EO of Competition: Changing Trends in the Beer, Wine and Spirits Industries – Antitrust / Competition Law


[ad_1]

President Biden’s July 2021 Executive Order on Competition in the U.S. Economy (the executive order) calls on federal regulators to “actively protect the vitality of the US beer, wine and spirits markets.” In addition to calling on the Antitrust Division (DOJ) of the United States Department of Justice and the Federal Trade Commission (FTC) to step up antitrust enforcement in various sectors, the executive order directs the Secretary of the Treasury, in conjunction with the DOJ and FTC, to review and report on the competitive landscape in the alcoholic beverage markets. The report will focus on: (i) illegal or anti-competitive business practices that hamper small businesses; (ii) consolidation patterns among market players; and (iii) unnecessary regulations that hinder competition. The decree also directs the Secretary of the Treasury, through the Office of Alcohol and Tobacco Tax and Commerce (TTB), to consider removing or amending regulations that constitute unnecessary barriers to trade. entrance.

The regulators’ report on competition in alcohol markets is expected in early November 2021, and any regulatory changes should be considered by March 2022. Although the decree may trigger future regulatory changes, it may also foreshadow control increased antitrust in beer, wine, and spirits, and particularly in the distribution of liquor.

In some ways, the alcohol-specific mandates of the Executive Order may come as a surprise. Despite the setbacks resulting from the Covid-19 pandemic, the demand for craft beer, wine and spirits has increased in recent years and more and more small producers are entering the market. For example, according to data from the Brewers Association, the number of craft breweries in activity almost doubled between 2015 and 2020, with nearly 4,000 small producers in operation.

Despite the constant flow of new producers, a recent report from the Congress Research Service revealed that artisanal producers made up only 8% of the total alcoholic beverage market in 2020. With most of the market controlled by a smaller number of large players, regulators will carefully consider how existing regulations and business practices affect competition.

Indeed, the TTB has already asked for public comments on how current regulations affect competition. The dominant theme in the comments submitted by small brewers, distillers and wine growers is frustration with the three-tiered distribution system.1 Under this system, beer, wine and spirits producers generally rely on distributors (or wholesalers) to get their products to the retail market. Regulatory frameworks for alcohol distribution in many states provide protections for wholesalers and distributors, including exclusive regional territories and caps on the amount of beer, wine and liquor that producers can distribute and sell themselves.

Many commentators have argued that territorial exclusivity and rigid rules governing distribution agreements give distributors unwarranted influence in negotiations. Some have also expressed concern that grouping between distributors Further limits the distribution options available to small producers, making it even more difficult to compete for retail space, as big brands are generally more profitable and have more influence over distributors.2

As possible solutions, some commentators call for regulations that limit the ability of distributors to group together and claim exclusive territory, as well as promote the ability of producers to
self-distribute and negotiate more advantageous distribution contracts. Many are also calling for more liberal rules allowing producers to sell their products. directly to consumers.

In fact, antitrust regulators have for some time focused on competition policy in alcoholic beverage markets. For example, in March 2020, the FTC and DOJ sent a joint letter urging the California State Assembly to vote against a bill that would limit the ability of beer producers to cancel, modify or deny renewal. of their agreements with distributors. The agencies argued that the bill was “likely to lessen competition between California beer wholesalers and increase manufacturers’ costs to obtain distribution services from wholesalers.”3 The law project never received a vote at the California State Assembly.

The executive order may also prompt the DOJ and FTC to begin paying more attention to distributor mergers, as well as potentially anti-competitive business practices in the industry. The largest players in the market may be the subject of investigations and be called upon to respond to requests for civil investigations concerning their business practices. Agencies can carefully research any practices or arrangements between larger producers, distributors and retailers that limit the ability of smaller players to compete.

Key points to remember

  • Large producers and distributors of alcoholic beverages should review their business practices and be prepared to justify those that could disadvantage small competitors.
  • Market players, and in particular distributors and producers, should proactively advocate with regulators and legislators, individually or through professional associations, to ensure that their positions are properly represented in any future review. state and federal alcohol regulations.

This article is part of our series “Unwrap the decree on the promotion of competition”. Click here for other related articles. Please contact a member of the Winston & Strawn Antitrust / Competition Practice Group or your Winston Relations Lawyer for more information.

Footnotes

1. TTB’s request for information and public comments submitted to date in response can be viewed here.

2.
See, for example, Comment 29: Anonymous (August 6, 2021).

3. Ltr. from the FTC and the Antitrust Division of the DOJ to the Hon. Jim Wood, California State Assembly (March 20, 2020).

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

[ad_2]

Leave a Reply

Your email address will not be published. Required fields are marked *

*