SWS/Kroger Category Management Program Toes the Line on “Tied House” Restrictions — TTB Ruling Raises as Many Questions as it Answers
February 24, 2016
Authored by: Craig Pacheco
On February 11, the TTB released ruling 2016-1 in response to beverage alcohol industry players and trade groups questioning an initiative by Kroger and Southern Wine & Spirits, which would reportedly require payment by wholesalers to merchandisers selected by Kroger to direct the placement of brands and bottles on Kroger shelves across the country. Many in the industry saw this initiative as a possible violation of the “Tied House” rules designed to prevent unfair competitive practices across the industry’s three tiers (27 U.S.C. § 205). TTB’s ruling seeks to clarify what is and what is not permissible in terms of shelf plans and shelf schematics, but the ruling comes with a twist that may very well shake up established category management practices.
The ruling states that “[f]urnishing retailers with a shelf plan or shelf schematic… is not an inducement” in violation of the Tied House rules. This is nothing new — shelf schematics, or “plan-o-grams,” are an unambiguous exception found in 27 CFR 6.99(b). However, the ruling goes on to proscribe several additional services provided by an industry member to a retailer that could be interpreted to include common category management practices, such as including market data from third party vendors (usually IRI or Nielsen) in a sales presentation. As such, the ruling muddles the current understanding of exceptions to the “Tied House” prohibition.
As it relates to the Kroger program, DISCUS and the Wine Institute, two industry groups that submitted a joint inquiry to TTB, released a statement Monday saying, the TTB ruling “strongly suggests that participating in the Kroger program would put participating suppliers at risk of violating their federal permits required to conduct business.” I’ll reserve judgement on that one for now, but at the very least, businesses at every industry tier would do well to take a sober look at the ruling and keep an eye out for further updates. It will be interesting to see how the state agencies weigh in on this new guidance.