Kroger May Have Opened Pandora's Box

FILED MARCH 18, 2016

Dear Client:

As we've reported this week, the TTB's recent clarification and FAQ on the FAA Act's tied house law and its exemptions suggests that much of today's category management practices are for all intents and purposes illegal. The question is whether the agency plans to actively investigate this issue on a large scale. If they do, this scheme by Kroger and Southern Wine & Spirits may have opened Pandora's Box, and what we could end up with is a much narrower definition of what is allowed under federal category management rules than the industry has heretofore been practicing. Which to me could be a good thing.

To answer the question above, we got TTB's Thomas Hogue on the phone. Basically he told us that they've issued recent guidance to allow people to understand and get in compliance with the law before potential investigations are conducted.

"Basically what we've done between the ruling and FAQ is try to get everyone on the same sheet of music," said Tom. "We want everyone to understand the exception is very narrow" and they're "trying to get as specific as we can get ...

"Keep in mind when we're looking at whether someone has violated trade practices, you have to look at the totality of what they're doing, and the effect."

More specifically to the question of potential investigations: "Right now we're giving everyone a chance to take a look at what we've put out there, what they're doing, and ... come into compliance voluntarily."

But…….. "We will be out there doing investigations before long, and we take the commitment to maintain a level playing field very seriously ..." especially with the growth of the industry and its small businesses.

To our knowledge, the TTB has previously conducted investigations on category management practices, which may still be pending. Could any new investigations be party to this?

"I can't really comment on any particular investigation," Tom answered. "But the thing to keep in mind here is [to] get everyone on the same sheet." With the new ruling and FAQ, they "basically" sought to take "a breather, get everyone on the same sheet, and then move forward. ... Essentially trying to make sure everyone understands ... what this exception really means, how narrow it is" and then giving them "the tools they need to evaluate their own activities."

In my experience this is a more hands-on TTB and their reaction times to this issue have been quick. With the Massachusetts ruling and record fine on the Sheehan's Craft Brew Guild's alleged pay-to-play activities (currently being contested by them in court), could this be a sign of a new era of tighter trade practice regulation?

If so, it would certainly be welcomed by many veteran beer folks we've talked to recently as the industry has been much more unregulated and kind of a "Wild West" since the recession of 2008 cut regulator budgets at both the state and federal levels even though those agencies typically bring in the most tax dollars per employee.

What do you think? Ping me at

Until Monday, Harry

"The artist is nothing without the gift, but the gift is nothing without work."
- Emile Zola

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