The alcohol beverage industry experienced a transformative year, marked by notable shifts in consumer behavior, innovative product launches, and regulatory changes. During a recent webinar, McDermott’s Alcohol Group provided a retrospective on the pivotal moments of 2024 that impacted the industry, a preview of what’s to come in 2025, and insights into how your company can stay ahead in this dynamic market.
FTC Targets Price Discrimination With New Robinson-Patman Act Lawsuit
On December 12, 2024, following a nearly two-year-long investigation, the Federal Trade Commission (FTC) initiated its first litigation under the Robinson-Patman Act (RPA) in more than two decades. The FTC sued Southern Glazer’s, a large wine and spirits distributor, alleging the company charged higher prices to smaller retailer customers than it did to large chains, violating the RPA.
The litigation, filed in the last days of the Biden administration’s antitrust regime, may ultimately end with a whimper under the next administration. But for companies managing modern pricing systems, the complaint and the controversy surrounding it provide important insights into how complainants could seek to advance RPA suits in today’s retail environment. The complaint illustrates how current FTC leadership intended to operationalize its new focus on price discrimination and provides a roadmap for how state regulators and private plaintiffs can litigate the issue regardless of how the FTC proceeds under the new administration. Perhaps even more useful, the dissents filed by FTC Commissioners Melissa Holyoak and Andrew Ferguson suggest a blueprint for a legal response to future actions that may resonate with other regulators – and more importantly, with federal and state judges.
An End-of-Year Review of TTB Tax Audits and Enforcement
We have updated and republished this March 2024 blog post for a year-end summary.
The Alcohol and Tobacco Tax and Trade Bureau’s (TTB) Office of Field Operations is responsible for ensuring industry members comply with the Federal Alcohol Administration Act, the Internal Revenue Code, and all related regulations. It is divided into three groups: the Trade Investigations Division (TID), the Tax Audit Division (TAD), and the Intelligence Division.
Many industry members are most familiar with the TID, as it is comprises investigators who are responsible for enforcing compliance with the trade practice laws and maintaining a level playing field. The TAD may be less familiar, however, as it is comprises auditors who are responsible for ensuring payments of excise taxes and compliance with the laws and regulations in a manner that protects revenue and prevents unlawful activity in the commodities that the TTB regulates. The TAD works with other areas of the TTB and has the resources to assist in the investigations of underpayment of tax or other financial areas that relate to the laws and regulations enforced by the TTB. The TAD also performs random audits, which means that every industry member is susceptible to an audit.
Over the past year, the TAD has issued a number of tax-related citations for failure to timely file and/or pay taxes, use of inappropriate tax rates, largely stemming from the improper use of reduced tax rates under the Craft Beverage Modernization Act (CBMA) and late payments, among other violations. TTB routinely resolved these violations by accepting offer-in-compromise (OIC) settlement payments from the targeted industry members, collectively, to the tune of approximately $11,000,000 since the beginning of 2023.
Based on a review of the OICs, which are published on the TTB website, there were a wide range of tax-related violations over the past year, including:
- Failure to timely file and/or pay taxes and reports. These failures accounted for nearly 70% of all OIC violations and have been a source of increasing scrutiny by TTB in 2024. In these common infringements, the permittee submits their reports or taxes late. The causes for a violation can range from (1) a simple late submission, even 1-2 days late; (2) filing the tax return without paying the taxes; (3) late payments due to processing times; or (4) a change in filing frequency. It is important to ensure that industry members’ reports are filed on time (even a day late is sufficient to warrant a violation) and that the taxes are paid promptly.
- Use of inappropriate tax rates. There are two main categories of tax rate violations: (1) inappropriate use of reduced tax rates or credits, largely through improper use of the CBMA, and (2) inappropriate categorization of the product (commonly wine). An accurate determination of the product’s tax class is crucial to avoiding these violations, as is consideration of your eligibility (and continued eligibility) for CBMA-reduced rates or credits, including your status in a single taxpayer designation or a controlled group. We saw a significant increase in tax-related enforcement due to violations from [...]
Continue Reading
The Value of Data and Artificial Intelligence in the Alcohol Industry
Members in the ever-evolving alcohol industry are leveraging data and artificial intelligence (AI) to drive innovation, enhance customer experiences, and optimize operations, all in an effort to increase efficiency and profitability in the market. There are several ways AI is being used to transform this industry:
- Marketing and Insights
Data is highly valuable and can provide a better understanding of consumer behavior, allowing companies to design their consumer approach in a more targeted manner. Purchase and demographic data allow companies to clearly identify trends and performance to improve their products and the way they communicate with consumers. This information is sometimes shared between suppliers and wholesalers to identify the best market opportunities for particular products. AI can also help track customer orders and provide recommendations for future ordering processes.
This same information can be used in an analysis to highlight emerging customer preferences, providing data-based feedback to companies to help them plan their production schedules, purchases, marketing plans, and innovation projects.
- Customer Interaction
Industry members are increasingly turning to chatbots to answer frequently asked questions, shorten customer wait times, and reduce company workload. Virtual programs are also being used to provide personalized recommendations. For example, Diageo’s What’s Your Whisky program analyzes responses to specific questions and uses the data to make a whisky recommendation that is likely to match customer preferences.
Regulatory Compliance
While it may seem counterintuitive to use AI in the alcohol industry due to the large volume of varying regulations and industry guidelines, it can still be a useful tool, particularly for complying with reporting and payment deadlines, which may reduce the burden on your compliance team. However, there are key considerations when using, selling, or purchasing these tools:
- Data Protection
With US states increasingly passing more comprehensive data privacy laws, it is vital to work with your information technology team and data specialists to maintain the security and anonymity of the data your company uses. For your convenience, McDermott’s global privacy and cybersecurity team has developed an interactive map tracking the rapidly changing state consumer privacy laws.
- Value
Data and AI undoubtedly have and will continue to have intrinsic value; however, it is difficult to quantify this value given the intricacies and varying degrees of use. It is important to consider how the value of data should be accounted for particularly when sharing, purchasing, or selling data or AI tools across tiers to avoid running afoul of tied house restrictions.
- Transparency
Finally, once you have clear goals for using AI or data, make sure you understand the rules and responsibilities, particularly regarding the use of personally identifiable information. Always be transparent about your collection, use, and disclosure of AI or data, and ensure your privacy policies are up to date.
We expect to see more industry guidelines develop [...]
Continue Reading
Understanding How the New HSR Regime Impacts Your Business
During a recent webinar, Jon Dubrow, Greg Heltzer, Lisa Rumin, and Ryan Tisch provided a comprehensive introduction to the new Hart-Scott-Rodino (HSR) rules and their impact on the US premerger notification filing process. The program concluded with a Q&A moderated by Reese Poncia and featuring Ty Carson, a former Federal Trade Commission Premerger Notification Office lawyer, who shared his insider’s perspective from six years with the agency.
