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2015 Lessons Learned/2016 Practical Advice

Alcohol >> For Alcohol Brands, New Is Not Always Better

April 19, 2016

In 2015, a contentious "new" alcohol product — Palcohol "powdered alcohol" — was, somewhat surprisingly, approved for labelling and sale by the U.S. Alcohol and Tobacco Tax and Trade Bureau, setting off a chain reaction among the states to counteract the TTB's approval. From March to December, nearly a hundred bills to ban this type of product were introduced in over 40 states, the District of Columbia, and Puerto Rico, a reminder to the industry that states still hold much power when it comes to alcoholic beverages.

However, in today’s "disruption" economy, the state's absolute power to control industry practices is increasingly being questioned, a recent example being a challenge by an operator of retailer digital advertising display units to a California law that purportedly prohibited alcoholic beverage suppliers from buying space on those units because a percentage of the ad buy revenue necessarily flowed to the retailers. California law expressly forbids manufacturers and wholesalers of alcoholic beverages from giving anything of value to retailers for advertising their alcoholic products. And, in a rare setback to the state’s authority, a federal court in the U.S. Court of Appeals for the Ninth Circuit was sympathetic to the challenger’s argument that such a strict and absolute prohibition against any money flow from supplier to retailer, no matter how indirect it may be, may not be constitutional.

The U.S. Food and Drug Administration recently released its proposed rule to establish requirements for fermented and hydrolyzed foods, or foods that contain fermented or hydrolyzed ingredients that bear a "gluten-free" claim. The final rule may affect the manner in which alcoholic beverages not covered by the labeling provisions of the Federal Alcohol Administration (FAA) Act (i.e., beers that are not sake or malt beverages under the FAA Act and wines with an alcohol content of less than seven percent alcohol by volume) are labeled and advertised.

Looking Ahead

  • As newly consolidated alcoholic beverage suppliers seek to expand market share, there should be a continued push to bring innovation and new types of products to the U.S. marketplace.
  • Whether the more entrenched interests and antiquated alcoholic beverage legal framework will allow such innovation remains to be seen.
  • For marketers and agencies trying to successfully push the limits in the evolving alcoholic beverage industry environment, a carefully considered strategy and thorough legal review will be critical.