Posted on | September 3, 2013
Written by | Keven Danow and Arielle Albert
New York law requires that wholesalers of wine and spirits post their prices monthly in order to ensure that all licensed retailers are able to purchase products from wholesalers at the same prices. These provisions were enacted to create transparency and to protect New York consumers and businesses from anti-competitive market behavior.
At the July 31st, 2013 Board meeting, the State Liquor Authority fined a New York State liquor and wine wholesaler $100,000 and imposed a 30-day deferred suspension based upon an allegation that one of its solicitors sold 133 cases of wine to a select retailer at a discount of nearly 50%, without offering the product to other retailers. The deeply discounted price was not posted as a limited availability item with the SLA as mandated by the Alcoholic Beverage Control (ABC) law.
On July 31st, 2013, the New York State Liquor Authority issued Advisory 2013-5, which sets forth safe harbors for use in connection with the sale of limited availability goods. On the same day, the Authority issued a new Advisory giving suppliers, importers and wholesalers rules and a safe harbor in dealing with closeouts and other limited availability issues. A copy of the Advisory can be found at here.
Focus Turns to Supply & Demand
The advisory applies to all “Limited Availability” items, which are “those items bearing the same brand or trade name, or combo packs… for which the manufacturer, importer or wholesaler has reason to believe market demand exceeds or will soon exceed available inventory.” Consequently, if those in charge of the brand believe they do not have sufficient product to handle the demand, they should follow the limited availability guidelines.
Reasons why a manufacturer, importer or wholesaler might believe an item is limited in availability include:
(1) It does not have sufficient inventory to meet demand;
(2) It cannot purchase sufficient inventory to satisfy demand;
(3) After the inventory on hand is sold, It does not intend to sell or purchase further inventory for a period of at least one year;
(4) The item is seasonal and either the supplier, importer or wholesaler has purchased a limited amount or the season has passed;
(5) The item has been discontinued by the supplier;
(6) It has price posted a subsequent vintage;
(7) It has terminated its business relationship with the supplier;
(8) It has decided to close out the item.
The Combination Package Advisory must be consulted when working with the limited availability advisory. Therefore, combination packages which are assembled and packaged by the supplier and which are intended to be disassembled by the licensed retailer for resale as well as combination packages created by distributors must be price posted as limited in availability and sold under the combination package advisory rules.
No quantity discounts may be offered for items which are posted as limited in availability.
Once a month begins and the prices become effective, they may not be changed without permission from the Liquor Authority.
Methods of Allocation
A supplier, importer, or wholesaler is free to use any method of allocation that does not unfairly discriminate. However, unless it price posts the item as limited in availability and uses a method which has been approved by the Liquor Authority, it runs the risk the Authority will charge it with unlawful price discrimination. The following methods of allocation have been approved by the Authority:
1) Past sales history (within preceding 12 months) with 10% holdback allowance (i.e., set aside and held in inventory) for prospective new business;
2) Lists of retailers published by respected third party sources such as: a listing as best wine list in Wine Spectator Magazine; a listing in Zagat’s as best restaurants; a listing in Michelin Guide or the like;
3) Unsold accounts (retailers that have not purchased the item within the past year);
4) First come first served with a maximum per account;
5) Advance interest, provided all accounts are given reasonable notice and the opportunity to express their interest but no pre-ordering is allowed.
There are two marketing channels: on-premise and off-premise. Although both on- and off-premise licensees must be offered the goods at the same price, a different method of allocation may be used for each channel, but all qualified accounts within the channel must be given an equal opportunity to obtain the limited availability items.
Adjusting Allocations Over a Period of Time
Suppliers, importers and wholesaler are permitted to create an allocation method which will extend over a reasonable commercial period of not more than 12 months. However, at least 30% of the available goods must be offered to each channel for each price point offered during each time period.
Close-outs are special form of Limited Availability Items. “Closeout sales” occur when the supplier, importer or wholesaler intends to sell its entire remaining inventory. In order to qualify as a close-out, there must be a price reduction of at least 10% from the previous month. Except in the case of seasonal items, a close out is not permitted unless the item has been offered for at least six months. Orders for close-out goods may not be accepted until 9:00 am on the first day of each month for which the price posting is in effect. Close-outs may be offered as follows:
The first month of a close out filing the item must be offered with a maximum number of cases per retailer which does not exceed 10% of the available inventory and must include with its price posting a notice that in the next month and thereafter the item will be marked “first come first served—no maximum.”
The second and subsequent months, the goods may offered on a first come first served basis with no limit.
If the price is reduced in the second or any subsequent month, the process must be repeated from the beginning.
Sections 109 and 110 of the ABC Law require all applications (original and renewals) to include “a statement setting forth the type of establishment to be operated at the premises. The statement must indicate if there will be topless entertainment and/or exotic dancing at the establishment.
The provisions related to the sale of adulterated beverages has been amended to require that the adulteration be “intentional.” This amendment will make it difficult for the Liquor Authority to charge a retail on-premise licensee with sale of the adulterated beverages because of the presence of fruit flies and other insects.
And a Word to the Wise
Section 110-b of the Alcoholic Beverage Control Law requires notice to the Community Board before the Liquor Authority considers a substantial corporate change, which is defined as:
(a) for a corporation, a change of 80% or more of the officers and/or directors, or a transfer of 80% or more of stock of such corporation, or an existing stockholder obtaining 80% or more of the stock of such corporation; and
(b) for a limited liability company, a change of eighty percent or more of the managing members of the company, or a transfer of eighty percent or more of ownership interest in said company, or an existing member obtaining a cumulative of eighty percent or more of the ownership interest in said company.
At the July 31st board meeting, Chairman Dennis Rosen noted that the Authority has been receiving applications for corporate changes which attempt to circumvent the statute, by limiting the change to 79% or slightly less. Chairman Rosen expressed the Authority’s displeasure with attempts to thwart the intent of the law. He made it clear that any such attempt will place the application for a corporate change under increased scrutiny.