FTC prepares to sue largest U.S. alcohol distributor, alleging ‘secret kickbacks’

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Lina Khan, chair of the Federal Trade Commission, speaks at The Wall Street Journal’s Future of Everything Festival in New York City, U.S., May 22, 2024. 

Andrew Kelly | Reuters

The Federal Trade Commission is preparing an antitrust lawsuit against the largest U.S. alcohol distributor, Southern Glazer’s Wine and Spirits, two sources familiar with the matter tell CNBC. The suit could be filed in a matter of weeks.

The FTC’s case is not yet finalized. But one source said the commission is likely to allege that Southern Glazer’s has been providing “secret kickbacks” to large retail customers, in violation of the 1936 Robinson-Patman Act. The potential legal action was first reported by Politico.

Florida-based Southern Glazer’s distributes alcohol for over 7,000 brands in 44 states, and reported $26 billion in revenues in 2023, according to Forbes. Founded in 1968, the company serves as a middleman between alcohol producers and the liquor stores that consumers buy from. In 2023, the company reported $26 billion in revenue.

The Robinson-Patman Act is an obscure 1936 antitrust law which forbids companies from offering better prices to one buyer over another for the same commodity. A case has not been brought under the law since 2000.

Under the FTC’s interpretation, the Robinson-Patman Act is not a wholesale ban on price discrimination and could allow volume discounts. The law only applies when price discrimination practices interfere with competition — a charge the FTC’s website says is legally “complex” to prove.

A worker operates a forklift to move a pallet of Yellow Tail brand wine in the warehouse at Southern Glazer’s Wine and Spirits LLC distribution center in Louisville, Kentucky.

Luke Sharrett | Bloomberg | Getty Images

Critics say the Robinson-Patman Act has been known to inadvertently ban discounts that can help bring down consumer prices — a risky prospect for Biden who has hinged his economic platform on making costs cheaper for voters.

Some have argued that the law effectively makes it illegal to offer discounts on bulk goods, because smaller purchasers may not be able to handle such large quantities, the sources said.

The FTC’s case is also complicated by the alcohol industry’s piecemeal regulatory structure. Alcohol distribution laws are typically state-specific, rather than under a unified federal policy. This could make it tricky for the FTC to litigate a case against Southern Glazer’s, one of the sources said.

Spokespeople for the FTC and for Southern Glazer’s declined to comment.

An FTC lawsuit would not be the first legal complaint to accuse Southern Glazer’s of anticompetitive business practices.

In 2022, alcohol distribution start-up Provi, formerly known as Tiz Inc., sued Southern Glazer’s and another major alcohol distributor, Republic National Distributing Company.

Provi alleged that the alcohol giants had entered into an agreement to boycott the start-up and encouraged other retailers not to do business with it, effectively blocking its ability to compete in the industry, according to the lawsuit.

Workers load bottles of alcohol into boxes at Southern Glazer’s Wine and Spirits LLC distribution center in Louisville, Kentucky, on Monday, June 28, 2021.

Luke Sharrett | Bloomberg | Getty Images

Last Thursday, a judge rejected requests from Southern Glazer’s and Republic National to dismiss Provi’s case.

An FTC lawsuit against Southern Glazer’s would join a wave of legal actions by the commission that have become the trademarks of aggressive antitrust enforcement under President Joe Biden.

During the 2022 fiscal year, the FTC filed 24 challenges to block prospective mergers, the second-highest number of the past decade, according to an annual report. Meta, Amazon, Microsoft and Kroger are among the dozens of companies the FTC has filed antitrust lawsuits against in the past three years.

“We were previously living in a regime where there were deals making it out of the boardroom that were facially unlawful,” FTC Chair Lina Khan said Tuesday at CNBC’s CEO Council Summit in Washington.

“That means that we then have to spend public resources going to court,” said Khan.

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