TTB Will Closely Scrutinize Retailer Shelf Plans and Schematics
The TTB issued its first ruling of 2016 today regarding "The Shelf Plan and Shelf Schematic Exception to the 'Tied House' Prohibition, and Activities Outside Such Exception." Ruling 2016-1 provides clarification to one of the exceptions to the TTB's Tied-House provisions applicable to breweries, distilleries and wholesale distributors.
Generally under TTB Regulations, "it is unlawful for any industry member (i.e., brewer, distiller, wholesale distributor etc.) to induce, directly or indirectly, any retailer to purchase any products from the industry member to the exclusion, in whole or in part, of such products sold or offered for sale by other persons in interstate or foreign commerce by" various means. Relevant to Ruling 2016-1, "the act by an industry member of furnishing, giving, renting, lending, or selling any equipment, fixtures, signs, supplies, money, services, or other things of value to a retailer constitutes a means to induce" under TTB regulations.
Ohio generally does not permit a brewery to aid or assist retail or wholesale permit holders "by gift or loan of any money or property of any description or other valuable thing, or by giving premiums or rebates."
As noted in Ruling 2016-1, Federal Courts have determined
The tied-house provision was designed to prevent control by alcoholic beverage producers and wholesalers over retailer outlets. Control over retailers involves a link or tie between the wholesaler or producer and the retailer, resulting in a relationship that threatens the retailer's independence.
Say what you want about the tied-house system, but it can provide both a benefit and burden to Ohio's craft breweries. Notwithstanding, both the TTB and Ohio provide exceptions to general tied-house prohibitions.
According to the TTB, industry members may stock, rotate and price products they sell at a retailer so long as competitor products are not disturbed, and may provide a recommended shelf plan or shelf schematic. Rule 43(B)(5) of Ohio's Liquor Control Commission provides industry members similar leeway.
The TTB reviewed industry practices and determined "some industry members do not offer a mere shelving plan alone but also include additional services, sometimes of significant value, that exceed" the plain language of the above exception. The TTB determined the following practices (not exclusive) may result in TTB scrutiny and investigation.
- Assuming, in whole or in part, a retailer's purchasing or pricing decisions, or shelf stocking decisions involving a competitor's products;
- Receiving and analyzing, on behalf of the retailer, confidential and/or proprietary competitor information;
- Furnishing to the retailer items of value, including market data from third party vendors;
- Providing follow-up services to monitor and revise the schematic where such activity involves an agent or representative of the industry member communicating (on behalf of the retailer) with the retailer's stores, vendors, representatives, wholesalers, and suppliers concerning daily operational matters (such as store resets, add and delete item lists, advertisements and promotions); and
- Furnishing a retailer with human resources to perform merchandising or other functions, with the exception of stocking, rotation or pricing services of the industry members' own product.
As "industry members" includes wholesalers and distributors, Ruling 2016-1 would likely apply to a retailer's plan to use a wholesale distributor as the deciding factor of how and what brands get in the aisles of the retailer's stores. Clearly, such a plan would put in the hands of a wholesale distributor the shelf stocking decisions of all brands, including those over which it does not own distribution rights. Additionally, any "voluntary" payment directly to the wholesale distributor by breweries and distilleries under this program would appear to fall within practices bound to receive TTB scrutiny and investigation.
The full language of TTB Ruling 2016-1 can be found here.
Contact OBC with any questions regarding Ruling 2016-1 or other Federal and State regulations.