Wal-Mart Sued Over ‘Craft’ Labeling On Beer Collaboration
By Kat Greene
February 14, 2017
Wal-Mart Stores Inc. has been accused of marketing and pricing a mass-produced beer as though it were a small-batch craft product, according to a proposed class action in Ohio that targets the retail giant’s collaboration with a supposedly small supplier that isn’t really small at all.
Ohio beer shopper Matthew Adam said he bought a 12-pack of beer that was packaged to look like, and priced to sell like, the beer from other small beer makers. The beer was from a line Wal-Mart is selling in a collaboration with Trouble Brewing, a company that purports to fit the “craft beer” name.
But Trouble Brewing isn’t small at all, Adam said in the proposed class action filed Feb. 10. Rather, it’s a unit of a much larger conglomerate that mass-produces beers, meaning it shouldn’t be sold for a premium craft price near the other premium craft brews, he said.
“He suffered an ‘injury in fact’ by paying for something he believed was genuinely ‘craft beer,’ when it was not,” according to the complaint. “Essentially, the craft beer is not worth the purchase price paid.”
The suit accuses Wal-Mart of fraud and violating the Ohio Consumer Sales Practices Act, among other claims.
Adam said that when he bought the Trouble Brewing variety pack, he’d assumed he was paying a premium because the beer was craft. To be called craft, according to the Brewers Association, a brewery must make fewer than 6 million barrels annually and be less than 25 percent owned by a mass producer.
Wal-Mart has been selling four different styles of its own line of beer since last year as part of a collaboration with Trouble Brewing, according to the suit. Trouble Brewing, Adam said, doesn’t really exist. Rather, its official name when it applied for a brewing license was Winery Exchange Inc., which has since changed to WX Brands.
That company’s brewery address isn’t for WX Brands, but rather, for Genesee Brewing Co., a mass producer in Rochester, New York, according to the suit. Genesee is in turn owned by an even larger company in Costa Rica, Adam said.
He seeks to represent a class of consumers who paid the premium price of craft beer for what ultimately is just mass-produced beer, according to the complaint.
Wal-Mart said in a statement that the company hasn’t yet been served with the complaint, but that it intends to defend itself against the allegations.
“We hold our suppliers to high standards and are committed to providing our customers the quality products they expect,” the company said.
The plaintiffs are represented by Brian T. Giles and Bryce Lenox of Giles Lenox.
Counsel information for Wal-Mart couldn’t be immediately determined.
The case is Matthew Adam v. Wal-Mart Stores Inc., case number A 1700827, in the Court of Common Pleas, Hamilton County, Ohio.
The article below and, more particularly, the comments therein by Bart Watson – economist for the Brewers Association – serve to emphasize the importance of allowing direct-to-consumer sales by breweries. If, by law, a brewery’s sole revenue stream is distribution, i.e., is prohibited from direct-to-consumer sales, it is going to have a difficult time surviving. This has been true for some time now, but with current market trends and other states tweaking their laws in favor of craft breweries, the passage of SB85 becomes more and more vital.
Beer economist: For somebody to grow, somebody has to shrink
Feb. 8, 2017
“There’s still growth out there, but it’s harder to find.”
That’s the message about the craft beer market that Bart Watson, chief economist for the Brewers Association, conveyed to an assembled crowd of brewing industry professionals at the Duke Energy Convention Center Wednesday morning.
Watson, whose organization is a national trade association representing small, independent craft brewers in the U.S., spoke as part of the third annual Ohio Craft Brewers Association (OCBA) Conference. The event had some 450 registered participants this year.
Nationally, craft beer’s growth rate is slowing, but the industry is still growing. Watson said. Some of the slowdown can be attributed to craft beer’s larger base: Consider that there are now more than 5,000 breweries operating in the country, more than at any time in U.S. history, and up from about 2,000 just five years ago. He expects to see the number of craft breweries continue to grow to as many as 8,000 or even 10,000 in the near term. Once closings are factored in, the U.S. currently nets an average of 2.1 new breweries every day, he said.
