Trade Practice Issues

Trade Practice Issues
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Overview

The unfair trade practice provisions in the Alcoholic Beverage Control law are designed to level the playing field in the distribution and sale of alcohol beverages and to prevent promotional practices that could lead to abusive consumption.  Illegal trade practices include creating tied-houses between wholesalers/manufacturers and retailers, selling exclusively to preferred retailers, offering illegal gifts or services to induce sales, and extending credit terms beyond those authorized under the ABC law. 

Tied House Laws

To prevent manufacturers and wholesalers from exerting inappropriate control over retail licensees, the ABC Law places restrictions on the ability of an entity in one tier from having an interest in an entity in another tier of the industry. These restrictions are commonly known as the "tied house" laws. 

Licensed manufacturers and wholesalers are prohibited from having any interest, direct or indirect, in any premises where alcoholic beverages are sold at retail. Retail liquor and wine stores may not have an interest in a business that manufactures or wholesales alcoholic beverages. Individuals holding a retail on-premises license are banned from having any interest in a business that manufactures or wholesales alcoholic beverages.

Unlike other provisions of the ABC Law that give the Authority discretion as to whether it can issue a license, the tied house laws provide no such power. If the applicant has an interest in a business in another tier, no matter how small, the application must be disapproved.

Gifts and Services

The gifts and services law prohibits manufacturers and wholesalers from giving something of value to retailers to induce the retailer to buy the manufacturer's or wholesaler's product. Generally speaking, the Authority presumes that anything a manufacturer or wholesaler gives to a retailer is meant to induce the retailer to buy product. There are certain things that a manufacturer or wholesaler can do without violating the gifts and services law, for example:

  • Retailer advertising specialties: items with the brand logo intended to be used by a retailer. There is an annual cap on the value that can be given to a retailer.
  • Consumer advertising specialties: items with the brand logo intended to be given away to consumers. There is no limit on the amount that can be given to a retailer.
  • Contests and rebates (with no retailer participation): the Authority allows mail-in rebates but not those that can be redeemed immediately at the retail location.
  • Advertising the name of retailers who carry the product: the advertisement must include several retailers and the reference to the retailers cannot be the predominant part of the advertisement.

Terms of Sale

Manufacturers and wholesalers must sell to any licensed retailer willing to pay cash. Cash means U.S. currency, certified check, money order, electronic funds transfer, bank officer's check or draft, or a check drawn on the retailer's account payable to the manufacturer or wholesaler. Checks cannot be from third parties. Checks drawn on retailer's accounts cannot be post-dated. Manufacturers and wholesalers do not have to accept checks drawn on retailer's accounts. 

Manufacturers and wholesalers can, but are not required to, allow retailers to pay on credit. The ABC Law defines the terms of credit that must be used. The parties themselves cannot agree to the credit terms.

Retailers purchasing liquor or wine on credit have 30 days to pay the bill. Retailers purchasing beer on credit have between 12 to 26 days to pay the bull, depending on the date of delivery within the credit cycle.

Licensed manufacturers and wholesalers must report retailers who are delinquent in payment. The C.O.D. List contains all the retailers who are delinquent in paying for products purchased on credit from licensed manufacturers and wholesalers. Licensed manufacturers and wholesalers cannot sell on credit to any retailer on the C.O.D. List.