Southern Glazer’s Wine & Spirits (SGWS) has consistently charged independent retailers as much as 12% to 67% more than national and regional chains for the same products, according to newly unsealed redactions in the Federal Trade Commission’s (FTC) price discrimination case against the distributor.
The new information was revealed after SGWS, one of the country’s largest wine and spirits distributors, made a bid last month to permanently seal portions of the FTC’s complaint over concerns about disclosing confidential information. The FTC responded to that motion by filing a less redacted version of the complaint on Monday in the U.S. District Court for Central California.
Much more of the FTC’s 25-page complaint was previously redacted in a likely effort to hide information that could be used by the defendant’s competitors to reduce competition in the market.
But the now unredacted portions of the filing reveal more of the figures and procedures fueling the FTC’s allegations that the distributor engaged in anticompetitive and unlawful price discrimination.
The original complaint, filed in December, invokes the little-used Robinson-Patman Act of 1936, which bars larger suppliers from influencing prices in order to undercut smaller retailers. The lawsuit was one of the last in a series of Biden administration lawsuits through the FTC that attempt to level the playing field for small retailers and reduce the impact of high food and beverage prices on consumers.
The FTC alleged that SGWS sells wine and spirits to small, independent “mom and pop” businesses at prices that are “drastically higher than what Southern charges large chains — with dramatic price differences that provide insurmountable advantages that far exceed any real cost efficiencies for the same bottles of wine and spirits.”
Those price differences include SGWS routinely charging small, independent retailers “as much as 12% to 67% more for the same bottles of certain wine and spirits than national and regional chains in the exact same geographic area,” read the unsealed redactions. Those independent retailers include neighborhood grocery stores, local convenience stores and independently owned wine and spirits shops.
Price discrimination involved substantial price differences between competing retailers “in millions of transactions over multiple months and years,” according to the complaint, and in certain transactions, “disfavored independent retailers paid as much as 32% to 78% more than competing favored retailers.”
A statement from SGWS on Tuesday said the distributor offers “different levels of discounts based on the cost we incur to sell different quantities to customers and make all discount levels available to all eligible retailers, including chain stores and small businesses alike.”
But the FTC alleges that the pricing differentials between favored and disfavored retailers exceed any cost savings achieved by SGWS when selling and delivering wine and spirits to the favored national chains.
Complaint Details Alleged Advantages for Chains
Specific cases and processes through which SGWS has allegedly offered chain retailers preferential pricing or delayed pricing increases are now available to the public via the complaint. In some cases, those deals were made without higher volume orders – indicating that the discounts were not driven by economies of scale, alleges the FTC.
As for mechanics, a favored chain retailer is profiled, according to the complaint, into categories, and receives the price for products associated with its profile, regardless of how many cases of a given product it purchases. SGWS’ chain customers also often purchase products from the wholesaler’s own proprietary systems or third-party applications, according to the complaint, allowing large chain retailers to “view secret prices, promotions, and discounts, and place direct orders with Southern.”
In other instances, the complaint alleges favored chain retailers are advised months in advance of a particular deal that, for all other customers, is only active for a very short window, making it unlikely an independent retailer would become aware of the deal through Proof, the distributor’s online purchasing system, or a sales representative. The largest quantity deals often are not displayed on Proof, the complaint alleges.
In some instances, SGWS “solicits and accepts money or ‘discount support’ funding from suppliers in return for providing discriminatory pricing that is accessible only to favored large chain retailers,” the complaint reads. “This money or funding is not associated with any efficiency derived from the differing methods or quantities in which the wine or spirits are manufactured, sold, or delivered to the favored large chains.”
These acts of price discrimination are part of the norm for the distributor, alleges the FTC, and unredacted instances show examples of employees allegedly structuring multi-supplier deals and secret specials for large retailers that were withheld from small businesses.
Other examples include an instance in California in 2019 when a large chain was able to sell a product to customers at a price that independent retailers could not even buy the product from SGWS. Further evidence cited includes SGWS’ sales invoice data showing that independent retailers in certain states paid materially higher prices than nearby chain retailers for the exact same products in the vast majority of transactions.
SGWS has responded to the complaint by arguing that it “takes issue with the use of volume discounts that Southern Glazer’s — and nearly every distributor of consumer products in the country — uses to lower customers’ costs and enable consumers to pay lower prices for the everyday goods they need.”
Armed with dissents coming from commissioners Melissa Holyoak and Andrew Ferguson, the distributor filed a motion to dismiss the lawsuit on February 3. The response argues that FTC relies on generalizations versus comparable transactions, and that the agency is asking the court to “interfere with the competitive process in innumerable local markets for wine and spirits — already heavily regulated by state and local laws — by invoking the blunt instrument of a nationwide injunction.”