Being in the middle of states in terms of its number of craft breweries, Ohio in particular still has plenty of room for growth, Watson figures. Mary MacDonald, OCBA’s executive director, said the state ended 2016 with 194 active breweries, having grown by 44 last year. Expect to see that number increase again this year. Ohio currently has 236 licenses, meaning more than 40 new ones are already in the works.
The industry has big economic implications for the state: Ohio craft breweries have a $700 million impact on the state’s economy and provide nearly 4,000 full-time equivalent jobs, Watson said.
As for where Ohio’s growth could be headed, he points to Michigan’s 445 active licenses as a reasonable benchmark. Kentucky, by the way, has 60; Indiana, 163.
It’s also important to considering not just the number of breweries but also how much – or rather, how little – they are producing.
“The vast majority of these breweries are really, really small,” Watson said. “They’re operating more like a restaurant or a bar than a production facility.”
By his thinking, an occasional brewery closure, such as Ei8ht Ball’s recently announced local exit, is not cause for alarm but a sign of a more mature industry with increased competition.
“If 500 close, I wouldn’t blink an eye,” because twice as many would likely open in the same timeframe, he said.
He does expect to see changes in the industry, though. Before his speech, he said that beer drinkers shouldn’t expect to see breweries grow at the rate of local breakouts MadTree or Rhinegeist, which he singled out as anomalies in the industry to begin with.
“The era of moving from a microbrewery to a multi-state, regional is not dead, but it’s going to be very infrequent,” Watson said. “It’s going to be harder for everyone to grow in an environment like this. For somebody to grow, somebody has to shrink.”
Also, nearly 80 percent of drinking-age U.S. adults already live within 10 miles of a brewery, so it’s no longer enough to just find a new place to open one. Most likely there will already be competition when a new brewery enters a market.
So he talks about differentiation a lot now. “Now, I think you’re going to have to do something different,” he said. That might include things like launching beers that stand out in a crowded market or targeting underserved segments of the market, such as female beer drinkers, he said. “I think the next phase is going to be the interesting one.”
When you see the image above, what comes to mind?
Bud Light Lime-A-Rita Not So ‘Light,’ 9th Circ. Told
By Daniel Siegal
February 7, 2017
Drinkers of Bud Light Lime-A-Rita on Tuesday urged the Ninth Circuit to revive their putative class action accusing Anheuser-Busch LLC of tricking consumers into thinking the sugar-loaded beverage is low-calorie, arguing that the brewer’s use of the term “light” on labeling has meaning for consumers.
During oral arguments in Pasadena, California, Behdad Sadeghi of Zimmerman Reed LLP, representing named plaintiffs Sheila Cruz, Deborah Esparza and Catherine Silas, urged a three-judge panel to reverse U.S. District Judge Andre Birotte Jr.’s ruling dismissing the suit, which contends that Anheuser-Busch’s labeling of the cocktail-flavored malt beverage tricks consumers into thinking that Lime-A-Rita is comparable to Bud Light Lime, when in fact it contains nearly three times as many calories.
The panel appeared to be amused by the case’s subject matter, with Circuit Judge Morgan Christen saying before arguments began that the case was the “law clerks’ favorite,” and Circuit Judge Susan Graber adding there was “a lot of show-and-tell in chambers in this morning.”
Sadeghi then showed the judges a flattened Lime-A-Rita box, and argued that the use of the term “light” on the label could plausibly be misleading to consumers, and that the trial court erred in dismissing the case at the pleadings stage on the basis that “no reasonable consumer” could be misled by the label because there is no full-calorie Lime-A-Rita to be compared against the Bud Light version.
Judge Graber, however, asked why the comparison shouldn’t be between a Lime-A-Rita and a full-strength margarita made with liquor, which would have twice as many calories as the Lime-A-Rita – and thus make the “light” descriptor accurate.
“What’s on the box, the carton is a picture of what looks like a margarita, and it’s all about ‘give your margarita a twist,’ and ‘this is the margarita with a twist,'” she said. “Why isn’t the comparator product an ordinary margarita, as to which, this has fewer calories?” she asked.
Sadeghi responded that although the comparison to an ordinary margarita is plausible, the use of the Bud Light logo on the box means it is equally plausible that consumers would draw the comparison to an ordinary Bud Light, or a Bud Light Lime – both of which have many fewer calories than the Lime-A-Rita.
