FTC, alcohol distributor take shots over pricing practices

(CN) — The Federal Trade Commission on Thursday sued the nation’s biggest wine and spirits distributor in federal court, claiming that it’s hurting mom-and-pop shops by selling them alcohol at much higher prices than larger competitors.

The pricing practice by Southern Glazer’s Wine and Spirits is in violation of the Robinson-Patman Act, the FTC says in its complaint. The law was passed by a Congress in 1936 amid fears that chain corporations would use discriminatory prices to hurt competition from community-based businesses that sold the same items.

“Ultimately, this process would leave just ‘a few economic overlords to whom everybody else owes economic allegiance,’” the FTC wrote. The agency has asked a California federal judge to order the distributor to stop its price discrimination, as well as for preliminary and permanent injunctive relief.

In a statement, Southern Glazer’s pushed back against the suit, saying the Depression-era Robinson-Patman Act hasn’t been enforced in decades.

That’s because of a bipartisan concern that enforcing it would cause consumers to face higher prices, the company argued. It also noted that the FTC narrowly voted 3-to-2 to authorize the suit.

“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,” the distributor stated. “Southern Glazer’s strongly disputes the FTC’s allegations and will defend itself vigorously in this litigation.”

According to the suit, Southern Glazer’s sales reached about $26 billion last year. The company sells one out of every three bottles of wine and spirits bought across the nation.

In fact, its share of sales in some states means it’s the effective gatekeeper of wine and spirits in those areas, the agency argues. The company currently operates in 44 states and the District of Columbia.

The FTC claims that since at least 2018, Southern Glazer’s has regularly charged smaller, independent retailers more for the same product that it also sells to larger chains in the same areas. That discriminatory pricing is “deeply engrained” as a business strategy.

The FTC offers examples of this pricing, though those examples — along with much of the text of the suit — is censored in public versions of the court filings.

“Small, independent retail businesses are a critical component of the American economy and provide valuable alternatives to megastore chains — to the great benefit of consumers, communities, and competition,” the FTC writes. “For many years, Southern has harmed, and it 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.”

Transactions between Southern Glazer’s and retailers have favored large chain stores and disfavored independent ones, which are often within miles or even blocks of each other, the agency says.

Discounts are given through different means, which include high-volume quantity discounts and scan rebates, among others.

The large-quantity discounts are often the biggest and only within reach of a few large customers. They also aren’t justified by any cost savings for Southern Glazer’s, the FTC writes.

A scan rebate is a cost reduction given to customers for each bottle of a specific brand or item bought — say, a $2 off deal for a bottle of a certain brand of vodka. The retailer is reimbursed by the supplier, like Southern Glazer’s, for each scan rebate offered to customers.

“Southern often awards favored large chain retailers scan rebates that are not made available to competing disfavored independent retailers,” the FTC writes.

Usually, the smaller businesses can’t afford the larger purchases to get the larger discounts. In some cases, Southern Glazer’s declined to make a deal available to a smaller retailer after they expressed interest, the agency says.

However, even when smaller stores could participate, they regularly aren’t told about the discounts given to their larger counterparts, the agency argues in court filings. As a result, it says, the company’s practices could significantly “impede competition in the retail sale of wine and spirits."