Space Wars Heading To Taverns Revised Gov't Regs Could Allow Slotting Fees For Alcohol

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Not since the end of Prohibition have U.S. alcohol marketers confronted the prospect of the kind of no-holds-barred shelf space wars that now appear likely.

With the disposition of millions of ad and promotion dollars at stake, the U.S. Department of the Treasury is about to unveil a proposed overhaul of federal regulations that may allow alcoholic beverage marketers and retailers to negotiate slotting fees and other previously banned trade allowances.

Current regulations of the department's Bureau of Alcohol, Tobacco & Firearms prohibit most trade allowances. A brewer, for example, cannot provide a cooler to a tavern in exchange for replacing a rival's beer tap with his own. This could change under the proposed new rules, and that prospect has alcohol marketers big and small on edge. But the BATF said a 1992 court decision allowing alcohol marketer Fedway Associates to trade TVs, VCRs and other electronic appliances to retailers for preferential treatment has forced it to consider new rules.

The proposed changes were tentatively scheduled for presentation at alcohol industry meetings next week by BATF Director John Magaw and Ron Noble, assistant treasury secretary for enforcement. By May 1, the proposed new regulations will be published for industry comment in the Fed, BATF said.

"We're going to give people an idea of what will be a `safe harbor'-what will be permitted, even if the practice were to result in the exclusion of a competitor's products," a BATF spokeswoman said.

The spokeswoman declined to offer specifics on the proposed changes.

Alcohol marketers contend the existing strict regulations make for a level playing field, assure broad consumer choice and limit competition to mostly price, advertising and sales promotion. Thus their hope that the rules won't be drastically altered.

Their greatest fear is that the BATF will allow payments to retailers and even bar owners for shelf and cooler space. Instead of opening up competition, smaller players feel they will be pushed out. And larger marketers believe the result will be less competition, higher prices and a shift of ad and promotion dollars into slotting fees.

"It would be anti-competitive. It would unlevel the playing field more than it is," said Chris Moore, VP-sales for Miller Brewing Co.

If Miller, the country's No. 2 brewer is scared, the smaller marketers are terrified, said Laurence Sterling, director of public affairs for tiny Ironhorse Vineyards in California.

"If you go to most supermarket sections, there are three or four players. But in the alcohol beverage section, the diversity of suppliers is mind boggling," said Mr. Sterling, who headed a Wine Institute committee studying the issue.

Wholesalers and liquor marketers, given a choice, would opt for a modest revision of current regulations, rather than opening up to slotting payments.

"We don't expect a green light for [slotting allowances] because beverage alcohol is regulated so closely," said Elizabeth Board, director of public issues for the Distilled Spirits Council of the U.S."We don't see a strong sea change."

Some industry analysts estimate package-goods companies already spend as much as one-third of their marketing budgets on slotting allowances, though the exact amount varies by category and retailer. The alcohol industry hasn't had to bear those kinds of expenses since Prohibition ended and marketers' relationships with retailers were severely restricted.

Ironically, alcohol marketers may be dragged into the world of trade allowances even as package-goods marketers and supermarket chains are trying to eliminate or revamp such payments.

The Federal Alcohol Administration Act that set up the post-Prohibition regulatory machinery for alcohol was intended to keep makers of alcoholic beverages separate from sellers and limit what alcohol suppliers could provide retailers. Subsequent rules from the BATF permitted retailers to give bar owners advertising clocks, signs and posters but little else.

A rules change became necessary when a 1992 U.S. Circuit Court of Appeals panel overturned some key sections.

The BATF was surprised by the ruling, which said the furnishing of electronics gear to retailers by Fedway in exchange for stocking Finlandia vodka and Captain Morgan rum-to the exclusion of rival products-was an example of "pro-competitive wholesale promotion."

The Wine Institute, with an E&J Gallo Winery endorsement, urged the BATF to continue to bar most promotions that depend on meeting sales goals, paying retailers for advertising or display space, or requiring payment for "advertising allowance."

Other major players, including Anheuser-Busch, are also on record against slotting allowances.

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