TTB Provides Guidance on Category Management Practices

On February 11th, the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) issued a new ruling regarding the extent to which “category management” practices are permissible under federal tied-house laws.

The “tied-house” laws promulgated under the Federal Alcohol Administration Act (the “FAA Act”) generally prohibit industry members from giving “things of value” such as supplies, money, or services to a retailer to induce the retailer to purchase their products to the exclusion of others.  In 1995, TTB adopted an exception to these tied house prohibitions (27 CFR Sec. 6.99(b)) allowing industry members to stock, rotate and affix prices to their products at a retail account, provided that the products of other industry members are not altered or disturbed.  The exception also states that the provision of a shelf schematic or plan by the supplier to the retailer does not constitute “a means to induce” within the meaning of the FAA Act.

Over the past few years, suppliers and retailers have engaged in certain practices commonly referred to as “category management” which are aimed at optimizing the assortment, price, shelf presentation and promotion of particular “category” of products found at a retail location.  Recently, industry members asked TTB to clarify its position with respect to the scope of the Sec. 6.99(b) exception to federal tied house laws to determine if such category management practices by alcohol beverage industry members fall under the exception.

In its ruling, the TTB took a very narrow reading of that exception.  Unsurprisingly, TTB held that furnishing retailers with a shelf plan or shelf schematic, as stated unambiguously in the exception, is permissible and in and of itself not an inducement.  However, additional services provided by suppliers to retailers beyond the mere provision of the shelf plan or schematic exceed the bounds of the exception and may constitute a tied house violation if the practice results in the exclusion of competitor products.  Practices that may result in TTB scrutiny include, but are not limited to:

  • Assuming, in whole or in part, a retailer’s purchasing or pricing decisions, or shelf stocking decisions involving a competitor’s products;
  • Receiving and analyzing, on behalf of a retailer, confidential and/or proprietary competitor information;
  • Furnishing to the retailer items of value, including market data from third party vendors;
  • Providing follow-up services to monitor and revise a shelf schematic where such activity involves an agent or representative of the industry member communicating (on behalf of the retailer) with the retailer’s stores, vendors, representatives, wholesalers, and suppliers concerning daily operational matters (such as store resets, add and delete item lists, advertisements and provisions);
  • Furnishing a retailer with human resources to perform merchandising or other functions, with the exception of stocking, rotation or pricing services of the industry member’s own product.

As noted above, in order to find that a federal tied house violation had occurred with respect to such “category management” practices, the agency would have to find that the practice in question had the effect of excluding a competitor’s product.

For more information, see TTB’s ruling here or contact one of the attorneys in our alcohol beverage department: Bahaneh Hobel, John Trinidad, and Katy Barfield.