Is the Southern-Glazers Wine Distributors Lawsuit Really A Surprise?

In a way, it’s shocking that a lawsuit and claims like this haven’t been filed before, given just Southern/Glazer’s target size. On the other hand, the claims of “unfair, unlawful, deceptive, and fraudulent business practices”, meticulously laid out in this class action suit against Southern/Glazers are shocking. Hell, if a quarter of them are borne out, it would be a shocking example of hubris, fraud, and corruption by the largest and most powerful entity in the American wine and spirits marketplace.

Anyone who has been in the wine industry long enough has heard complaints about many of the types of charges listed below. Some of the most lurid complaints about wholesalers I’ve personally been told over the years are nearly identical to this charge listed in the lawsuit: “Threatening to cut off supplies to customers who do not buy a sufficient quantity of liquor, or liquor of select varieties.” Among the most common charges that nearly everyone in the business has heard of, particularly if you work with restaurateurs or retailers, is this one—also taken from the lawsuit filed Wednesday against Southern/Glazers in the District Court of Northern California: “Threatening to cut off supplies to customers who do not buy a sufficient quantity of liquor, or liquor of select varieties.

And these aren’t even close to the most astounding of charges in the lawsuit.

Someone called me yesterday and asked if I’d read the lawsuit. I told them I had. They asked if I thought there was any validity to the charges laid out in the suit and what would be the consequences if they were proven true. Here’s what I can say about all that. I have no idea or insight into whether the charges laid out in this particular lawsuit against Southern/Glazers is true. How could I? I don’t know the main plaintiff. Can I imagine they are true given what I’ve seen and been told over the years? Well, the strength of my imagination is only as great as the depth of my knowledge and experience. My knowledge and experience of what big wholesalers are capable of is pretty extensive. Finally, if half of what is alleged in the complaint is true, someone’s gonna pay up LOTS. Additionally, we’ll find out exactly what million in campaign contributions over the years buys you.

Below are the actual allegations against Southern/Glazers as laid out in the lawsuit filing. I’ve made some formatting changes to make it easier to read. Where “Representative Plaintiff” or “Class Members” is noted, it is a reference to those who are bringing the complaint against Southern/Glazers.

Adding so-called authorized purchasers on Representative Plaintiff’s and class members’ Direct Warehouse Sales Authorization to Purchase Forms, without their knowledge or consent

Leading Representative Plaintiff and members of both classes to misreport their tax obligations to state and/or federal taxing authorities>

Compelling Representative Plaintiff and members of both classes to re-state their tax obligations for prior tax cycles to state and/or federal taxing authorities, and to incur time and expense in retaining legal and financial professionals therefor.

Selling liquor to bars/restaurants/clubs that do not possess liquor licenses using Representative Plaintiff’s and class members’ liquor license numbers and/or their Southern account numbers.

Singling out customers who pay C.O.D. and/or are known to maintain poor accounting practices (e.g., for “ghost shipping” practices).

Selling liquor to third-parties on Representative Plaintiff’s and class members’ accounts at lower prices than to legitimate/licensed purchasers.

Selling liquor to different parties at different prices, in violation of federal alcohol regulations and state and/or federal law.

Permitting its officers, managers, agents and/or other employees to purchase liquor on Representative Plaintiff’s and class members’ licenses/accounts, using cash and/or charging class members for the liquor, then storing (i.e., not delivering it) in order to meet quotas (and in violation of 4 CCR §76).

Permitting its officers, managers, agents and/or other employees to give away liquor, by pricing such at $.01.

Permitting its officers, managers, agents and/or other employees to give away liquor by printing sample labels for full regular-sized bottles.

Permitting its officers, managers, agents and/or other employees to purchase liquor using class members’ liquor license numbers and/or their Southern account numbers, temporarily store the liquor (in violation of 4 CCR §76), then returning the liquor later, in order to meet quotas, oftentimes without refunding the money.

Using so-called “A Forms” (which lack bar codes and invoice numbers and are, thus, nearly impossible to locate) to facilitate liquor transactions, in violation of 4 CCR §17.

Not providing annual invoices, unless requested, in order to conceal the practices cited herein

Permitting its officers, managers, agents and/or other employees to purchase liquor “off-invoice”.

Permitting its officers, managers, agents and/or other employees to sell “off-invoice” liquor to retailers without licenses, or to retailers who will then resell the liquor to other retailers, in violation of state and/or federal law.

Permitting its officers, managers, agents and/or other employees to sell “off-invoice” liquor to private individuals, in violation of state and/or federal law.

Threatening to cut off supplies to customers who do not buy a sufficient quantity of liquor, or liquor of select varieties.

Refusing to sell products to class members without them purchasing “tie-ins” (other types of liquor than those the customer wishes to purchase).

Giving kickbacks, free samples and other unlawful incentives to restaurants/retailers, in order to keep them from reporting the violations specified above.

