New Jersey’s two largest wine and spirits wholesalers will pay $4 million each to resolve findings that they engaged in discriminatory trade practices that unfairly favored their largest retail customers. In addition, 20 retailers statewide will pay a total of $2.3 million for their part in the unlawful scheme.
In separate Consent Orders with the New Jersey Division of Alcoholic Beverage Control, wholesalers Allied Beverage Group and Fedway Associates agreed to pay record-high monetary penalties and change their business practices to resolve trade violations uncovered during a sweeping two-year investigation by ABC’s Enforcement and Investigations Bureaus.
The investigation found that the wholesalers – which together account for approximately 70% of all wine and 80% of all spirits sold at wholesale in the State – unfairly favored 20 of the State’s largest wine and spirits retailers and put smaller retailers at a competitive disadvantage by manipulating the retailer incentive program (RIP), granting credit extensions and interest-free loans, and engaging in other discriminatory practices.
“Simply put, Allied Beverage Group and Fedway Associates rigged the market in favor of a handpicked group of powerful retailers, leaving smaller businesses struggling to compete. The unprecedented monetary penalties imposed reflect the egregiousness of this conduct and the widespread negative impact it had on New Jersey consumers and retailers,” said Attorney General Gurbir S. Grewal. “This settlement sends a clear message that we will not tolerate this manipulative and anticompetitive behavior.”
The RIPs provide cash rebates paid to retailers by wholesalers for purchasing certain quantities of alcoholic beverages. ABC regulations control the program by making RIPs available to all retailers on a non-discriminatory basis, by keeping the RIP payments to retailers relatively small, and by not allowing wholesalers to substitute RIPs for interest-free loans.
The investigation found that Allied Beverage Group and Fedway Associates were giving chosen retailers a financial advantage by issuing rebates more often and in greater amounts than allowed. They also failed to wait the required 30 days before issuing rebates, thus allowing those retailers to use that money to pay for the orders for which the rebates were issued, which is against ABC regulations. Retailers who do not pay for orders within 30 days are put on an industry-wide cash-only delivery status, so the early rebates ensured that the larger retailers would have a ready cash flow to pay for their orders on time, giving them an unfair edge over smaller retailers who had to use their own money to pay for their wine and spirits orders within the required 30-day window.
The investigation also found that Allied Beverage Group and Fedway Associates falsified records related to RIPs and/or used undocumented gift cards to make cash payments to chosen retailers that were not accounted for.
“Retail incentives are a legitimate marketing tool as long they are above board and available equally to all retailers. Discriminatory practices like these foster instability in the market by harming smaller retailers,” said James Graziano, Acting Director of the Division of Alcoholic Beverage Control. “If left unchecked, the ability of small retailers to remain in business may have been jeopardized and consumers would have less access to retail stores and the specialized product selections that they offer. We will continue to monitor industry practices to ensure an equal playing field in New Jersey’s alcoholic beverage retail industry and hold violators accountable for noncompliance.”
The monetary payments from Allied and Fedway are the largest in ABC’s history, and in addition, both entities each agreed to adopt a corrective action plan; employ a compliance monitor for two years; make upgrades to their computer systems; and facilitate the retirement, resignation and/or termination of certain employees.
The following retailers were charged with ABC violations that included accepting the delivery of alcoholic beverages from Allied and/or Fenway upon terms that violated ABC regulations; accepting a loan from a wholesaler to pay a wholesaler and/or avoid being placed on cash-on-delivery status; receiving a RIP before paying the invoice, receiving a RIP in excess of allowed maximum on a product. Each retailer entered a Consent Order with ABC to resolve the charges.