TTB Guidelines for Promotional Programs with Retailers

Marketing is an inevitability, even for those of you who produce small batches that sell out within a week.  Whether you’re big enough to understand how a good campaign can increase awareness and sales, or whether you’re the small craft producer looking to expand, you’re likely considering your options in advertising.

As a regulated industry, states and the federal government place restrictions on the character, quality and method of your promotions.  One of the key components of these regulations is the basic prohibition on “tied-house” violations.  The term “tied-house” refers to a practice where producers and retailers work in concert which usually results in a retailer being required to purchase at least some, if not all, of its alcohol from a certain producer.  The basic tenant in support of these restrictions is that each of the levels of the three-tiered system should remain segregated and that “evil” through either intemperance or anti-competitive trade practices like monopolies, higher prices, or tied-product purchases.  It would be unfair of me to not point out that the economic “just-so-stories” about the evils of tied-houses may be just that – stories of unfounded hypothesis not proven with any scientific merit.

In any event, as producers, there are restrictions based on these tied-house restrictions regarding offering things of value to retailers, under the Federal Alcohol Administration Act and the Code of Federal Regulations – and these restrictions impact the manner and method of promotional programs to retailers.  Interestingly, the TTB has a series of Q&A style informational guidelines to help you in determining the extend and character of your offerings to retailers that are worth a read.  We’ve taken the liberty of reproducing them below:

1. May an industry member participate in a retailer-initiated marketing or promotional program that results in the industry member furnishing the retailer with the things of value listed in the Subpart D exceptions?Yes, although the general rule is that furnishing things of value to a retailer constitutes a tied-house “inducement,” an industry member may furnish retailers with the items and services specified in the Subpart D exceptions without violating 27 CFR 6.21(c) if the industry member follows the pertinent quantity or monetary restrictions in the specific regulation and complies with the recordkeeping requirements under 27 CFR 6.81(b).  However, it is the industry member’s responsibility to provide oversight and guidance to ensure that only those items, services, and things of value listed under Subpart D exceptions are furnished to the retailer within the quantity or monetary allowances and that records required for those items are maintained in accordance with 27 CFR 6.81.

1. May an industry member provide monetary promotional support directly to a retailer?Neither Subpart D nor any other regulations in part 6 authorize industry members to provide monetary promotional support (i.e., funds) directly to a retailer, even if the retailer uses such funds entirely to purchase items subject to the Subpart D exceptions.  TTB would consider such payments as an unlawful means to induce.
2. May an industry member participate in a retailer-initiated marketing or promotional program in which the retailer explicitly or impliedly agrees to place the industry member’s alcohol beverages on any particular shelf or in any particular display space in exchange for Subpart D items and services furnished by the industry member?
   
   An industry member’s willful participation in promotional programs in which a retailer links the furnishing of Subpart D items with preferential shelf and display space for the industry member’s products may result in a violation of the tied-house provisions when the elements of interstate commerce and exclusion are present.  In the case of malt beverages, similar state law must also be present for FAA Act provisions to apply.  TTB may consider the furnishing of such items to be a “slotting fee allowance” paid to the retailer even if such items consisted entirely of Subpart D items. Further information on this subject appears in TTB G 2011-03, Tied House Exceptions, dated May 6, 2011.

1. May an industry member that participates in a retail marketing or promotional program suggest to the retailer that the retailer would benefit from their products being placed in specific space or display locations in the retailer’s premises? 

   An industry member may, as part of its participation in a retail marketing or promotional program, discuss with or suggest to the retailer the benefits of placing or displaying the industry member’s products in specific locations within the retail premises.  However, TTB considers an industry member (1) making their participation in a marketing or promotional program contingent on preferential product display or placement in the retailer premises, or (2) accepting an offer by a retailer for preferential shelf or display space in exchange for the industry member’s participation in the retail promotional program, to be an unlawful means to induce, and more specifically, a “slotting allowance.”  To be in accordance with the tied-house law and regulations, the ultimate decision to place the industry member’s products in specific locations within the retail premises must rest solely with the retailer.

