The Federal Trade Commission (FTC) is suing Southern Glazer’s Wine and Spirits (SGWS), the nation’s largest alcohol distributor, over its pricing practices.
The complaint, filed Thursday in the U.S. District Court for the Central District of California, invokes the little-used Robinson-Patman Act of 1936, which attempts to rein in larger suppliers from influencing prices in order to undercut smaller retailers. Reports that a lawsuit was in the works surfaced this summer.
The FTC alleged that by selling wine and spirits to small, independent ‘mom and pop’ businesses at prices that are “drastically higher than what Southern charges large chains—with dramatic price differences that provide insurmountable advantages that far exceed any real cost efficiencies for the same bottles of wine and spirits—Southern engaged in anticompetitive and unlawful price discrimination.”
An antitrust investigation into the distributor by the FTC began last year, after regulators from the Alcohol and Tobacco Tax and Trade Bureau (TTB) and the Internal Revenue Service (IRS) raided the company’s offices in Union City, California.
“The FTC’s case filed today seeks to ensure that businesses of all sizes compete on a level playing field with equivalent access to discounts and rebates, which means increased consumer choice and the ability to pass on lower prices to consumers shopping across independent retailers,” read a statement from the commission.
The lawsuit seeks to obtain an injunction prohibiting “further unlawful price discrimination by Southern against these small, independent businesses.”
SGWS hit back with a statement alleging that Robinson-Patman Act is a “Depression-era federal antitrust law that has not been enforced in decades because of bipartisan concern that enforcement leads to higher prices for consumers,” read the statement. The distributor argued that the suit was authorized among party lines, with dissents coming from commissioners Melissa Holyoak and Andrew Ferguson, who has been selected as the future chair of the FTC under President-elect Trump’s administration.
“Alcohol distributors face numerous regulations that dictate how they compete and can price and discount products, and Southern Glazer’s complies with those legal requirements,” read the statement. “Southern Glazer’s strongly disputes the FTC’s allegations and will defend itself vigorously in this litigation.”
Industry Reacts
The FTC, TTB and Department of Justice have been taking a closer look at the beverage-alcohol industry since 2021, after President Joe Biden issued an executive order urging for an examination of the state of competition in the U.S. economy. The lawsuit completes a series of other Biden administration lawsuits through the FTC that attempt to level the playing field for small retailers and reduce the impact of high food and beverage prices on consumers.
Representatives of the craft spirits sector, who have bemoaned recent distributor consolidation as a barrier for smaller spirits suppliers, applauded the FTC’s effort.
“Market access remains one of the biggest challenges facing America’s craft spirits industry,” said Margie A.S. Lehrman, CEO of the American Craft Spirits Association in a statement. “This action by the FTC is an important step to protect small businesses but also should serve as a clarion call to all legislators and regulators to enact policies that enable craft spirits manufacturers to compete in this complex and consolidated marketplace.”
The CEO welcomed the crackdown on anticompetitive pricing practices “that hurt small independent retailers who are invaluable partners for craft distillers.”
The legal complaint alleges that for many years, “Southern has harmed, and continues to harm, smaller grocery stores, convenience stores, and other independent retailers by charging them higher prices as compared to large national and regional chains.”
The FTC’s enforcement action via the Robinson-Patman Act does not prohibit quantity discounts, also known as volume discounts, which are permitted under the Act so long as a seller can demonstrate real cost efficiencies achieved from selling goods at different quantities to purchasers. But the complaint alleges, in many instances, SGWS’s price discrimination exceeds any such cost savings permitted.
But the efforts to regulate bev-alc on a federal level may conflict with state laws that might allow discounts to retailers.
“It has the chance to cause upheaval in state laws, because if Southern can’t provide deals to bigger chain retailers that they were providing before that have an advantage over small retailers, then it’s basically going to have the FTC creeping into the state regulatory scheme, which is really supposed to be protected under the 21st Amendment,” said Chicago-based liquor lawyer Sean O’Leary.