Kroger Proposes A Distributor Oversee Brand Placement

Kroger, one of the largest alcohol retailers in the United States, has proposed a drastic new alcohol category management system. The new category management system would be managed by Southern Wine and Spirits, one of the largest distributors in the country, and would be funded by wholesalers and suppliers. What Kroger suggests is a “pay to play” system that would be detrimental to many small wineries who may not have the resources to participate. At this point it is unclear whether or not this proposal is legal in the eyes of TTB.

Kroger currently uses a system in which the biggest producers work as “category captains” who advize Kroger how to allocate shelf space. This new plan would allow Southern Wine and Spirits to oversee how much display brands get at the more than 2,600 Kroger stores across the US. Alcohol companies, rather than Kroger, will pay Southern for the service.

WineAmerica, along with our industry colleagues, have concerns over the legalities of this new system. We question the legality of the proposed system under the Federal Alcohol Administration Act, as well as state tied house laws. With our industry colleagues we have drafted a letter to the Treasury department requesting a careful review and guidance on this proposal. The letter language is below:

 

November 18, 2015

Jacob J. Lew, Secretary

Department of the Treasury

1500 Pennsylvania Ave., NW

Washington, DC  20220

 

Re:  Request for Clarification on Category Management from the Alcohol and Tobacco Tax and Trade Bureau

Dear Secretary Lew:

On behalf of the undersigned trade associations representing beer, wine and distilled spirits, we are writing to urge Treasury Department action on clarifying the rules of trade practices generally and category management specifically high profile category management concept being promoted by one of the nation’s largest retailers. We believe the category management proposal being mandated by one of the leading national grocery store chain operators raises serious issues of compliance by the alcohol industry with both state and federal laws.

It is the responsibility of the Alcohol and Tobacco Tax and Trade Bureau to the Federal Alcohol Administration Act (FAA Act).  We are specifically requesting clarification of TTB’s category management guidance and enforcement of the Act’s various trade practice  provisions such as the tied house, commercial bribery and exclusive outlet prohibitions. Moreover, prohibitions on providing items of value either directly or through indirect inducements such as arrangements are of immediate concern for our members.

As an industry, we support an appropriate regulatory framework at both the Federal and State levels.

With the dramatically increasing number of legitimate beverage alcohol producers in the beer, wine and spirits industries, as well as the increasingly concentrated economic power at the retail tier, the need for TTB to provide a fair and level playing field for the regulated industry alcohol laws and regulations has never been greater.

When issues such as the proposed retailer planogram system (category management) and payments to a third party providing services to one retailer are industry members, TTB what is permissible under the law and the penalties for.

In 1995, TTB’s predecessor agency ATF issued revisions to trade practice regulations to accommodate more recent business practices. However, the exceptions listed in the revised guidance were intended to be limited, This proposed national grocery store chain program goes far beyond the scope of the amendments and is contrary to the purpose of the Federal Alcohol Administration Act.

Please issue guidance to the industry on this closely watched issue. We are available to about this program.

 

Reach out to Michael Kaiser, Director of Public Affairs here at WineAmerica with any questions. mkaiser@wineamerica.org

WineAmerica is the national voice the American wine industry. Based in Washington, D.C., WineAmerica represents wineries in 43 states and leads a coalition of state and regional wine and grape associations.  As an industry leader, WineAmerica encourages the dynamic growth and development of American wineries and winegrowing through the advancement and advocacy of sound public policy.