Ftc Preparing Lawsuit Over Alcohol Pricing

The Federal Trade Commission is preparing to file a lawsuit against the largest U.S. alcohol distributor, Southern Glazer’s Wine and Spirits, over practices related to how it prices and sells wine and liquor around the country, according to four people with knowledge of the matter.

The case would represent yet another move by the Biden administration to rein in dominant companies in all sectors of the economy, as it tries to demonstrate it is fighting to bring costs down for the average consumer. This year the Justice Department has filed sprawling lawsuits against Ticketmaster and Apple and the FTC has sued to block major grocery and consumer goods mergers. The agency has also been scrutinizing supply chains in the grocery and food sectors, saying in March that dominant suppliers and retailers have used their market power to increase prices at the expense of consumers.

President Biden, in his 2021 executive order on competition policy, specifically called out the need to stop “unlawful trade practices in the beer, wine, and spirits markets, such as certain exclusionary, discriminatory, or anti-competitive distribution practices, that hinder smaller and independent businesses or new entrants from distributing their products.”

In recent weeks, FTC staff investigating Southern Glazer’s Wine and Spirits have recommended a lawsuit under the Robinson-Patman Act, some of the people said. The 1936 law is meant to prevent suppliers from offering favorable pricing to certain retail customers over others — typically meaning large chain stores over mom and pop outlets. The FTC has not brought a case under the law in well over 20 years.

The decision to file a lawsuit is not final, the people said. The company is planning to meet with the agency’s five commissioners, led by Chair Lina Khan, to argue against a lawsuit in the coming weeks, and a case could be filed as soon as this month, some of the people said. The FTC's investigation of Southern Glazer's was first reported by POLITICO early last year.

Spokespeople for the FTC and Southern Glazer’s declined to comment.

The FTC could file a case in either federal court or its in-house administrative court, and, if successful, the agency could get an order prohibiting the offending business practices.

The FTC in 2022 opened a similar investigation into Pepsi and Coca-Cola involving pricing in the soft drink market and is also probing the pricing practices of food conglomerate Kraft-Heinz, according to some of the people.

According to a November 2023 Forbes report, Miami-based Southern Glazer is the 10th largest privately held company in the U.S., with around $26 billion in revenue and 24,000 employees. It distributes over 7,000 different brands of alcohol, wine, beer and other beverages around the country. Republic National Distributing Company, the second largest alcohol distributor, had 2022 revenues of around $12 billion, according to Forbes. Combined, the two companies account for the bulk of alcoholic beverage distribution in the U.S.

The Robinson-Patman Act, aimed at promoting a level playing field between small retailers and large chain stores, has been largely dormant for more than 20 years.

The FTC regularly enforced the law for decades before all but abandoning it more than 20 years ago, as the federal government shifted its focus to harm to consumers, namely via higher prices, from harm to competitors. Critics of the law have argued that enforcing it leads to higher prices if it makes it more difficult for volume discounts to be passed on to consumers. The Justice Department explicitly stated in a 1977 report that it would cease Robinson-Patman enforcement, although the FTC never formally abandoned the law.

The agency’s last case under the law was a settlement with spice company McCormick in 2000. Prior to that, its most recent case was a 1988 suit against book publishers including Simon & Schuster and Random House.

Current FTC commissioners are now aiming to revive enforcement, arguing that it should not be up to the agency whether to enforce a law that is on the books. The agency’s chair, Lina Khan, as well as Democratic commissioner Alvaro Bedoya — both Biden appointees — have publicly stated their intention to bring more cases under the law.

Southern Glazer, however, may not be an ideal test case, according to two of the people with knowledge of the matter, who are involved in the alcohol industry. The complex patchwork of state and federal alcohol regulations, as well as the company’s position as a distributor — beholden to suppliers and retailers — could complicate the federal government’s arguments, they said. The Alcohol Tax and Trade Bureau within the Treasury Department is also in the middle of a rulemaking involving how alcohol is sold.

The FTC does not see those issues as an impediment to the case, another of the people said. The only thing at issue is whether all retailers are able to take advantage of the same pricing from suppliers, they said. The person also challenged arguments enforcing the Robinson-Patman Act drives up costs for consumers, noting there is no empirical evidence that the law raises prices.