Distributor’s pricing practices are under scrutiny.
By Jeff Siegel
The Federal Trade Commission will sue Southern Glazer’s, the world’s biggest wine wholesaler, for illegal business practices that include charging small retailers higher prices than its biggest customers. This pricing, claimed the FTC in its complaint, gave the wholesaler’s largest accounts in 33 states, including Total Wine & More, Costco and Kroger, “insurmountable advantages that far exceed any real cost efficiencies for the same bottles of wine and spirits. … This loss of competition ultimately harms consumers on choice and price.”
In fact, said an FTC official, though she couldn’t go into specifics, “in many instances the price differences are eye-popping. It’s not a matter of pennies. … We see this conduct across the board, and in a consistent pattern. It’s not simply an isolated practice, but a central part of Southern’s business model.”
The news, announced this afternoon, shocked the wine industry.
“This news, combined with the news that the Kroger-Albertson’s merger is off, was more than surprising,” says long-time California wine marketer and retailer Dan Fredman. “It has been so long since people worried about the effect of things like this on small retailers, which is to put them out of business. We’ll see where it goes, and if it will affect other large distributors.”
Using an obscure precedent
The FTC is suing Southern Glazer’s under terms of the Robinson-Patman Act, an obscure Depression-era law that has rarely been enforced in the past three or four decades. The act forbids discriminatory price discounting as one way to prevent companies from establishing monopolies. Southern Glazer’s, according to Impact DataBank, controls a little more than one-third of the U.S. wine and spirits wholesale market, about twice as much as second-place RNDC.
In this, the act doesn’t outlaw volume discounts and similar practices, but requires that all discounts be offered to all customers. The difference here, said FTC officials, is that discounts are permitted as long as a seller can demonstrate real cost efficiencies achieved from selling goods at different quantities to purchasers.
But, in many instances, Southern Glazer’s price discrimination exceeds any such cost savings permitted under the act, they said. Its lower prices for large national chains are not derived from differences in Southern’s cost of distributing products to larger retailers, nor do they reflect legitimate attempts to meet prices offered to chain retailers by competing distributors, according to the FTC’s complaint.
“I think it will be interesting to see,” says attorney Rebecca Stamey-White of Stamey-White
APC. “Basically, if the FTC is saying the difference in price not tied to their costs, but more of
most-favored-customer status, then that would be potentially unlawful for Southern, which
could affect quantity discounts for customers across the country.”
Suit or settlement?
Still, the suit is far from settled, say several attorneys.
“The interplay between federal, state and local regulations is going to have a major impact on this case,” says attorney Jason R. Canvasser with Clark Hill in Michigan. “I’m sure Southern Glazer’s will argue that their prices are not discriminatory or part of a larger business model. It should be interesting how this plays out, but like many lawsuits, it would not surprise me if we ultimately see a settlement between the parties somewhere down the road.”
FTC officials, in response to a question, said they didn’t expect the case to be dropped when the Trump Administration takes office next month. Cases have almost never been withdrawn in the agency’s 110-year history.
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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.”
