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Alcohol Beverages Pricing: Wholesale Pricing Practices and Restrictions

Laws restricting the wholesale price of alcoholic beverages.



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Expander Policy Description

Policy Description

(Period Covered: 1/1/2003 through 1/1/2016)
 
This policy topic covers laws restricting the wholesale price of alcoholic beverages. 
 
 
The 21st Amendment to the Constitution repealed Prohibition and gave States broad authority to regulate alcohol sales within their borders. Most States established a three-tier structure: producers, wholesalers, and retailers.
 
Wholesaler pricing laws impose restrictions on wholesaler pricing practices and are intended to strengthen the three-tier system, reduce price competition among wholesalers and retailers, and combat corruption and crime in the alcohol market.
 
In general, wholesaler pricing laws fall within four types:
 
1.     Volume Discounts:  Restrictions on the ability of wholesalers to provide volume discounts—the same price must be charged for products regardless of the amount purchased by individual retailers.
 
2.     Minimum Markup/Maximum Discount:  Restrictions on discounting practices by requiring wholesalers to establish a minimum markup or maximum discount for each product sold to retailers.  In some cases these restrictions are based on the price of the producer’s price for the product. In other cases they are established by enacting a ban against selling any product below cost.
 
3.     Post-and-Hold:  Requiring wholesalers to publicly “post” prices of their alcohol products (i.e., provide a list of prices to a State agency for review by the public, including retailers and competitors) and to hold these prices for a set amount of time. This allows all retailers the opportunity to make purchases at the same cost. Some States require wholesalers to post prices but have no “hold” requirement (i.e., posted prices may be changed at any time).  
 
4.     Retailer Credit:  Restrictions on the ability of wholesalers to provide credit extensions to retailers, typically by banning loans and limiting the period of time required for retailers to pay invoices.
 
These policy categories are closely interrelated but may operate independently of each other. The laws may also differ according to alcoholic beverage (beer, wine, or distilled spirits).
 
Some States wholesale alcohol directly. These are commonly referred to as “Control States.”  This practice is usually limited to distilled spirits, beer with high alcohol content, and wine with high alcohol content. In these cases, the State sets wholesale prices as part of its administrative function.  APIS does not report wholesale pricing practices and restrictions for these Control States.
The APIS treatment of the Wholesale Pricing topic employs a concept called "index beverage strength." The index beverage strength is the strength in which each beverage is most commonly sold.  For beer, the index beverage strength is 5 percent alcohol by volume; for wine, it is 12 percent alcohol by volume; and for spirits, it is 40 percent alcohol by volume.  If the sale of a beverage at the index beverage strength is controlled, in whole or in part, by the State at the wholesale level, the State is considered a Control State for that beverage and is noted as such in APIS without further coding for this policy topic.
 

Expander Definitions for Wholesale Pricing

Definitions for Wholesale Pricing

Alcohol Control System
The laws and regulations of a State that specify who may distribute alcohol beverages.  These laws and regulations may apply to the wholesale level, the retail level, or both.
Beverage Type
Major classifications of alcoholic beverages (based on ingredients or methods of production).  The APIS analysis of Wholesale Pricing considers three beverage types: beer, wine, and spirits.
Index Beverage Strength
Beer, wine, or spirits of a specified alcoholic content (5% alcohol by volume for beer, 12% alcohol by volume for wine, and 40% alcohol by volume for spirits).  Beverages are most commonly sold in these strengths.
License System
A system in which a State licenses private vendors to operate wholesale or retail systems of distribution of an alcoholic beverage type or subtype.  Also called a private system.
Retail
The sale of alcoholic beverages directly to consumers.
State-Run System
An alcohol control system for wholesale and/or off-premises retail distribution of an alcoholic beverage type or subtype. In such a system, the State sets the prices of and gains profit/revenue directly from wholesale and/or retail off-premises sales (rather than solely from taxation).[1] A State may own and operate the wholesale business or retail stores itself or it may contract with a private vendor while maintaining control over pricing and profits through the contractual relationship.  In the latter case, the private contractor may be paid a fee or commission.  State-run alcohol control systems are also referred to as monopoly systems, and States with these systems are sometimes referred to as controlStates.
Wholesale
The sale of alcoholic beverages obtained from a producer or distributor to a retailer.

 

[1] This characterization is based on an analysis presented in the National Alcohol Beverage Control Association (NABCA) Survey Book, 2002, and on interviews with NABCA officials. 

 

Expander Explanatory Notes and Limitations for Wholesale Pricing

Explanatory Notes and Limitations Specifically Applicable to Wholesale Pricing
1. Wholesale Pricing policies address pricing restrictions that apply specifically to wholesale licensees and not to alcohol beverage producers or retailers.

2.  Wholesale Pricing policies are not reported for States where beverages of the index beverage strength (see Definitions) are wholly or partially sold through State-run wholesalers.  In these cases, the State sets a price that is some combination of cost, mark-up, and taxes.  States where
beverages of the index beverage strength are wholly or partially sold through State-run wholesalers are coded as Control States and no further data are reported.
 
3. Wholesale Pricing policies do not address advertising or promotional practices between wholesalers and retailers.
 

Explanatory Notes and Limitations Applicable to All APIS Policy Topics 

  1. State law may permit local jurisdictions to impose requirements in addition to those mandated by State law. Alternatively, State law may prohibit local legislation on this topic, thereby preempting local powers. For more information on the preemption doctrine, see the About Alcohol Policy page. APIS does not document policies established by local governments. 
     
  2. In addition to statutes and regulations, judicial decisions (case law) also may affect alcohol-related policies. APIS does not review case law except to determine whether judicial decisions have invalidated statutes or regulations that would otherwise affect the data presented in the comparison tables. 
     
