Seasonal Misfortune

It can be very tempting to try to capture the mood of the season.   The nice weather of late spring and summer comes around and a Hooch lawyer’s fancy naturally turns to the sweet treats of the season.  Personally, that means berries, cherries and – in midsummer – peaches.  These we harvest and put to use in pies and cobblers mainly (with a few reserved for an obligatory long soak in a neutral spirit, to be opened in the fall when feeling nostalgic).

Of course, manufacturers understand we have this natural inclination to live according to the season, which is why we are greeted every season with new varieties of our favorite products.  Beverages are no exception.  Less common in spirits than beer and cider, we nevertheless see our favorite manufacturers offering seasonal variations in an effort to stand apart and earn a greater share (or perhaps protect an existing share) of the consumer’s wallet.

But there is a trap.  For once the season is over, the manufacturer faces a double-headed dilemma.  First, the consumer – now accustomed to drinking seasonal batches of her favorite tipple, finds herself looking to the varieties of the newly arrived season.  To keep the share of wallet, the manufacturer must roll out a corresponding new product.  But this leads to the second problem – the manufacturer’s unfortunate accomplices in this new seasonal business plan, distributors and retailers, may find themselves stuck with out of season goods.

In apparel, this would be easy.  The retailer (assuming sufficient bargaining power) may have negotiated a right of return for unsold out of season goods.  But if your business focuses on strong drink rather than swimsuits, this isn’t an option.

The consignment sales provisions of the Federal Alcohol Administration Act make it illegal for any industry member to sell, offer for sale or contract to sell to any trade buyer any alcohol products for which there is a privilege of return.  What does this mean?   For a manufacturer, it means that unless you’ve got an extremely good crystal ball and can predict with good accuracy the amount of your product that will actually make its way into the consumer’s possession during the season, you’re going to be either leaving sales on the table (not a great outcome for you) or giving your distributors and retailers, quite literally, a hangover.

Last year, one of Anheuser-Busch’s wholesalers tried to address this problem by participating in an end-of-season buy-back program for their Shock Top Lemon Shandy and Pumpkin Wheat Ale products.  Through the program, almost 541,000 cases of the product were bought back from March 3 to October 6, 2015.  The result?  Not ideal.

On February 25, 2016, Anheuser-Busch, LLC entered into an offer in compromise with the TTB, agreeing to pay $300,000 for violating the consignment sale prohibitions in the FAA.

What’s the lesson here?  Jump on the seasonal bandwagon at your peril?  Maybe so.  But maybe the broader lesson is that for the TTB, enforcement isn’t exactly a seasonal endeavor.


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