(WASHINGTON)—Wine & Spirits Wholesalers of America (WSWA) President and CEO Craig Wolf yesterday wrote to the industry’s primary federal regulator seeking clarification about the legality of a new single source retail service providers program being implemented by The Kroger Company (Kroger).
“WSWA has serious concerns that the Single Source Program may result in violations of the Federal Alcohol Administration Act by wholesalers who may participate in that program,” Wolf said in the letter to Alcohol and Tobacco Tax and Trade Bureau (TTB) Administrator John Manfreda.
According to documents submitted with the letter, the Single Source Program will require payment by wholesalers to merchandisers selected by Kroger to handle the placement of beverage alcohol products on Kroger shelves across the country. Wolf wrote that this was unlike current category management practices where wholesaler employees assist with merchandising products in their portfolios. He suggested to Manfreda that the change in structure recommended by Kroger would constitute a direct payment to Kroger-selected merchandisers for merchandising of all beverage alcohol product purchased by the chain, a change that creates a potential “unlawful inducement” under the FAA Act and TTB regulations.
The association also sought clarification on a number of policy questions, including:
- Does the payment by a wholesaler of money to a merchandiser selected by a retailer constitute an unlawful inducement, directly or indirectly?
- Does the payment by a wholesaler of money to a merchandiser selected by a retailer constitute a slotting fee?
- Does the payment by a wholesaler of money to a merchandiser selected by a retailer violate regulations prohibiting merchandising of a competitor’s product?
- If a failure by a wholesaler to pay a fee paid by other wholesalers for the Single Source Program leads to the exclusion of that wholesaler’s product, could other participating wholesalers be held liable for that exclusion?
- To what extent could suppliers be found to be engaging in impermissible conduct under the FAA Act as a result of their role in being the conduit for the wholesaler payments required by Kroger for management of the Single Source Program?
- Who manages/provides direction to the third party merchandisers selected by Kroger to the Single Source Program?
The FAA Act was enacted at a time when tied-house arrangements and other pre-Prohibition excesses and abuses were fresh in the mind of Congress. Its provisions were designed to ensure the independence of each of the beverage industry’s three tiers and also to establish important checks and balances within the system. That law, and related state laws, have worked to create and sustain the safest and most responsible system of distribution of beverage alcohol in the world today, Wolf pointed out.
A copy of the letter is available here.
WSWA is the national trade association representing the wholesale tier of the wine and spirits industry, dedicated to advancing the interests and independence of wholesalers, distributors and brokers of wine and spirits. Founded in 1943, WSWA has 362 member companies in 50 states and the District of Columbia, and its members distribute more than 80 percent of all wine and spirits sold at wholesale in the United States. More information is available at www.wswa.org.