Chris Dillmann/Vail Daily via AP
Clay Williams, manager of Jakes Liquors, stocks wine on March 27, 2018, in Gypsum, Colorado.
The transition period to Donald Trump taking over the White House has not stopped antitrust enforcers from continuing to govern in the twilight hours of the Biden administration.
Today, the Federal Trade Commission filed a landmark antitrust lawsuit against the largest alcohol distributor in the country, Southern Glazer’s, for engaging in price discrimination harming independent retail stores and ultimately consumers.
The case claims violations of the Robinson-Patman Act, a long-dormant antitrust law specifically designed to curb anti-competitive price schemes in the retail sector and other markets. While Robinson-Patman cases used to be brought routinely, the law hasn’t been enforced in recent decades during the reign of the consumer welfare standard. This is the first RPA case in 25 years filed by the government. Reviving RPA authority was a key goal for enforcers from the outset of the administration.
Southern Glazer’s is the tenth-largest privately held company in America, netting $26 billion in revenues annually by working with wine and spirits sellers. Any retailer who wants to get the most popular alcohol products on their shelves has to buy from Southern Glazer’s.
But the lawsuit isn’t a traditional monopolization case regarding Glazer’s size or market share. The anti-competitive conduct is about how it prices products differently to favor big-box chain stores like Total Wine, Costco, and Kroger versus smaller and independent ones.
The FTC alleges specifically that since at least 2018, Southern Glazer’s has charged a dramatically higher price for the same products to mom-and-pop stores. Chain stores are eligible for discount and rebate agreements.
“When local businesses get squeezed because of unfair pricing practices that favor large chains, Americans see fewer choices and pay higher prices—and communities suffer,” said FTC chair Lina Khan in a press release. “The law says that businesses of all sizes should be able to compete on a level playing field. Enforcers have ignored this mandate from Congress for decades, but the FTC’s action today will help protect fair competition, lower prices, and restore the rule of law.”
The complaint does not specify the exact price differential, but an FTC official said the numbers they found during their investigation are “eye-popping, not just cents.”
Because of these predatory pricing tactics, independent alcohol retailers have to pass off comparatively higher costs to consumers, putting them at a disadvantage to larger chain stores. As a consequence, retailers struggle to compete for sales and lose customers. The loss of independent alternatives to chain stores leaves consumers without choice for liquor sales and ultimately diminishes competitive checks on large stores if they choose to raise prices.
What’s often misunderstood about the RPA is that it doesn’t outright ban any differential in prices when it’s justified. The law does not negate that there are some efficiencies from economies of scale, nor does it mandate flat rates.
Big-box stores are able to negotiate volume discounts from distributors in part because they exert purchasing power and can purchase bulk orders. Distributors primarily want to increase sale volumes, so they strike deals for bulk orders at lower costs.
But the key finding from the FTC’s investigation laid out in the lawsuit is that Southern Glazer’s discounts far exceed any actual cost efficiency or savings, which makes it purely price discrimination.
In other words, the discounts are not based on lowering the costs of shipping or meeting the price points of rival distributors. The lawsuit claims the same bottles of liquor are just being sold to independent stores at higher prices because they don’t have purchasing power in the same way the big-box stores do.
The lawsuit also says smaller retailers were not notified of secret rebate agreements offered to larger competitors, which didn’t allow them to negotiate their own deals even when they might have been capable of doing so.
By blocking unjustified price discrimination, the FTC says it hopes to shift the playing field to allow independent stores to compete on other factors like service, not just price rebates.
“Competition should not take place solely on which retailers can exert the most power to get favored pricing deals but about the quality of the service and ability to provide for customers … that’s the playing field we want to see,” an FTC official said.
