A federal antitrust lawsuit against Southern Glazer’s could be filed this month.
By Jeff Siegel
The news that the Federal Trade Commission (FTC) is investigating Southern Glazer’s, the world’s biggest wholesaler of wines, spirits, beer and non-alcoholic beverage products, for illegal business practices didn’t surprise one long-time East Coast wine marketer.
“Frustrations at being held hostage by the system as it stands have existed for as long as I’ve been in this business, now coming up on 40 years,” said the marketer, who asked that her name not be used to shield her business and her clients. “The big distributors have so much money and wield so much power that everyone bows down and pays lip service to them. Even though importers and producers may privately express their frustrations with the status quo, they are terrified at the potential consequences for their businesses were they to openly air those opinions.”
Nevertheless, the FTC, though it has not commented on the reports, seems undaunted. A federal antitrust lawsuit against Southern Glazer’s could be filed this month, and a variety of news reports outlined a years-long investigation by regulators that focused on what may have been illegal payments to large retailers — possibly including Total Wine. One report even described the payments as “secret kickbacks.”
“You hear complaints about things like this from smaller distributors all of the time,” says Colorado attorney Michael Lazlo, whose practice includes wine business clients. “The perception is that’s how [Southern Glazer’s] conducts its business. So it’s not shocking that the FTC is looking at pricing practices.”
Little used law
The FTC query apparently revolves around an obscure Depression-era law, the Robinson-Patman Act, that forbids discriminatory price discounting as part of preventing companies from establishing monopolies. In this, it doesn’t outlaw volume discounts and similar practices, but requires that all discounts be offered to all customers.
Volume discounting is typical practice in both the on- and off-premise, says Joel Butler, MW, who has operated both retail and restaurant wine programs in California and Washington state, most recently as the owner of a Washington wine shop that also had an on-premise license. Butler said he has no direct knowledge of the FTC investigation, but he has seen practices over the years that are similar to those in the news reports, such as alleged payments to large retailers that made big orders, and that may have included product placement privileges — a variation on the “slotting fees” that are mostly illegal.
In other words, there are volume discounts and then there are volume discounts.
Spice sets precedent
Can the FTC succeed if it sues Southern Glazer’s? Lazlo says proving its case could be quite difficult. For one thing, the Robinson-Patman Act has not been used since 2000 — so long ago, he says, that he wasn’t practicing law then. How familiar will anyone be, on either side of the case, with how the law should work? For another, there’s a fine line between offering legitimate discounts and illegal ones, as several attorneys interviewed for this story said. The FTC has interpreted this as “meeting competition,” where the seller can provide a lower price to a purchaser when the seller believes that it must provide that lower price to meet the equally low price offered by a competitor.
For a third, one legal analyst has said that Robinson-Patman enforcement can be flawed, writing about “its propensity to create perverse outcomes for the small producers it was intended to protect from market gorillas.” That is, it doesn’t result in more discounting or lower wholesale prices for smaller producers, but in less discounting overall.
In the 2000 case, for example, the FTC settled with McCormick, the world’s largest spice company, after alleging that it “charged some retailers higher net prices for its spice and seasoning products than it charged other retailers.” This included “substantial discounts using a variety of different discounting schemes, such as slotting allowances, free goods, off-invoice discounts and cash rebates.” McCormick agreed to stop selling its products to any purchaser at a net price higher than McCormick charged the purchaser’s competitor. McCormick did not admit to any wrongdoing or pay any fines.
Lazlo says he wouldn’t be surprised if the FTC and Southern Glazer’s reached a similar settlement, assuming the regulator follows through on a lawsuit. Again, the FTC’s burden of proof would be quite high, while he wonders if Southern Glazer’s would want its business practices outlined in open court.
Regardless, says the East Coast marketing executive, she hopes the FTC succeeds — though she isn’t optimistic.
“As long as the biggest wholesalers are allowed to contribute to the coffers of elected state officials belonging to both parties, the distributors will remain a protected species,” she says. “No matter what the rest of us think is best.”
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Jeff Siegel
Jeff Siegel is an award-winning wine writer, as well as the co-founder and former president of Drink Local Wine, the first locavore wine movement. He has taught wine, beer, spirits, and beverage management at El Centro College and the Cordon Bleu in Dallas. He has written seven books, including “The Wine Curmudgeon’s Guide to Cheap Wine.”
