Following the news of spirits giant Sazerac’s transition from wine and spirits wholesaler Republic National Distributing Company (RNDC) to several beer wholesalers, the producer is suing its former distributor for nonpayment of $38.6 million.
In a lawsuit filed in the U.S. District Court’s Western District of Kentucky on January 13, Louisville, Kentucky-based Sazerac details a messy divorce from RNDC, which sold its products for more than a decade.
Sazerac – whose portfolio includes Buffalo Trace bourbon, Pappy Van Winkle bourbon, Corazón tequila, 99 brand liqueurs and Fireball Cinnamon Whisky, among others – notified RNDC on December 30 that it would terminate their relationship, effective February 1.
“Since the termination notice, RNDC has refused to pay for tens of millions of dollars for Sazerac products that it has received and re-sold,” Sazerac wrote in its complaint. “As of January 11, 2023, RNDC has stopped payment on approximately $38.6 million of wholesale liquor products.
“Adding insult to injury, since the termination, RNDC has bad-mouthed Sazerac in the marketplace, ceased cooperation with Sazerac and otherwise attempted to harm Sazerac by unfairly disrupting future sales and the transition to new distributors,” the company continued.
Fissures in the relationship between Sazerac and RNDC developed years earlier when RNDC “refused to invest in its salesforce or to provide sufficient incentive to its employees to promote Sazerac products to retail accounts,” Sazerac alleged. As a result, Sazerac said it invested nearly $100 million to build a field marketing team.
Sazerac also accused RNDC of using the high-end and much sought after Pappy Van Winkle as a carrot to convince retailers to sell other non-Sazerac products, a practice known as “tie-in” sales, which runs afoul of trade practice regulations set forth by the U.S. Department of Treasury Alcohol and Tobacco Tax and Trade Bureau (TTB) and has resurfaced as an area of enforcement under greater scrutiny.
In 2021, to remedy the relationship, the companies signed a global distribution agreement that specified Sazerac would pay RNDC “a flat per case fee on all cases of Sazerac products,” as well as a “per case incentive for certain volume growths and a substantial flat payment for achieving a target total volume growth of Sazerac’s Fireball Cinnamon Whisky product,” beginning September 1, 2021.
RDNC complied with the terms of the agreement for six months and then “breached the agreement by withholding certain reconciliation payment amounts and refusing to pay the same to Sazerac,” Sazerac alleged. The distributor told Sazerac it would terminate the agreement and their relationship on June 3, 2022, but the companies continued to work together as they “attempted to reach agreement on new terms,” Sazerac said.
Sazerac has accused RNDC of breach of contract and unjust enrichment “by receiving Sazerac’s products without payment.” The spirits company also restated its account with RNDC and detailed that it issued invoices for payments due within 30 days that total $40.7 million, minus a credit of $2.1 million, though January 12. Further unpaid invoices of $48 million will become due following the filing of the complaint.
The company’s prayer for relief is “to recover damages in an amount to be proven at trial, including interests and costs.”
Sazerac’s move away from RNDC began in August, transitioning in Washington state to Columbia Distributing and Colorado to Eagle Rock Distributing. The most recent network reshuffle included a shift to several top beer distributors, including the Reyes Beer Division, and wine and spirits houses across several markets, including California, Florida and Texas. Follow the link for more info on those moves.