Leveling the wine and spirit industry playing field

Here's to hoping President Biden's executive order will "improve market access for smaller, independent, and new operations"

When President Biden issued an “Executive Order on Promoting Competition in the American Economy” on July 9th, the headlines that followed touted how the action had the potential to shake up Big Tech, Big Ag, Big Banks, and Big Pharma. No major or minor news organization made mention of the fact that “Big Alcohol” was also on that list.1

It’s not likely that anyone expected the words “wine,” “beer,” and “spirits” to appear multiple times in a government mandate “to enforce the [nation’s] antitrust laws to combat the excessive concentration of industry, the abuses of market power, and the harmful effects of monopoly...” Yet, here we are. While it’s premature for any underdog importer, small- or mid-sized distributor, family winery, or craft distillery to celebrate an end to unfair market practices or megalithic mergers, it is a notable shift in how the US government officially views “robust competition” as “critical to preserving America’s role as the world’s leading economy.”

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Here’s what the order is, what it says, and what it could mean for the future of our industry.

What is an Executive Order?

Because you signed up for a wine and spirit newsletter—and not a high school civics class—I’ll keep this part short. An executive order is a directive from the President that essentially tells the government how to carry out its business. While not a law, an executive order still has the power to dictate how the government operates. Unlike laws, an executive order doesn't require passage by congress, imbuing them with the capacity to be acted upon “relatively” swiftly. If you want more on executive orders, you can find plenty online. Now, let’s get to the good stuff.

What the Executive Order Says

This order is pretty straightforward in its language. Here’s a taste:

This order recognizes that a whole-of-government approach is necessary to address overconcentration, monopolization, and unfair competition in the American economy. Such an approach is supported by existing statutory mandates. Agencies can and should further the polices [sic]… by, among other things, adopting pro‑competitive regulations and approaches to procurement and spending, and by rescinding regulations that create unnecessary barriers to entry that stifle competition.2

The executive order states that its goal of promoting competition is consistent both with broad “antitrust laws” as well as “industry-specific fair competition and anti-monopolization laws” such as the Federal Alcohol Administration Act.3

The juicy stuff, as pertains to booze, is buried in Section 5, (j) and (k).

Within 120 days (mark your calendars for Saturday, November 6th), a report authored by the Secretary of the Treasury, in consultation with the Attorney General and the Chair of the FTC, will be submitted to the White House Competition Council in an effort:

to protect the vibrancy of the American markets for beer, wine, and spirits, and to improve market access for smaller, independent, and new operations

What?! First, the Craft Beverage Modernization and Reform Act was made permanent, then tariffs were repealed, and now this? Sure, global shipping leaves much to be desired, but has this country ever experienced such halcyon days of alcohol regulation since the repeal of Prohibition?

This report is supposed to detail:

          (i)    any unlawful trade practices in the beer, wine, and spirits markets, such as certain exclusionary, discriminatory, or anticompetitive distribution practices, that hinder smaller and independent businesses or new entrants from distributing their products;
          (ii)   patterns of consolidation in production, distribution, or retail beer, wine, and spirits markets; and
          (iii)  any unnecessary trade practice regulations of matters such as bottle sizes, permitting, or labeling that may unnecessarily inhibit competition by increasing costs without serving any public health, informational, or tax purpose.

It should be very interesting to see what the report ends up uncovering and suggesting.4

No later than 240 days after the order (Sunday, March 6th), expect the Administrator of the Alcohol and Tobacco Tax and Trade Bureau to consider:

          (i)    initiating a rulemaking to update the Alcohol and Tobacco Tax and Trade Bureau’s trade practice regulations;  
          (ii)   rescinding or revising any regulations of the beer, wine, and spirits industries that may unnecessarily inhibit competition; and
          (iii)  reducing any barriers that impede market access for smaller and independent brewers, winemakers, and distilleries.

And that’s what the order explicitly states when it comes to alcohol.

What the Executive Order Could Mean

First, I want to note that the broad implications of the executive order are great when it comes to both business owners and employees. Non-competes will likely become a thing of the past for food and service workers.

With specific regard to beverage alcohol, here’s what’s notable:

  • The mention of “exclusionary, discriminatory, or anticompetitive distribution practices.” Various state liquor agencies often encounter issues along these lines, but for them to possibly have the federal government behind them is meaningful.

  • The recognition that consolidation in “production, distribution, or retail” is problematic. Will Brown Forman be able to merge with Pernod Ricard? The merger of RNDC and Breakthru was already dead, but what will this order spell when it comes to smaller acquisitions? Will Total Wine finally give up on trying to expand its footprint in New York?

  • Expect the number of legally permissible bottle sizes to grow. Are 500 ml bottles of spirits something we might see in the future? Now’s as likely a time as any in the past 30 years to see their adoption. Same with oversized bottles of spirits.

  • The TTB has already grown rather lax when it comes to rejecting what it deems “obscene or indecent” labels. It will be fascinating to see what the report finds is “unnecessary” when it comes to regulating labels.

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1

Perhaps, no one bothered to read the actual executive order, which clocks in at almost 6,900 words. The much more digestible fact sheet mentions labor markets, healthcare, transportation, agriculture, internet service, technology, and banking and consumer finance, but there’s not one word about alcohol.

2

How that polices/policies typo made it past a proofreader will forever be a mystery. It is further evidence that no one actually reads this stuff.

3

Per the TTB’s website, “The Twenty-first Amendment to the Constitution, repealing Prohibition, achieved ratification with unanticipated speed by December 5, 1933… President Roosevelt signed the Federal Alcohol Administration (FAA) Act in August 1935” and this put the Department of the Treasury in charge of “regulating the alcohol industry.”

4

Might I advise the report’s authors to look to Instagram accounts like LiquorIndustry to get a feel for the zeitgeist of the business?