Largest U.S. Alcohol Distributor Facing FTC's WRATH For "Secret Kickbacks"

By Lisa Pelgin | Thursday, 06 June 2024 03:00 PM
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Image Credit : Photo by Cone Health

The Federal Trade Commission (FTC) is reportedly preparing to file an antitrust lawsuit against Southern Glazer's Wine and Spirits, the largest alcohol distributor in the United States, according to two sources familiar with the situation who spoke to CNBC.

The lawsuit, which could be filed in the coming weeks, is expected to center around allegations of "secret kickbacks" provided by Southern Glazer's to large retail customers, a potential violation of the 1936 Robinson-Patman Act.

Southern Glazer's, a Florida-based company, is a significant player in the alcohol distribution industry, serving as an intermediary between alcohol producers and liquor stores. The company, which was established in 1968, distributes alcohol for over 7,000 brands across 44 states. In 2023, Southern Glazer's reported a staggering $26 billion in revenue, as per Forbes.

The Robinson-Patman Act, an antitrust law enacted in 1936, prohibits companies from offering preferential prices to one buyer over another for the same product. However, the last case brought under this law was in 2000, making it a relatively obscure piece of legislation. The FTC's interpretation of the Act does not constitute a blanket ban on price discrimination and could permit volume discounts. The law only becomes applicable when price discrimination practices disrupt competition, a claim that the FTC's website acknowledges is legally "complex" to substantiate.

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Critics of the Robinson-Patman Act argue that it unintentionally prohibits discounts that could potentially reduce consumer prices. This is a precarious proposition for President Joe Biden, who has anchored his economic platform on making costs more affordable for voters. Some critics have even suggested that the law effectively criminalizes offering discounts on bulk goods, as smaller purchasers may not be able to manage such large quantities.

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The FTC's case against Southern Glazer's is further complicated by the fragmented regulatory structure of the alcohol industry. Alcohol distribution laws are typically state-specific, rather than being governed by a unified federal policy. This could pose a challenge for the FTC in litigating a case against Southern Glazer's, one of the sources noted.

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Both the FTC and Southern Glazer's declined to comment when approached by CNBC.

This would not be the first time Southern Glazer's has faced legal action over alleged anticompetitive business practices. In 2022, alcohol distribution start-up Provi, formerly known as Tiz Inc., sued Southern Glazer's and another major alcohol distributor, Republic National Distributing Company. Provi claimed that the alcohol giants had agreed to boycott the start-up and had persuaded other retailers not to do business with it, effectively stifling its ability to compete in the industry.

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Last Thursday, a judge dismissed requests from Southern Glazer's and Republic National to dismiss Provi's case.

An FTC lawsuit against Southern Glazer's would add to a series of legal actions by the commission, which have become characteristic of aggressive antitrust enforcement under President Joe Biden. During the 2022 fiscal year, the FTC filed 24 challenges to block prospective mergers, the second-highest number of the past decade, according to an annual report. Companies such as Meta, Amazon, Microsoft, and Kroger have all faced antitrust lawsuits from the FTC in the past three years.

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FTC Chair Lina Khan, speaking at CNBC's CEO Council Summit in Washington on Tuesday, criticized the previous regime for allowing deals that were "facially unlawful" to proceed. "That means that we then have to spend public resources going to court," Khan said.

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