MAY WE DO THAT? Common Questions Facing Brewery Owners When Dealing with Retailers and Wholesalers

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1 MAY WE DO THAT? Common Questions Facing Brewery Owners When Dealing with Retailers and Wholesalers Melinda Sellers, Burr & Forman LLP Anda Lincoln, Funkwerks, Inc.

2 Distribution and Protection for Brewers Federal Alcohol Administration Act Distribution Agreements Self-Distribution

3 Federal Alcohol Administration Act 27 U.S.C a 205 Exclusive Outlet Tied House Commercial Bribery Consignment Sales Labeling Advertising State Law Exemption for Beer

4 Definitions Industry Member Any person engaged in business as a distiller, brewer, rectifier, blender or other producer or as an importer or wholesaler of distilled spirits, wine or malt beverage Trade Buyer Any person who is a wholesaler or retailer of distilled spirits, wine, or malt beverages Retailer Any person who is engaged in the sale of distilled spirits, wine, or malt beverages to consumers

5 Exclusive Outlet 27 CFR Does not apply between a producer and a wholesaler ( 8.3) Only applies to the extent the state law has similar requirement ( 8.4(b)) Unlawful to require a retailer to purchase products to the exclusion of products sold by other persons ( 8.21) Contract that requires retailer to purchase beyond a single transaction is prohibited ( 8.22) Third party agreements that result in exclusion are prohibited ( 8.23) Can not require participation in a promotion to obtain a product ( 8.54(b))

6 Tied House 27 CFR Applicability: Does not apply to transactions between wholesaler and brewer ( 6.3) Does not apply to transactions between industry member and retailer wholly owned by industry member ( 6.3) Only applies to the extent state law imposes similar requirements ( 6.4)

7 Tied House Rule: It is unlawful to induce a retailer to purchase any products to the exclusion of products offered for sale by other persons by any of the following means: Holding any interest in any license with respect to the premises of the retailer Acquiring any interest in the real or personal property of the retailer used in conducting the business

8 Tied House 3. Furnishing, giving, renting, lending or selling to any retailer any equipment, fixtures, signs, supplies, money, services [Note: Exemption in 6.81] 4. Paying or crediting the retailer for any advertising display or distribution service 5. Guaranteeing any loans made to the retailer

9 Tied House 6. Extending credit ( 6.65) for period beyond customary terms ( 6.65) 7. Requiring retailer to take and dispose of certain quota of products Outright ownership not prohibited ( 6.27) Acquisition of a mortgage constitutes an interest in the retailers property within the meaning of the Act Renting display space within the retail establishment constitutes an interest in the retailer s property

10 Tied House Delaying delivery of a product beyond the time that payment is received is furnishing a thing of value Can not require the purchase of one product in order to obtain another product Example: requirement that retailer purchase a certain amount of product in standard packaging to receive it in premium packaging May only purchase seasonal product if regularly carry session product (See also 6.152)

11 So What Can We Do to Sell Our Beer? Provide or sell retailer equipment, inside signs, supplies, or services (subject to record keeping requirement) Give or sell product displays to a retailer; value must not exceed $300 per brand must bear conspicuous and substantial advertising on the product or industry member which is permanent or securely affixed Provide or sell point of sale materials ( 6.84) Provide line cleaning services ( 6.88)

12 So What Can We Do to Sell Our Beer? Provide samples not more than 3 gallons of beer to retailers who have not purchased that brand in the previous 12 months Provide engraved blocks to retailer Offer samples or tours of brewery ( 6.94) Provide coupons Offer contest prizes, premium offers, refunds to consumers but not to employees and representatives of wholesalers or retailers

13 So What Can We Do to Sell Our Beer? Stock, rotate and affix prices ( 6.99) Provide shelf plan or schematic ( 6.99) Provide outside signs so long as sign also contains substantial advertising about the product (may not exceed $400)

14 Commercial Bribery 27 CFR Applicability: to transactions between industry members and employees, officer, or representatives of trade buyers1 ( 10.3) Only applicable to brewers if the state law imposes similar restrictions with respect to similar transactions between a brewer and wholesaler ( 10.3(b)) Rule: Unlawful for industry member to induce a trade buyer to purchaser the industry member s products to the exclusion of products sold or offered for sale by other persons by offering or giving: A bonus, premium, or compensation or other thing of value 1 Wholesaler or retailer

15 Commercial Bribery What is Meant by Bonuses, Premiums, Compensation or Other Things of Value? Need not be given for the purpose of direct inducement Gifts, donations, or payments for advertising in trade buyer employee associations are considered given directly to the employees Gift of free trips is implied will pass through to officers or employees

16 Commercial Bribery Test: Do records reflect the gift as an asset of the company (thus subject to tax consequences) or as a personal asset of an officer or employee or representative? Must be bona fide sale no privilege of return Sales contests are inducements within the meaning of the Act Industry member paying money to trade buyer employee in return for the employee agreeing to order products from the industry member without knowledge or consent of the trade buyer-employer ( 10.52)

17 Consignment Sales 27 CFR Applicability: Transactions between industry members and trade buyers ( 11.3) Only applies to brewers if the State law imposes requirements on similar transactions ( 11.4) Rule: Must be a bona fide sale no privilege of return

18 Consignment Sales Unlawful for an industry member to sell products if any part of the sale involves the acquisition by the industry member for the trade buyer as a condition to present or future sales, to accept other products from the trade buyer ( 11.23) Unlawful to buy or rent the display shelf or warehouse space owned by the retailer ( 11.24) Unlawful to accept returns because product was over stocked ( 11.45) or because seasonal ( 11.46)

19 Advertising TTB may require written report containing information on sponsorships, advertisements, promotions, and other activities for a period not to exceed 3 years. The listing of names and addresses of 2 or more unaffiliated retailers selling products of industry member is permitted Can not contain retail price of product Listing is only reference to the retailer ( 6.98) Advertisements in programs or brochures issued by retailer associations at a convention or trade show may not exceed #300 per year for any retailer association ( 6.100) Outside signs permitted but may not exceed $400 ( 6.102)

20 Advertising Must contain name and address of industry member responsible for its publication Conspicuous statement of the class to which the product belongs (unless advertisement refers only to general line of beers) ( 7.52)

21 Advertising Prohibitions False or misleading statements Obscene or indecent Any statement or representation of or relating to analyses, standards or tests (irrespective of falsity) that the TTB finds to likely mislead consumer Any statement that the beer is brewed under or in accordance with any municipal, state, or federal law

22 Advertising: Regulated Ads Phrase or Ad Buy Birmngham Beer at the Piggly Wiggly Supermarket and Publix Supermarket for $9.99 / six pack Buy Birmingham Beer at the Piggly Wiggly Supermarket Rule Not allowed to advertise the retail price of product Not allowed to advertise only one retail location

23 Distribution Agreements Know the law of the state Franchise State? Notice procedure becomes extremely important Specify services expected of each party: Line cleaning Promotional events In-person orders Frequency of deliveries Storage & handling requirements Sales and inventory data to be provided Method / frequency

24 Distribution Agreements Consider binding arbitration vs. proceeding in court Are there administrative remedies that must be pursued first from a local or State alcohol board or agency? Storage requirements Term State and Local Governing Agreements

25 Self-Distribution Know your state s laws many states do not allow self- distribution. Local market Transportation requirements Distance and cost efficiencies

26 Self-Distribution Some tips for selling to retailers: Schedule appointments and know the store what what it focuses on Schedule tastings Make timely deliveries Follow-up regularly