  3. APIS reviews published administrative regulations. However, administrative decisions or directives that are not included in a State's published regulatory codes may have an impact on implementation. This possibility has not been addressed by the APIS research. 
     
  4. Statutes and regulations cited in tables on this policy topic may have been amended or repealed after the specific date or time period specified by the site user's search criteria. 
     
  5. If a conflict exists between a statute and a regulation addressing the same legal issue, APIS coding relies on the statute. 
     
  6. A comprehensive understanding of the data presented in the comparison tables for this policy topic requires examination of the applicable Row Notes and Jurisdiction Notes, which can be accessed from the body of the table via links in the Jurisdiction column. 

Expander Federal Law for Wholesale Pricing

Federal Law for Wholesale Pricing
(Policies in effect on:  1/1/2016)
 
Federal law addresses restrictions on wholesaler credit and pricing practices.
The Federal Alcohol Administration Act provides for regulation of those engaged in the alcohol beverage industry and for protection of consumers.  27 U.S.C. § 201 et seq.  Under the Act, wholesalers may not induce retailers to purchase beverage alcohol by extending credit in excess of 30 days from the date of delivery.  27 U.S.C. § 205(b)(6), 27 C.F.R. § 6.65.
The authority of the States to regulate alcohol availability within their boundaries has been constrained by U.S. Supreme Court and Federal Court of Appeals cases, which have interpreted the Interstate Commerce Clause (ICC) and Sherman Antitrust Act to prohibit certain State restrictions on the alcohol market.[1]  (For more information on the preemption doctrine, see the About Alcohol Policy page.) These cases have led to considerable uncertainty regarding the validity of State restrictions on alcohol wholesaler prices. As a result, additional challenges to those restrictions are anticipated.
 
FEDERAL CITATIONS AND RELEVANT TEXT EXCERPTS
 
U.S. Const., art. 1, §. 8, cl. 3: Regulation of Commerce
 
…The Congress shall have Power…
To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;
 
 
27 U.S.C. § 205
United States Code
Title 27 – Intoxicating Liquors
CHAPTER 8 – Federal Alcohol Administration Act
SUBCHAPTER I – Federal Alcohol Administration
§ 205. Unfair competition and unlawful practices
 
It shall be unlawful for any person engaged in business as a distiller, brewer, rectifier, blender, or other producer, or as an importer or wholesaler, of distilled spirits, wine, or malt beverages, or as a bottler, or warehouseman and bottler, of distilled spirits, directly or indirectly or through an affiliate:
(b) “Tied house”
To induce through any of the following means, any retailer, engaged in the sale of distilled spirits, wine, or malt beverages, to purchase any such products from such person to the exclusion in whole or in part of distilled spirits, wine, or malt beverages sold or offered for sale by other persons in interstate or foreign commerce, if such inducement is made in the course of interstate or foreign commerce, or if such person engages in the practice of using such means, or any of them, to such an extent as substantially to restrain or prevent transactions in interstate or foreign commerce in any such products, or if the direct effect of such inducement is to prevent, deter, hinder, or restrict other persons from selling or offering for sale any such products to such retailer in interstate or foreign commerce: ***; or (6) by extending to the retailer credit for a period in excess of the credit period usual and customary to the industry for the particular class of transactions, as ascertained by the Secretary of the Treasury and prescribed by regulations by him; ***
 
 
27 C.F.R. § 6.65
Code of Federal Regulations
Title 27. Alcohol, Tobacco Products and Firearms
Chapter I. Alcohol and Tobacco Tax and Trade Bureau, Department of the Treasury
Subchapter A. Alcohol
Part 6. “Tied-House”
Subpart C. Unlawful Inducements
Extension of Credit
§ 6.65 General.
 
Extension of credit by an industry member to a retailer for a period of time in excess of 30 days from the date of delivery constitutes a means to induce within the meaning of the Act.
 
 
15 U.S.C. § 1
United States Code
Title 15. Commerce and Trade
CHAPTER 1 –
Monopolies and Combinations in Restraint of Trade
SUBCHAPTER I – Federal Alcohol Administration
§ 1. Trusts, etc., in restraint of trade illegal; penalty
 
Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. * * *
 
 

 

Source for all citations on this page: FDsys, the Federal Digital System of the U.S. Government Printing Office (GPO).
Excerpts from the United States Code are current as of 2015. Excerpts from the Code of Federal Regulations are current as of 2016.  Excerpts from Public Laws of Congress are current as of the year of enactment.
The GPO’s Public Domain/Copyright Notice is available under the Policies heading at
http://www.gpo.gov/help/index.html .

 

 
[1] See, e.g., California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 100 S.Ct. 937 (1980). See also Costco Wholesale Corp. v. Maleng, 522 F.3d 874 (9th Cir. 2008); Manuel v. State of Louisiana, 982 So.2d 316 (3rd Cir. 2008); TFWS, Inc. v. Franchot, 572 F.3d 186 (4th Cir. 2009).
 
 

Expander Selected References for Wholesale Pricing

 
 Selected References for Wholesale Pricing
 
1.     Chaloupka, F. Legal challenges to State alcohol control policy: An economist’s perspective. Presentation at the Alcohol Policy 14 Conference, San Diego, CA, January 28, 2008.
2.     Cooper, J, and Wright J. Alcohol, antitrust, and the 21st Amendment: An empirical examination of post and hold law. International Review of Law and Economics 32 (4), 379–392, 2012.
 
3.     Gruenwald, P. J., Ponicki, W. R., Holder, H. D., & Romelsjö, A .. Alcohol prices, beverage quality, and the demand for alcohol: Quality substitutions and price elasticities. Alcoholism: Clinical and Experimental Research 30, 96–105, 2006.
 

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