The Bottom Line
- The FTC’s action against Southern Glazer is a wakeup call not just to the wine and spirits industry, but to every seller of commodities, including both brands and retailers.
- While there is also a private right of action under the Robinson-Patman Act, the FTC’s decision to bring this case may show a resurgence in enforcement, especially where large chains are unfairly favored over small, independent retailers.
- With a changing administration, the partisan makeup of the FTC’s Commissioners will shift rightward, and the progress of this case hangs in the balance. We will continue to monitor developments.
The Federal Trade Commission (FTC) has just filed suit against Southern Glazer’s Wine and Spirits – the largest distributor of wine and spirits in the United States – alleging that Southern Glazer’s engaged in unlawful price discrimination in violation of the United States Robinson-Patman Act. This is the first time that the FTC enforced the Robinson-Patman Act since 2000.
Robinson-Patman Act: Price Discrimination
The Robinson-Patman Act, 15 U.S. Code § 13, generally prohibits price discrimination in interstate commerce between purchasers of commodities of like grade or quality, where such discrimination may negatively impact competition, including by creating a monopoly or unfairly favoring one market participant over another. This Depression-era law takes a stand, banning exclusive pricing for only favored buyers.
The Robinson-Patman Act does not apply for price differentials justified by differences in the cost of manufacture, sale, or delivery that derive from differing methods or quantities. However, sellers may only make “due allowance” for such differences, and are not given carte blanche to offer quantity or other discounts that do not reflect cost differences for the seller.
Additionally, the Robinson-Patman Act’s prohibition on price discrimination does not apply where a seller attempts to meet an equally low price of a competitor.
The FTC’s Allegations
As the largest alcoholic-beverage distributor in the United States, Southern Glazer’s operates in 44 states and Washington, D.C., often controlling a significant share of wine and spirits sales in a given state and in some cases serving as the exclusive distributor in a given state for some of the largest wine and spirits brands.
According to the FTC’s heavily redacted complaint, since at least 2018 Southern Glazer’s has favored large chain stores by charging them significantly lower prices than to smaller, independent retailers. In many instances, Southern Glazer’s charged dramatically higher prices to smaller, independent retailers, for identical bottles of wine and spirits, compared to larger chains that were close in proximity to them.
The FTC alleged a number of different practices that led to the price differentials at issue. Southern Glazer’s often offered large quantity discounts – including discounts that were cumulative among chains of stores – that were not functionally available to small, independent retailers. Additionally, even where smaller retailers could have potentially taken advantage of a given discount, Southern Glazer’s did not inform such retailers about these discounts. According to the FTC, these discounts were not justified by cost differences nor to meet lower prices offered by competitors.
The cumulative effect of Southern Glazer’s practices, according to the FTC, was to favor large chain stores over their smaller competitors, which is precisely what the Robinson-Patman Act was intended to avoid.
Dissents and What’s Instore for the Future
FTC Commissioners Ferguson and Holyoak – the two Republican FTC Commissioners – both dissented from the FTC’s decision to bring the action, arguing that costs justified the price differences, did not have the impact on competition purported by the FTC, and were largely not in “interstate commerce.”
Under the upcoming administration, the FTC will get a Republican Chair and an additional Republican Commissioner, so much is bound to change in the new year. We will continue to monitor advancements in this case and the broader implications of the new administration on the FTC’s priorities.