U.S. Treasury Dept Report Flags Competition Concerns In The Drinks Market
February 10, 2022Following an executive order from the president last year, the U.S. Treasury Department has issued its widely-anticipated report on competition concerns in the beverage alcohol sector. The report identifies two trends shaping the business over the long term—the proliferation of small producers and the consolidation of distributors—while putting forth a set of recommendations aimed at promoting competition and market access for smaller players moving forward.
Broadly, the report urges the Department of Justice (DOJ) and Federal Trade Commission (FTC) to “vigorously enforce the antitrust laws, while continuing to examine their approach to horizontal consolidation and to evaluate the effectiveness of their remedies in the alcohol markets.”
More specifically, it asks those agencies to “consider the effects on distribution stemming from the acquisition of craft brewers by major brewers,” “to apply particular skepticism to claims of efficiencies, and particular attention to concerns relating to coordination, in assessing mergers,” “to engage with state actors on state laws impacting competition,” and “to consider conducting a retrospective on the pricing, innovation, and distribution impacts from craft acquisitions by major brewers,” among others.
It also recommends that the government take “a closer look at vertical mergers or arrangements that may lead to monopolization or exclusion in the alcohol markets, particularly exclusion of small firms or new entrants.” The TTB is asked to update labeling rules to prioritize public health and reduce regulations and compliance costs that can burden small players.
The TTB is likewise tasked with strengthening and enforcing category management rules against preferential slotting and shelving arrangements, and the states are urged to “examine the effects of their regulations on small producers and their ability to compete, including their access to distribution.” The report specifically cites some states’ “post and hold” laws restricting price competition, which mandate distributors to publicly set and hold prices, as well as franchise laws. Perhaps most provocatively, it suggests that “state legislatures might consider if the benefits of the three-tier system outweigh its costs to competition and study markets without a three-tier system.”
In a statement, the Wine & Spirits Wholesalers of America applauded parts of the report but said it “fails to recognize how consolidation in other tiers created the need for an evolution of the distribution tier to address supply chain and logistics challenges,” adding that “any federal or state legislation that proposes a distribution model outside of the three-tier system introduces issues of compliance, tax collection, underage access, illicit product, anticompetitive practices, and diminishes the effectiveness of regulators.”
Subscribe to Shanken News Daily’s Email Newsletter, delivered to your inbox each morning.Tagged : Treasury Department, TTB, WSWA
