ACSA Member Survey: TTB Trade Practice Regulations, Long Version

The Report and the RFI Comments both raised concerns about the threat that category management activities pose to retailer independence. One specific concern is that industry members, acting as category managers or captains for retailers, are either making the buying decisions for retailers or strongly influencing the retailers' buying decisions in a way that threatens retailer independence. 

The TTB regulations provide that paying or crediting a retailer for any advertising, display, or distribution service is an inducement. The RFI Comments identified slotting fees as a major issue in the marketplace.

Within certain limitations, TTB's tied house regulations allow industry members to provide retailers certain consumer specialty items and point of sale advertising. See 27 CFR 6.84. Some of these items, especially “alcoholic beverage lists or menus,” have been used to provide hidden inducements to retailers. 

A number of RFI Comments identified exclusionary concerns with sponsorships at ballparks, concert venues, and other events.

A number of RFI Comments expressed concern that large industry members are engaging in commercial bribery activities by offering incentives, including, but not limited to, cash, airline tickets to tropical getaways, tickets to sporting events, flat screen televisions, and vacations for trade buyer sales representatives to push sales of the industry member's products. Current regulations provide that such inducements threaten trade buyer independence if provided to sales representatives in secret.

A number of RFI Comments expressed concerns about private label arrangements and how many of those arrangements may run afoul of the TTB trade practice regulations. Private label arrangements may involve an industry member contracting with a retailer to produce products on the retailer's behalf creating the potential for exclusive outlet or tied house violations. 

Some industry members have directly or indirectly entered into arrangements whereby retailers are permitted or required to use an industry member's brand name as part of the name of the retail establishment. 

The FAA Act defines a “trade buyer” as “any person who is a wholesaler or retailer.” Similarly, TTB's commercial bribery and consignment sales regulations define a “trade buyer” as “any person who is a wholesaler or retailer of distilled spirits, wine or malt beverages.” See 27 CFR 10.11 and 11.11. There has been some confusion about how such definitions apply to importers that wholesale (purchase for resale at wholesale) the products they import but are not required to obtain a separate wholesale basic permit pursuant to 27 U.S.C. 203(a)(2).

Although TTB's tied house regulations apply to inducements furnished directly, indirectly, or through an affiliate, there may be some confusion pertaining to inducements made through third party companies.

The exclusive outlet regulations provide that contracts between an industry member and retailer, which require the retailer to purchase products from that industry member and expressly restrict purchase of such products from another industry member, are practices which result in exclusion. See 27 CFR 8.52. 

Under the tied house, exclusive outlet, and commercial bribery regulations (27 CFR parts 6, 8, and 10, respectively), an inducement or requirement to purchase an industry member's products violates the FAA Act if such activity resulted in exclusion. See 27 CFR 6.21, 8.21, and 10.21. Exclusion occurs when (1) a practice of the industry member, whether directly or indirectly, places (or has the potential to place) retailer (or trade buyer with respect to commercial bribery) independence at risk by means of a tie or link between the parties or any other means of industry member control over the retailer or trade buyer; and (2) such practice results in the retailer or trade buyer purchasing less than it would have of a competitor's product. See 27 CFR 6.151, 8.51, and 10.51. The tied house and commercial bribery regulations specify certain practices deemed to place a retailer's or trade buyer's independence at risk. See 27 CFR 6.152 and 10.52. The exclusive outlet regulations specify certain practices that result in exclusion and other practices that do not result in exclusion. See 27 CFR 8.52 and 8.53.

The tied house, exclusive outlet, and commercial bribery regulations provide specific criteria that indicate that a particular practice, other than those specifically listed in §§ 6.152, 8.52, 8.53, and 10.52, places retailer or trade buyer independence at risk. See 27 CFR 6.153, 8.54 and 10.54.

The tied house regulations currently allow for a 30-day extension of credit for retailers that would not result in an inducement. See 27 CFR 6.65. 

TTB recently issued TTB Industry Circular 2022-1, “Payment Terms Under Consignment Sales Provisions,” announcing a safe-harbor for 30-day payment terms, which the Circular deemed unlikely to result in a consignment sale arrangement.