2. If an industry member obtains a written statement from a retailer attesting that the industry member’s participation in the retailer promotional program does not obligate the retailer to place the industry member’s products in preferential shelf or display space, will such a written statement demonstrate full compliance with part 6 regulations? 

   An industry member may obtain, in good faith, a written statement from the retailer attesting that the retailer has retained final authority over product placement and display decisions, and that the retailer is not obligated to purchase or place the industry member’s products on any particular shelf or in any particular display space.  While such a statement standing alone would not conclusively demonstrate compliance with the law, TTB may consider it an indication of intended compliance.  We reiterate that, to be in accordance with the tied-house law and regulations, the ultimate decision to place the industry member’s products in specific locations within the retail premises must rest solely with the retailer.

3. May an industry member base the monetary amount of Subpart D items furnished to a retailer on the retailer’s historical or expected product purchase levels? 

   In determining the quantity of Subpart D items furnished to a retailer, TTB recognizes that the industry member may take into consideration such factors as:

   • the amount of product previously purchased by the retailer;
   • a reasonable expectation of new product purchases;
   • the seasonal nature of a product;
   • expected changes in market conditions; or
   • the anticipated amount of product to be purchased by a new retail account.

Under the tied-house law and regulations, however, the industry member may not require a retailer to purchase, or purchase any particular quantity of, the industry member’s products unless specifically authorized by the regulations. 

1. May an industry member advance, or “front end,” Subpart D items to a retailer before the retailer purchases a particular product?Yes, TTB recognizes that an industry member may advance, or “front end,” Subpart D items to a retailer related to a new product or seasonal product prior to the retailer purchasing such given product.
2. May an industry member use a third-party promotional company to provide Subpart D items to a retailer?An industry member may select a third-party promotional company and provide that company with funds to purchase Subpart D items for a retailer.  It is the industry member’s responsibility to review, evaluate, and provide guidance to the third-party promotional company to ensure that the funds provided to the third-party promotional company are used in compliance with all Subpart D requirements.  The industry member should be especially mindful if the selected third-party promotional company is owned, created, operated, or controlled by the retailer or is in any way acting on behalf of the retailer.  In such cases, TTB may consider the industry member’s furnishing of funds to the third-party promotional company as an indirect means to induce to the retailer.
3. May industry members who participate in a retail promotional program “pool” the cost of Subpart D items furnished to a retailer?TTB’s predecessor agency recognized in Industry Circular 82-12 (Nov. 11, 1982) that pooling of promotional funds by a single industry member for multiple brands is permissible under the tied-house regulations, subject to the conditions and limitations provided therein.  Further, TTB would recognize that multiple industry members may “pool” or combine their promotional program funds for specific Subpart D items to be furnished to a retailer provided the industry members are in compliance with any and all conditions or limitations, including monetary limits, placed upon such items by the Subpart D regulations.  For example, if it costs $10,000 to print “point of sale advertising material” such as wine menus furnished to a retailer, Winery A, B and C may each contribute $3,000, respectively, while the retailer pays the remainder of the cost.  On the other hand, industry members may not pool promotional funds for product displays furnished to a retailer valued in excess of $300 per brand, in accordance with 27 CFR 6.83(c).
4. May industry members who furnish third-party promotional companies with money to purchase Subpart D items require such companies to return or repay the value of such promotional support?When a third party does not use all of the funds provided by the industry member for retailer promotional support, TTB recognizes that the industry member may require the third-party promotional company to repay the unused funds.
5. May industry members who furnish Subpart D items to retailers require retailers to return or repay the value of such promotional support?TTB would view an industry member’s request that a retailer return or repay the value of Subpart D items to such industry member as potential evidence of a “quota” sale means to induce under 27 CFR 6.21(g), if the industry member’s request for return or repayment was motivated in part by the retailer’s failure to purchase, or purchase any particular quantity of, the industry member’s alcohol beverage products.  In other words, at issue would be whether the industry member furnished Subpart D items to the retailer as a subterfuge to violate 27 CFR 6.21(g).