“The reason they use the same Bud Light moniker is it has meaning to people,” he said. “That meaning … is that it was a product that is light in some way.”
The proposed class action was filed by Cruz in November 2014 in California state court. Cruz alleged that Lima-A-Ritas are “the highest calorie alcoholic beverage sold by [Anheuser-Busch].” Lime-A-Ritas have 192 to 220 calories in eight ounces, according to Cruz, whereas a full Budweiser has only 145 calories and a normal Bud Light 110 calories in 12 ounces, she said in the complaint.
The U.S. Food and Drug Administration generally limits the use of “light” to products that have, at most, two-thirds the calories of the comparable reference product, Cruz said.
Anheuser-Busch introduced Lime-A-Ritas in 2012, and the line now also includes Raz-Ber-Rita, Straw-Ber-Rita, Mang-O-Rita and Apple-Ahhh-Rita, Cruz says, selling $462 million worth of product nationally in 2012. According to the appellate briefs, those varieties have now been joined by Cran-Brrrr-Rita.
The suit was removed to federal court in December 2014 and dismissed in June 2015 for failure to state a claim, and the plaintiffs appealed to the Ninth Circuit in July 2015.
On Tuesday, Peter Morrison of Skadden Arps Slate Meagher & Flom LLP, representing Anheuser-Busch, urged the appellate panel to uphold Judge Birotte’s ruling, arguing first that the Alcohol and Tobacco Tax and Trade Bureau, which regulates alcohol packages, had “expressly” said that the “light” was OK, and thus the brewer has safe harbor from the suit.
Morrison added that a reasonable consumer would never think that a Bud Light Lime-A-Rita has fewer calories than a “regular old Budweiser.”
“It’s a false comparison. The reason is no reasonable consumer would believe that this product would be comparable to a beer,” he said.
Morrison said that the appropriate comparison would be a Lime-A-Rita made with full-calorie Budweiser – which does not exist, but would in fact have more calories than the Bud Light Lime-A-Rita.
The panel took the matter under submission.
Circuit Judges Susan Graber, Jay Bybee and Morgan Christen sat on the panel for the Ninth Circuit.
Cruz is represented by Christopher Ridout, Caleb Marker and Behdad G. Sadeghi of Zimmerman Reed LLP, and Kevin Mahoney of Mahoney Law Group APC.
Anheuser-Busch is represented by Peter Morrison of Skadden Arps Slate Meagher & Flom LLP.
The case is Sheila Cruz et al. v. Anheuser-Busch LLC, case number 15-56021, in the U.S. Court of Appeals for the Ninth Circuit.
From the TTB:
TTB’s Market Compliance Office (MCO) has moved from the Advertising, Labeling, and Formulation Division to the Trade Investigations Division. With this move, all of our marketplace monitoring and enforcement functions are under one division. Under the Trade Investigations Division, the Market Compliance Office will:
Ensure that alcohol beverage advertisements comply with the Federal Alcohol Administration (FAA) Act and regulations. MCO offers pre-clearance services, reviews industry member websites and social media, and investigates complaints regarding advertising activities.
Monitor alcohol beverages in the market place through the alcohol beverage sampling program. The sampling program helps ensure that products in the market place are accurately described on labels from both a consumer deception and revenue protection perspective.
Monitor and respond to product safety issues involving adulterated or contaminated alcohol beverages, or other mislabeling issues involving alcohol beverages, and ensure these products do not enter or are removed from the U.S. marketplace.
Respond to consumer complaints regarding alcohol beverage products, when necessary in conjunction with TTB’s Field Operations and Scientific Services Divisions.
Assist Field Operations in their investigation of FAA Act cases. This can include providing technical assistance regarding certificates of label approval (COLAs), U.S. Customs documentation, and advertising, formula, and labeling issues. MCO will also refer leads for compliance and product integrity investigations.
NEW Oversee TTB’s trade practice enforcement program. The Market Compliance Office may be reached at Market.Compliance@ttb.gov.
