RNDC Countersues Sazerac, Alleging It’s Undermining Three-Tier System
March 24, 2023The year got off to a bang when longtime partners Republic National Distributing Co. (RNDC) and Sazerac—leading players in the distributor and supplier tiers respectively—abruptly severed their relationship, with Sazerac parting ways with RNDC across more than 30 markets. Following that move, Sazerac sued RNDC for close to $40 million alleging non-payment of inventory.
Late last week, RNDC struck back, filing a countersuit that claims Sazerac is in fact the party in arrears for millions of dollars and, moreover, has attempted to circumvent the three-tier system in a bid to boost profits. RNDC claims that over a two-year period Sazerac attempted to take over marketing and promotional capacities from RNDC by fielding its own in-house team in ways that may have violated three-tier laws in certain states.
Across its 38-state and D.C. footprint, RNDC is projected to see revenues of $12.5 billion this year, down slightly from 2022, according to Shanken’s Impact Newsletter. The company is the second-largest distributor of wine and spirits nationwide. Sazerac, the second-largest spirits supplier in the U.S. in volume terms, saw its top-selling Fireball label surpass 7 million cases on estimated 5.5% growth in 2022, according to Impact Databank.
In its January lawsuit following the rupture, Sazerac claimed it had needed to spend $100 million to market its products because RNDC failed to meet its obligations in regard to its brands. RNDC’s countersuit reframes that move as an attempt to take an improper level of control over marketing and promotional duties from the distributor tier, while vastly reducing distributor payments.
According to RNDC, Sazerac reduced payments to RNDC to a flat $8.50 per case in 2021. The theory was that RNDC would make less money but also do less work as Sazerac took over marketing duties. But RNDC says that in practice it ended up with the same amount of work for far less money, while Sazerac’s in-house marketing personnel potentially violated laws in numerous states.
RNDC adds that even after Sazerac’s transition to new distributors it continues to maintain that in-house team, usurping duties traditionally—and in some cases legally—reserved for wholesalers in a bid to maximize profits at the expense of the three-tier system.
Subscribe to Shanken News Daily’s Email Newsletter, delivered to your inbox each morning.
