The FTC alleges that Southern, the largest distributor of wine and spirits in the United States, sells identical bottles of wine and spirits to “small, independent ‘mom and pop’” off-premise retailers (e.g., grocery stores, convenience stores) at prices significantly higher than what Southern charges large national and regional off-premise retailers in “reasonably contemporaneous transactions.” Per the Complaint, these “disfavored” independent retailers are in “active” competition with the “favored” large chain retailers for the same consumers, “often located within just a few blocks to a few miles of each other.” The Complaint also addresses the unique “interstate commerce” requirement of the Robinson-Patman Act, alleging Southern purchases wine and spirits from out-of-state or overseas producers and then re-sells them to retailers in other states.
In a heavily redacted section, the FTC alleges that the higher prices charged to independent retailers were the result of several mechanisms and provides specific examples. The mechanisms that can be discerned include high volume discounts, cumulative volume discounts over time, and scan rebates (which are discounts given to a retailer's customer at the register and reimbursed to the retailer by the supplier or Southern).
The FTC alleges that these discounts were not functionally available to the independent retailers because they required purchase volumes that were not economically feasible for the independent retailers. Additionally, even when the purchase volumes to achieve a discount were economically feasible, the discount allegedly was not made known to the independent retailers. The FTC also alleges that the pricing differentials between the “favored” large chain retailers and “disfavored” independent retailers exceed any cost savings to Southern when selling and delivering wine and spirits to the “favored” retailers.
Per the Complaint, Southern’s discounts resulted in substantial and sustained price differences between independent retailers and large chain retailers. The FTC alleges that in some instances, the large chain retailers were able to profitably re-sell Southern products at retail prices below wholesale prices paid by independent retailers. Ultimately, the alleged effect of these discounts “has been or may be substantially to lessen and impede competition in the retail sale of wine and spirits” with the result that “independent retailers have lost sales and customers to favored large chain retailers, have been unable to be price-competitive with favored large chain retailers so as to attract customers, have sold lower volumes of wine and spirits than they would have sold in the absence of price discrimination, and have made lower profits on the products they did sell.”
The Commission vote to authorize the Complaint was 3-2. Statements issued by Commissioner Bedoya, joined by the majority, and by each of the dissenting Commissioners are available on the FTC’s website. All of the commissioner statements include lengthy discussion of the origins and enforcement history of the Robinson-Patman Act and engage with the other statements on the merits of the action.
Per Commissioner Bedoya’s statement, “Congress recognized the critical services that small retailers offered to the communities they served” and also “understood that to allow discrimination in markets provides great advantages to the largest players and creates an unlevel playing field where the large would dominate and the small would disappear.”
Commissioner Ferguson stated “[e]ven if the Commission were likely to prevail on its claim against Southern, I would not concur in this Complaint. The Commission has limited resources. Every enforcement action we bring consumes a large chunk of those resources and may do so for many years . . . [and] I conclude that we should bring secondary-line cases only when there is strong evidence that the favored purchasers possess market power.”
Commissioner Holyoak stated the proposed injunction would “likely require[] Southern Glazer’s to charge uniform prices to all retailers” and risk “ a chilling effect that extends beyond the strictures of the order, potentially dissuading procompetitive behavior . . . [by] other suppliers and retailers across the economy.”
