Southern Glazer’s Wine & Spirits LLC and Republic National Distributing Co. LLC have unlawfully sought to stifle the growth of Provi, a new online marketplace for alcohol products, Provi said in an antitrust complaint filed in the Northern District of Illinois.
Southern Glazer’s has also, Provi said, “unlawfully forced retailers to use its own online marketplace, SG Proof (“Proof”), by tying online sales of its alcohol products to use of that specific marketplace.” Not only does the alleged action hurt Provi’s business, but it also hurts “alcohol producers, other distributors large and small, thousands of retail customers, and countless consumers across the country.”
The complaint notes that President Biden in 2021 signed an Executive Order directing the Secretary of the Treasury—in coordination with the Federal Trade Commission (“FTC”) and the Department of Justice
(“DOJ”)—to assess “threats to competition” in the industry. The Secretary’s Report to the president specifically identifies large distributors, like Southern and RNDC, as two such threats,
stating “distributors with a larger national footprint may be able to leverage their size and enter exclusive agreements with producers that tend to push out smaller competitors.”
Defendants enjoy substantial market power because retailers: (i) must buy certain brands from them in particular; and (ii) are significantly less likely to split their basket of orders once they are already shopping directly with Southern or RNDC to buy lesser-known products from other distributors, even if those distributors offer better prices or service.
The defendants online alcohol marketplaces do not include other distributors products, the complaint says, but they also give Southern Glazer’s and RNDC “access to valuable purchasing data that further entrenches them with retailers and allows them new monetization streams, including advertising and data analytics. As RNDC has explained, “Data has become the key to unleashing new value and insights in the end-to-end distribution process.” It is for this reason that RNDC is “focused on strengthening [its] end-to-end selling model with new digital capabilities.” Southern’s vision is similar, Provi alleges.
Provi, on the other hand, seeks to offer “all licensed distributors and retailers a one-stop-shop to browse and buy all available products for
purchase, not just those of a particular distributor like Southern or RNDC. Founded in 2016 by entrepreneur Taylor Katzman, Provi offers a single marketplace where retailers can search for products across distributors, fill their shopping carts with products, and then click a button for Provi to communicate the order to all relevant parties for fulfillment.”
Provi makes life easier for retailers, it says, while giving visibility to “hundreds of small distributors across the country that only carry lesser-known or up-and-coming commodity or craft beverages.”
From as early as 2016 until the latter half of 2021, Defendants
fulfilled over 120,000 alcohol orders totaling nearly $200 million in revenue that they received from retailers through Provi the complaint says. “Scores of Southern and RNDC sales representatives created their own accounts with Provi’s online marketplace to handle retail orders through Provi. As a result, Southern and RNDC reaped substantial profits from retailers that chose to use Provi, while Provi
grew quickly in popularity and scale.”
In April 2019, Southern and RNDC released their own marketplaces, and then in summer 2021, nearly simultaneously announced that they would no longer work with Provi and would stop accepting orders that retailers choose to submit through Provi’s marketplace. They also blocked emails from Provi so that orders retailers submitted to the Defendants through Provi could not reach their sales representatives.
Southern and RNDC “took these actions specifically and
intentionally to foreclose competition and maintain and extend their market power. For example, when national restaurant chain Red Robin complained about the Provi boycott, Southern responded that there was “good news” because Red Robin “should already be using Proof.” Alan Rosenberg, General Counsel for RNDC, similarly admitted that “RNDC will continue to . . . steer our customers towards” eRNDC and “away from Provi” even though retailers prefer an ordering mechanism that encompasses all distributors.
Defendants’ conduct has unlawfully restrained competition among alcohol distributors, online alcohol marketplaces, and related advertising and data analytics providers, Provi said, adding it has harmed suppliers, retailers, and consumers by maintaining and extending Defendants’ market power, increasing costs, stifling innovation, and reducing output. They also have unlawfully harmed competition in key markets that otherwise could revolutionize the sale and marketing of spirits and wine in the United States, including the markets for spirits and wine search advertising on online alcohol marketplaces and data analytics services for spirits and wine, Provi alleged.
In its complaint, Provi cited a 2022 Treasury Department report that “identified distributor consolidation in the wine and spirits markets as ‘the greatest threat to competition in the alcohol market.’ The Treasury report explained that the enormous market share of distributors like Southern, combined with long-term exclusive agreements, allows distributors to ‘accomplish indirectly what regulators would never allow them to accomplish directly,’ as ‘distributors with a larger national footprint may be able to leverage their size and enter exclusive agreements with producers that tend to push out smaller competitors.’ This is just what Defendants have done and continue to do, to the detriment of competition in various relevant markets and ultimately consumers.
The report cites states’ franchise laws as “insulating distributors from competitive market forces” because a supplier that wishes to terminate a distributor for good cause must undertake numerous, time-consuming, and costly steps.” The complaint goes on to say that “When Bacardi, the second largest U.S. spirits supplier by sales, tried to switch distributors to Southern in 2015, it sought—at considerable expense and burden—a declaratory judgment to mitigate the risk of a lawsuit by the distributor. It then named Southern its exclusive
distributor in more than 40 states, further enhancing Southern’s substantial market power.”
The complete complaint is here. Both Southern Glazer’s and RNDC in statements said they were acting lawfully and denied their actions violated antitrust laws.