Provi Files Lawsuit Against Southern Glazer’s and RNDC, Alleges Violations of Sherman Antitrust Act

E-commerce beverage-alcohol platform Provi has filed a complaint against Southern Glazer’s Wine and Spirits and Republic National Distributing Company (RNDC) – the country’s two largest wine and spirits distributors – alleging that the companies have unlawfully stifled the growth of its platform.

Provi contends that its platform “threatens defendants’ control of the nation’s alcohol distribution and undercuts their plan to extend that control to new online markets.”

“Defendants have acted together and individually to boycott, disparage and tortiously interfere with Provi’s business,” Provi wrote in a complaint filed Tuesday in U.S. District Court for the Northern District of Illinois Eastern Division.

Provi alleges that Southern Glazer’s and RNDC organized boycotts of its platform in favor of their own e-commerce, B2B ordering services, SG Proof and eRNDC, respectively. Both were introduced in April 2019, three years after Provi’s 2016 launch, and prior to their shunning of Provi, both defendants fulfilled more than 120,000 orders from retailers through Provi, worth almost $200 million in revenue, Provi said.

In its complaint, Provi painted a picture of Southern Glazer’s and RNDC as “entrenched and chummy.”

“Southern and RNDC’s corporate leaders have been known at industry conferences to flash two upheld fingers to one another symbolizing that they are today — and will remain, if they have their way — the only two distributors of significance in the country,” Provi wrote.

Southern Glazer’s operates in 44 states, while RNDC is in 37, and they have a commanding market share in many markets. In eight states (Arkansas, California, Kentucky, Louisiana, North Dakota, New Mexico, Oklahoma and South Dakota), their combined share of the wine market was more than 80% in 2019.

“These high market shares underscore the reality that retailers know all too well – there are essentially few, if any, meaningful alternatives to [the] defendants for retailers that want to purchase wine in most states and the District of Columbia,” Provi wrote.

As Provi expanded, it secured agreements with several notable chain retailers (Darden, Chili’s, AMC Theaters and more) and created pilot programs for several others (Buffalo Wild Wings, Hilton, Circle K and more), but many of those clients were forced to abandon their Provi relationships, the company said.

Provi operates in 35 states and counts 10% of the country’s licensed bev-alc retailers among its users, as of this year, the company said. The system is free for retailers to use, and distributors pay a flat monthly fee to access Provi’s platform, which includes product and pricing integration and facilitates payments.

A coordinated campaign against Provi in favor of SG Proof and eRNDC began in August 2021, and the defendants shifted their retailers “through coercion,” Provi said.

“By refusing to accept or acknowledge any orders that retail customers chose to communicate through Provi, Southern and RNDC effectively threatened to withhold — and in fact withheld — their respective distribution services from customers who chose to use Provi to submit orders to Southern and RNDC,” Provi wrote. “Retailers’ coerced compliance with this unlawful agreement is not fairly attributable to retailers’ preferences.”

Southern Glazer’s allegedly blocked Provi’s email domain and “threaten[ed] its own sales associates with termination or discipline if they failed to comply.” The complaint quoted an anonymous Southern Glazer’s sales rep who said the company’s “decision to reject orders that retailers communicated through third-party online alcohol marketplaces was ‘the pinnacle of stupidity’ and motivated by ‘an effort to force our customers to use our poor excuse of [a] software.’”

In its complaint, Provi alleges that this “group boycott” by Southern Glazer’s and RNDC and vertical boycotts by both violate the Sherman Antitrust Act by creating monopolies in online alcohol marketplaces, advertising on online alcohol marketplaces and data analytics services in some markets. It also accuses Southern Glazer’s of “unlawful tying” by requiring retail customers to use SG Proof, one of its products, to access its wine and spirits distribution services, another product.

“There is no legitimate procompetitive justification for the agreements between Southern and RNDC and their retail customers,” Provi wrote. “The anticompetitive effects of the agreements outweigh any potential procompetitive effects they may have.”

In addition to the Sherman Antitrust Act, Provi also alleges that the defendants have engaged in unfair business practices under the California Unfair Competition Law and committed tortious interference with Provi’s business relationships in violation of Illinois common law.

The lawsuit is the first of its kind in the beverage-alcohol industry after the release of a report by the U.S. Department of Treasury assessing the state of competition in the industry at the behest of an executive order President Joe Biden signed last summer.

“Unfortunately, Southern and RNDC are illegally stifling innovation by blocking retailers from using open market solutions like Provi, which promotes transparency and more efficient operations, particularly for small businesses,” Provi founder and CEO Taylor Katzman said in a press release. “They have a tight grip on distribution physically – and now they want to control it and any related next generation businesses digitally through data. They are also using their scale to illegally box out competition – which significantly hurts retailers, smaller distributors and suppliers throughout the country.

“The federal government identified the abuses and competitive threats in the industry in its recent report, and our case further exposes the anticompetitive practices of these two legacy players who believe they can do whatever they want,” he continued.

Both defendants said they plan to “vigorously defend” against the lawsuit.

“We have reviewed the lawsuit and believe it to be meritless,” Southern Glazer’s executive vice president and general counsel Alan N. Greenspan told Brewbound through a spokesperson. “We plan to vigorously defend and ultimately prevail.”

A spokesperson for RNDC said the company “strongly denies the allegations in the complaint and we intend to vigorously defend the case.”

Provi has requested a jury trial and for the defendants’ actions to be adjudged as violations of the Sherman Antitrust Act, the Illinois Antitrust Act, California’s Unfair Competition Law and common law torts. The company is seeking treble damages, attorneys’ fees and pre- and post-judgment interest, as well as an enjoinment against Southern Glazer’s and RNDC from continuing their alleged conduct.