Last week TTB announced they accepted an Office in Compromise from Miller Coors regarding a violation of the consignment sales regulations. Here are my thoughts on the case. For further information on consignment sales please see my blog on the Crafting a Strategy website: http://craftingastrategy.com/.
Ramifications for the Industry
I am somewhat relieved to see TTB take action on what has become an extremely common practice in the beer industry. As is too often the case when regulations aren’t being sufficiently enforced, certain key players bend the rules, which leads to the expectation that everyone must play by these bent rules. This was a routine issue at my former employer – wholesalers and retailers insisted that we buy back old beer regardless of whether it was legal or not. If we didn’t follow the regulations we were at risk of penalties from TTB and the state in question. If we didn’t do what the wholesalers and retailers asked then they would buy less of our products in the future. Of course, we couldn’t change wholesalers if one was playing hardball because franchise laws had us trapped. Hopefully this offer in compromise will send a message to the industry and relieve some of the pressure placed on brewers from their trade partners.
On the other hand, this citation raises the question: are the exemptions listed in the regulations for the “ordinary and usual commercial reasons” to return alcohol sufficient? It only took TTB about 77 years to realize that beer is a perishable product that should have a shelf life exemption, but are malt beverages the only perishable alcoholic beverages out there? I’m pretty sure that pre-mixed eggnog doesn’t get better with age.
What about seasonal products? TTB explicitly states that the return of seasonal products “does not constitute a return for ‘ordinary and commercial reasons’”. (27 CFR 11.46) So your Oktoberfest beer that is intended to be sold for 2 months has a 6 month shelf life, and it sells slower than intended. Since you can’t take it back, your accounts continue to sell what they have in stock well into the season for your winter ale. Now the winter ale sales are out of sync and the cycle continues. I’m not sure I agree that having Oktoberfest beer on store shelves at Christmas constitutes an “ordinary and commercial” practice.
Regardless of your opinion of the consignment sales regulations, remember that TTB is watching. Keep in mind:
For more information on consignment sales, or any other regulatory issues, please feel free to contact me at janene@graceregconsult.com. Thank you.
Ramifications for the Industry
I am somewhat relieved to see TTB take action on what has become an extremely common practice in the beer industry. As is too often the case when regulations aren’t being sufficiently enforced, certain key players bend the rules, which leads to the expectation that everyone must play by these bent rules. This was a routine issue at my former employer – wholesalers and retailers insisted that we buy back old beer regardless of whether it was legal or not. If we didn’t follow the regulations we were at risk of penalties from TTB and the state in question. If we didn’t do what the wholesalers and retailers asked then they would buy less of our products in the future. Of course, we couldn’t change wholesalers if one was playing hardball because franchise laws had us trapped. Hopefully this offer in compromise will send a message to the industry and relieve some of the pressure placed on brewers from their trade partners.
On the other hand, this citation raises the question: are the exemptions listed in the regulations for the “ordinary and usual commercial reasons” to return alcohol sufficient? It only took TTB about 77 years to realize that beer is a perishable product that should have a shelf life exemption, but are malt beverages the only perishable alcoholic beverages out there? I’m pretty sure that pre-mixed eggnog doesn’t get better with age.
What about seasonal products? TTB explicitly states that the return of seasonal products “does not constitute a return for ‘ordinary and commercial reasons’”. (27 CFR 11.46) So your Oktoberfest beer that is intended to be sold for 2 months has a 6 month shelf life, and it sells slower than intended. Since you can’t take it back, your accounts continue to sell what they have in stock well into the season for your winter ale. Now the winter ale sales are out of sync and the cycle continues. I’m not sure I agree that having Oktoberfest beer on store shelves at Christmas constitutes an “ordinary and commercial” practice.
Regardless of your opinion of the consignment sales regulations, remember that TTB is watching. Keep in mind:
- Alcohol manufacturers in the US cannot make any offer to buy back product from wholesalers. The same applies to sales between wholesalers and retailers.
- Limited exemptions apply; be sure that any returns based on these returns are properly documented.
- Only malt beverages can be returned if they are out of date. The containers must be date coded, the shelf lives clearly communicated and the expired product may not be re-sold. Wholesalers and retailers may not be required to meet any criteria to be able to return out of date malt beverages.
- Each state has its own rules regarding the return of alcohol, and these rules may be stricter than TTB’s.
For more information on consignment sales, or any other regulatory issues, please feel free to contact me at janene@graceregconsult.com. Thank you.
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