You can expect alcohol & Tobacco Tax & Trade Bureau to prioritize labeling rules to provide more information about allergens, nutrition and ingredients, to strengthen its rules deterring category management practices including shelving schemes and offering similar services for “free,” and to step up enforcement of trade practice rules.
Those are some of the outcomes the industry should anticipate from a 63-page Treasury Department report on competition in the bev/al industry. The report, prepared in consultation with the Justice Department and Federal Trade Commission, was ordered by President Biden. It finds the state of competition in the alcohol industry to in some areas be quite good and in other areas problematic.
For instance, it notes there has been significant growth in the number of small “craft” producers of beer, wine and spirits. Where there were 89 operating breweries in the U.S. in the late 1970s, today there are more than 6,400 breweries, 6,600 operating wineries, and 1,900 distilleries. That suggests competition is alive and well in the bev/al industry, as does “innovation in American wine, beer and spirits in the last few decades has resulted in a flourishing of small and craft producers in local markets.”
But the report also expresses concern over significant consolidation in distribution and notes that two brewers have dominated the U.S. since 2008 and today account for 65% of all beer sales nationwide. “Studies have shown direct links between major brewery mergers and an ability to raise prices in the markets in which they operate,” the report observes.
It notes that Alcohol & Tobacco Tax & Trade Bureau actively enforces the Federal Alcohol Administration Act’s competition provisions. Still, “complaints about exclusionary behavior by large producers, distributors and retail are common,” the report says, citing concerns over discriminatory conduct by distributors and the use of slotting, shelving and other trade practices prohibited by the FAA Act.
Current laws and regulations at both the state and federal level “may impose a disproportionate burden on small and medium-sized producers without corresponding justifications based in public health or preventing anticompetitive behavior.” Label preapproval requirements, bottle size restrictions, mandatory classification of beverages and “complex application requirements to qualify for a permit to produce alcohol.”
Indeed, the report says, some state and federal laws may actually inhibit growth and competitiveness of small producers, while other laws may inhibit marketing that could help competition. “Post and hold” laws may be leading consumers to “spend $147-478 million more than they did previously.”
Without specifically saying so, the report appears to recommend tax equalization, perhaps based on the amount of alcohol in a product.
The report “encourages” the Department of Justice to consider the effect on distribution from acquisition of craft brewers by major brewers and to take a closer look at veritical mergers or arrangements that may lead to monopolization or exclusion in the alcohol markets, particularly exclusion of small firms or new entrants.
The report notes that there have been complaints that TTB is “underenforcing” trade practice rules, especially as to conduct by larger members of the industry. While calling for stiffer enforcement against major players, it also suggests TTB “continue to exercise enforcement discretion against entities lacking market power.