In a recent webinar, Alva Mather, Scott Ferber, Amy Pimentel and David Saunders reviewed how alcohol companies should be thinking about and maximizing their data. They shared innovative marketing strategies and addressed privacy and cybersecurity considerations from an alcohol commercial side.
Some of the significant topics discussed included:
Finding the right distributor is critical to the success of an alcohol brand—as is ensuring the agreement appointing that distributor provides ample protection for the supplier or brand owner. At a high level, suppliers should keep the following top of mind when entering into a distribution relationship or negotiating a distribution agreement:
(1) What territory do you wish the distributor to service? Consider the following: Does the distributor call on the accounts/channels that a supplier wishes to target with its brand? Does the distributor have the capability, sales force and reach to cover the entirety of the area assigned, whether it be a portion of a state, a region or the entire country? Where not mandated by franchise law, does assigning exclusive distribution territories make sense, or is dualing the brand a better option?
(2) Whether a state has franchise law applicable to the distribution of its product that will govern the relationship between supplier and wholesaler. With respect to the term and termination provisions of a contract, whether the state(s) where the distributor will handle products have franchise laws may heavily impact what within a distribution agreement is ultimately enforceable. This is particularly important in states that have alcohol franchise protections that make the termination of a wholesaler difficult. Distilled spirits and wine manufacturers should take advantage of the fact that far fewer states have franchise protections for the distribution of spirits than those that have franchise laws applicable to the distribution of malt beverages.
(3) What sales goals or distribution targets do you want the distributor to achieve? You can bake sales goals into a distribution agreement or agree to affix sales goals in annual planning or marketing meetings.
(4) What allocations will be made for marketing, if any? Contemplate the use of a marketing fund in a distribution agreement. These funds are often funded by both parties, with the use of the funds mutually determined by the parties during annual planning meetings. Note that a limited number of states prohibit these funds, or they require participation in them on the part of a wholesaler to be voluntary as opposed to compulsory.
(5) What factors will determine whether the distributor is adequately servicing a brand? Carefully spelling out what the obligations and expectations of a distributor are is critical to creating a successful distribution relationship. Include measurable and specific obligations, particularly in states where good cause must be established in order to terminate a relationship.
(6) What events trigger the termination of the distribution agreement or relationship? Consider both events that may trigger a for-cause termination and not-for-cause termination rights (typically after payment of a termination fee).
(7) How to address a change in control of the parties. Change in control terms in a contract should address a change in control within a wholesaler’s and a supplier’s business. Suppliers should advocate for approval rights and the right to request reasonable information about a new owner or another fundamental change of a wholesaler, even in franchise states. For changes [...]
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In a recent webinar, Alva Mather, Jacob Hollinger, Carl Fleming and Parker Lee guided attendees through the unique energy-related challenges and opportunities for alcoholic beverages companies presented by current megatrends relating to environmental, social and governance (ESG), carbon and sustainability.
Some of the significant topics discussed included:
Each year the Alcohol and Tobacco Tax and Trade Bureau (TTB) issues “Industry Circulars” that apply statutory or regulatory requirements to a “specific circumstance or set of facts” or restate existing requirements. TTB also uses Industry Circulars to announce new statutory requirements or to discuss certain corrective actions. The last few years have been relatively quiet in terms of TTB Industry Circulars, with only seven released in the last three years. Industry Circulars are an incredibly useful tool for a range of industry members and can provide clarity and direction on complicated regulatory issues.
In 2022, TTB issued three Industry Circulars. The first, released March 4, 2022, provided clarity on TTB’s views on the Federal Alcohol Administration Act’s (FAA Act) consignment sales provisions. The second, released November 16, 2022, reminded industry members of certain advertising rules, as well as clarified how those rules apply in the world of social media advertising. The third and final Industry Circular, released December 29, 2022, provided guidance for distilled spirits plants and importers on how to calculate certain reduced or effective tax rates under the Craft Beverage Modernization Act (CBMA).
As we gear up for 2023, the following is our take on how TTB’s guidance may be useful for you and your business.
Industry Circular 1: Consignment Sales
TTB issued its first Industry Circular of the year to clarify how it views extended payment terms under the consignment sales provisions of the FAA Act. The FAA Act makes it unlawful for an industry member (supplier or wholesaler) to sell, offer for sale, or contract to sell to any trade buyer (wholesaler or retailer), or for a trade buyer to purchase, offer to purchase or contract to purchase any products:
See 27 USC § 205(d). Sales “on consignment” are arrangements where a trade buyer is under no obligation to pay for product until they have been sold by the trade buyer. See 27 CFR § 11.22.
This Industry Circular reminds industry members that although TTB generally prohibits consignment sales, the regulations do not specifically impose payment term limitations for sales between industry members and trade buyers. That does not mean, however, that all payment terms are “beyond scrutiny as potential sales on consignment.”
In particular, TTB advised that “in the absence of explicit terms that violate the consignment sale regulations, payment terms of up to 30 days are unlikely to constitute consignment sales.” Conversely, payment terms exceeding 30 days may invite scrutiny from TTB to determine whether those payment terms were “merely a subterfuge” to sell goods on consignment because the buyer is effectively under no obligation to pay for product until the trade buyer has sold [...]
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Due to the uptick in alcohol advertisement on social media platforms, the Alcohol and Tobacco Tax and Trade Bureau (TTB) issued guidance on advertising via social media and how TTB’s rules on advertising generally apply in this new and important context, as summarized below.
SeeTTB Industry Circular 2022-2.
As a reminder, below are the basic TTB requirements for mandatory information that must appear on all alcohol advertisements:
Basics of Alcohol Advertising
TTB requires certain mandatory statements appear in advertising for a malt beverage, wine and distilled spirits products:
There are several [...]
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