FTC accuses alcohol distribution giant Southern Glazer’s of ‘unfair pricing’
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The Federal Trade Commission filed a lawsuit Thursday against the nation’s largest alcohol distributor, Southern Glazer’s Wine and Spirits, over its pricing and sales strategies, which regulators say violate a price discrimination law that has been dormant for decades.
“When local businesses get squeezed because of unfair pricing practices that favor large chains, Americans see fewer choices and pay higher prices – and communities suffer,” FTC Chair Lina Khan said in a news release. “The law says that businesses of all sizes should be able to compete on a level playing field.”
The lawsuit, which commissioners authorized in a 3-2 vote along party lines, marks the first time in more than two decades that federal regulators have enforced the Robinson-Patman Act. The law, which was passed in 1936, prohibits unjustified price discrimination and promotes fair competition between small and large firms.
The FTC’s decision could force a shift in how some of the biggest retailers price their products and represents another big swing from the Biden administration in its remaining weeks to crack down on the grocery sector. Khan and FTC Commissioner Alvaro Bedoya, both Biden appointees, have previously said they would invoke the 1936 law.
“Enforcers have ignored this mandate from Congress for decades, but the FTC’s action today will help protect fair competition, lower prices, and restore the rule of law,” Khan said in a statement.
Based in Miramar, Florida, Southern Glazer’s made roughly $26 billion in revenue last year, positioning it as the 10th-largest privately held U.S. company, the FTC said. The company sells 1 in 3 bottles of liquor in the United States, according to an FTC official.
Southern Glazer’s has an office at 3901 Hanna Circle in Indianapolis.
The FTC alleges that Southern Glazer’s has deprived small, independent retailers of discounts and rebates awarded to larger chains, forcing “mom-and-pop” businesses to pay morethan their competitors. That ultimately hurts consumers by raising prices and limiting choices, regulators said.
“Disfavored independent retailers frequently are not informed about the large quantity discounts, rebates, and other special deals available to favored chain retailers, even when it may be logistically feasible for the independent retailer to participate in the deal,” the FTC wrote in a news release.
Price discrimination is permitted under Robinson-Patman if the companies can justify cost efficiencies, FTC officials said. Southern Glazer’s failed to do so, regulators allege.
Southern Glazer’s did not immediately respond to The Washington Post’s request for comment.
President Joe Biden pointed to alcohol distribution in a 2021 executive order on promoting competition, directing the Treasury Department to look into “unlawful trade practices” that make distribution more difficult for “smaller and independent businesses or new entrants” in the beer, wine and spirits industry.
In a subsequentreport, the Treasury Department found that distributors participate in “discriminatory conduct.” The agency banned practices such as slotting, which refers to paying retailers for preferential display of products on shelves.
An FTC study published in March found that big-box chains squeezed suppliers for lower prices during the coronavirus pandemic. In open meetings and panel discussions following the report’s release, independent business owners – who are often the only option in poor urban and rural areas – spoke of how these tactics led to rises in their wholesale prices as suppliers tried to offset the price cuts for bigger retailers.
With no enforcement of Robinson-Patman, “some of the most vulnerable communities in this country don’t have access to fair prices,” the FTC’s Bedoya told The Washington Post earlier this year. “The people who serve those communities don’t have a level playing field.”
Critics of Robinson-Patman have said that enforcing it would lead to higher prices, and some have recommended Congress repeal the act. In response, Bedoya said that “there is no evidence that enforcing this law would raise prices” and that not every American benefits equally from lower prices at big-box stores.
Congress passed the Robinson-Patman Act in 1936 as lawmakers worried that retail chains’expansion would hurt wholesalers and small businesses. “The impetus wasn’t to provide consumers with better deals but to protect small businesses,” Seattle University law professor John B. Kirkwood said.
But the FTC’s enforcement of the law fell off in the late 1980s following a “conservative shift in antitrust” thinking, Kirkwood said, with courts and regulators prioritizing impact on consumers rather than business competitors. The last time the FTC invoked the law was in a 2000 lawsuit against spice company McCormick, which at the time was the largest U.S. supplier in the category to grocery stores. McCormick agreed to a settlement with the FTC. The Justice Department announced in 1977 that it would stop enforcing the Robinson-Patman Act.
The FTC faces some challenges in enforcing Robinson-Patman, Kirkwood said, especially the “meeting competition” standard, which holds that sellers can lower prices or offer better promotions if they believe they would otherwise lose businesses to a competitor.
“It’s the sleeping giant of Robinson-Patman enforcement,” he said.
But that defense doesn’t justify a lack of enforcement, Bedoya argued. “The courts have narrowed the law in various ways over the years, and so no one’s saying this is going to be easy,” he said. “And at the same time, it’s still the law – it’s still our job to enforce it.”
In his dissent, Republican Commissioner Andrew Ferguson – President-elect Donald Trump’s pick to chair the commission – wrote that the complaint failed to prove “that the price discrimination injured any consumer by leading to higher prices, lower output, diminished product quality, less product choice, a reduction in services, or a decline in product innovation.”