LISA GESSER SELECTED AS THE MARKET COMPLIANCE OFFICE’S ADVERTISING AND TRADE PRACTICES PROGRAM MANAGER
As part of its new role in overseeing the trade practice enforcement program, the Market Compliance Office is pleased to announce that Lisa M. Gesser has been selected as the Program Manager for Advertising and Trade Practices. Lisa comes to the Market Compliance Office from TTB’s Regulations and Rulings Division with 9 years as a Program Manager for the Federal Alcohol Administration Act, and over 17 years of specialized experience with the advertising and trade practice regulations.
Industry members who have questions concerning compliance with TTB’s trade practice regulations may contact Lisa by email at TradePractices@ttb.gov.
Georgia SB85 passes the Senate 49-2, and now moves on to the House of Representatives.
Press Release from the Georgia Craft Brewers Guild:
For Immediate Release, January 26, 2017
Atlanta, Georgia – The 2017 General Assembly of Georgia will consider legislation to allow consumers to purchase beer directly at the brewery that makes it.
Senator Rick Jeffares (R – McDonough), chairman of the Senate Regulated Industries and Utilities Committee, introduced Senate Bill 85, which will allow breweries to sell up to 3,000 barrels of the beer they manufacture to consumers visiting the brewery. If passed, consumers will be able to enjoy fresh beer by the glass, take up to one case to go, and purchase food without the tour package that is currently required. Furthermore, the bill slightly modifies the brewpub license to reinforce local control on issues of to-go sales from brewpubs.
Throughout the summer and fall of 2016 business leaders from craft breweries and their wholesale partners met to discuss common sense updates to benefit the beer industry in Georgia. “With suggestions championed by both brewers and wholesalers, Lt. Governor Casey Cagle, Speaker of the House David Ralston (R-Blue Ridge), House Regulated Industries Committee Chairman Howard Maxwell (R- Dallas), and Senator Jeffares have provided guidance to create this legislation. Their commitment to supporting the small businesses of Georgia shines through in SB 85,” said Nancy Palmer, Executive Director of the Georgia Craft Brewers Guild. According to Palmer the Georgia Beer Wholesalers Association is also due credit, “The business leaders of the GBWA have been crucial in this process.”
“I applaud the industries for coming together and agreeing to an innovative solution,” commented Lt. Governor Cagle. “The shared interest of supporting our emerging small business and creating more opportunities for Georgians is clearly reflected in this legislation.”
According to the most recent data from the Brewers Association, Georgia ranks 48th in breweries per capita, 41st in economic impact per capita, and 17th in overall craft beer production. In 2016 Georgia added 11 new breweries and brewpubs continuing a consistent trend of growth.
Here’s a great piece by the insightful Pam Erickson on exclusive arrangements in the beverage-alcohol industry:
We ban these arrangements because of our experience before Prohibition. Those agreements and other business practices led to aggressive sales that increased consumption and social problems. For potentially dangerous products, special regulations are intended to prevent sales to vulnerable populations such as youth or heavy drinkers. We also want to curtail inducements that promote high volume consumption. Such regulations are not considered necessary for other commodities which are not subject to abuse.
To help understand the problem, let’s see how an exclusive agreement works: In exchange for exclusivity, a retailer will get special prices or other benefits (cash payments, free equipment or labor, etc.) But the expectation is that the retailer will increase sales and profits for the wholesaler/manufacturer. And, of course with a reduced price, the retailer will need increased volume sales to make the same or greater profits. If these practices become widespread, you may see price wars and extreme competition that juice up sales. These are the kinds of things that led to huge social problems before Prohibition.
The ban on exclusive arrangements is designed to foster local alcohol markets that have a fair and even playing field. Without this ban, it is most unlikely that the craft beer business would have even started. In Europe and other developed countries, you find very little variety because of exclusive agreements. If exclusive agreements were to become widespread here, the diversity of products we have today from over 4,000 breweries could become a mirage. We could have a scenario where diverse products would only be available at the small brewpubs, but not at most of the thousands of bars, restaurants, taverns and stores.
A review of the beer market in Mexico illustrates this issue. Until recently, almost all retailers had an exclusive agreement with one of the two large beer companies: FEMSA (owned by Heineken) and Grupo Modelo (owned by Anhueser-Busch).