewers Association’s federal and state level work will follow in the coming days.