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TRUST the PROCESS B
link and you may have missed it, but earlier this year, the Biden administration issued an Anti-trust Executive Order (“EO”) that has the potential to greatly impact the alcohol beverage industry.1 The EO seeks to promote competition in the American economy through changes to regulations throughout the federal government. This broad order identified several industries, including beverage alcohol, that the administration is keen on scrutinizing. Essentially, federal regulators have been ordered to find ways to make business more competitive so smaller companies can succeed in industries where power is confined to a few big actors. While the way the government revises regulations as a result of the EO will play out over the following months, and likely years, it’s important to understand what is going on now and how it could affect your business so you can plan ahead. Relevant to the alcohol beverage industry, the EO includes a directive for the Secretary of the Treasury to produce a report assessing the “threats to competition and barriers to new entrants" in beer, wine, and spirits including: “[U]nlawful trade practices” that “hinder smaller and independent businesses or new entrants from distributing their products,” including “exclusionary, discriminatory, or anticompetitive distribution practices;” “[P]atterns of consolidation in production, distribution, or retail;” and “[U]nnecessary trade practice regulations,” including bottle sizes, permitting, or labeling, that “may unnecessarily inhibit competition.” The directive will result in a study of beer, wine, and spirits industries in all three tiers of the distribution system.
Renewed Scrutiny of the Alcohol Industry Written by Corey Day & Alyssa Malionski
By the time this article is published, the Treasury Department is supposed to have submitted a joint report with the Federal Trade Commission and Justice Department on the “patterns of consolidation in production, distribution, or retail beer, wine, and spirits markets.” This report is purported to be a compilation of results from the Secretary of Treasury’s investigation into conduct found to be potentially harmful to competition. Following publication of the joint report, the Secretary of the Treasury, through the Alcohol and Tobacco Tax and Trade Bureau, must consider: • Initiating a rulemaking to update the TTB’s trade practice regulations; • Rescinding or revising any regulations of the beer, wine, and spirits Industries that may unnecessarily inhibit competition; and • Reducing any barriers that impede market access for smaller and independent brewers, winemakers, and distilleries. While certainly broad in its aims, it is anticipated that regulators will take a hard look at the current structure of the distribution tier. There were over 275 comments submitted that discussed, at least in part, distributors or distribution.2 While some comments were in favor of the status quo, the majority bashed the current three-tier system, arguing that the existing law is too favorable to distributors and consolidation of the wholesale tier has limited manufacturers’ ability to get into the market. As an immediate consequence, it would be reasonable to expect the EO to have a chilling effect on further mergers and acquisitions of distributors.3 Companies are going to be less likely to invest the
1
https://www.govinfo.gov/content/pkg/FR-2021-07-14/pdf/2021-15069.pdf
2
https://www.regulations.gov/docket/TTB-2021-0007
3
The same chilling effect may occur at the manufacturing tier, leading to fewer producer acquisitions from the biggest players.
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