Working and/or conspiring with third-parties to allow for the unfair/unlawful practices above and below.

Ignoring complaints from sales representatives and/or retailers about the unfair and unlawful business practices detailed herein.

I’ve always believed it impossible for state mandated middlemen to avoid corruption. The unjustified power and monopoly granted to wholesalers where their use is mandated would always be defended to the end by any means necessary. And I’ve believed that such a lucrative position would always lead not just to corruption, but also to crime. We’ll see.

19 Responses

  1. Jacob Holmes - July 6, 2017

    It is my understanding that when prohibition ended and control went to the states, the states for the most part just used the people who were already running the black market to create the distributors, which is why the system is so corrupt and fits at least to me the definition of legalized racketeering. There is old money and control there and they will fight and do whatever they can to keep it, which is getting harder and harder for them to justify as we move forward into the 21st century and the continuing decline of brick and mortar retailing.

  2. Tom Wark - July 6, 2017

    It’s legalized something. But whatever that something is, it’s not normal.

  3. Cort Kinker - July 6, 2017

    will be interesting to see how this progresses. my experience is that in the interest of earning bonuses and keeping or advancing ones career that lots of lines can be crossed. the question to be asked is whether there is complicity at higher levels and/or policies arranged to permit such violations. if it’s cultural, then its problematic. if it’s individuals acting alone, then that will usually be dealt with publicly, quickly and efficiently.

  4. Tom Heller - July 6, 2017

    I must say, this sounds like a shakedown to me. I know of Tom Wark’s antipathy to the three tier system, and we have debated this before. I worked at Southern in Northern California for three years in the late 90’s. A lot has changed I am sure since then, including the merger with Glazer’s. It is a sales company and the big dog. Why would they sell unlicensed accounts it makes no sense. They are too exposed to an ABC audit, which I am sure they get on a regular basis. Samples for a penny come on. Free goods from the wineries and the distilerries might happen, and I am sure there is great pressure for the salespeople to perform, and they don’t want to lose a brand to Young’s? who have been able to find their toosh for 30 years. Sales people naturally favor their good customers and who paid their bills and brought in the “line” I did that before when I had a brokerage I started in the 70’s. I bet Southern are gonna crush these guys

    • Peter Maxwell - July 8, 2017

      Tom Heller,
      I was an on’ Premise sales manager with Glazer’s in MO. I had a ringside seat to some of their practices when they moved into MO. The funniest was when they tried to tell the GM of the Sam’s club in Springfield that they couldn’t sell certain products. The Sam’s GM ordered about $250K worth of product for the OND sales cycle and then when it came in to the warehouse he (the GM) wouldn’t take it until we sold him the fine wines he wanted. That is actually when Sam’s started selling more than Carlo Rossi 3L and Bartles and James wine coolers. So the wholesaler can be trained. Yes Glazer’s “holds up” some customers but they can be held accountable. The whole Allocation thing is used too much to take care of some clients and punish others, but that’s just my 2 cents worth.

    • Renee - August 6, 2017

      As a former top sells rep i can tell you that all this is true. Especially since the merger. The bullying and illegal practices are even worse. Im surprised it took this long for someone to say something. SG is a huge company and may win the suit but all the allegations are true.

  5. Steve - July 6, 2017

    Wow, monopolistic practices of an industry (distribution) that is sanctioned and condoned by elites in government will unavoidably lead to corruption. This fact is further validated by a political system at local, state and national levels that feed on an infusion of massive amounts of money to maintain power and control. Such control is almost an unbeatable power when inundated with special interest money. Follow the money.
    The Federal government bureaucrats mandate a monopoly system controlled by a precious few. Yet in other industries such as oil, government ruled against oil and steel in decades past. Why are our ruling class so head strong against free competition in wine/beer/spirits distribution? The common denominator is large amounts of money which are required to feed a political system immune from the regulations. The Feds. did and do mandate the system but leave some slack in how states implemented the system.
    If all or even a few of the charges are true there “should” (should is the operative word) be a hue and cry (apt phrase from old English Law) by consumers, producers, and retailers. As Jacob Holmes implies above-after approximately 100 year,s our politicians ought to let the wine/beer/spirits industry move, screaming and kicking, into the 21st Century; they have bilked the commoners long enough and need to find another golden goose.
    Understand, producers may decide some attributes of current distribution system may be good. That would be a private, commercial, free market decision-the system as is is kind of like Obamacare-citizens must buy insurance at whatever the price. (Not intended as a political statement.)

  6. Tim - July 7, 2017

    Unfortunately this is just the tip of the iceberg, and has been going on for a long time.They should take a closer look at thier new partner.

  7. Michael - July 7, 2017

    Anyone ever take a peek at beer wholesaler practices? Meanwhile, strip away the legalese above and it looks like a lot of common practices even in winery direct sales, doesn’t it? Who hasn’t heard a retailer say they had to take XXXX cases of someone’s meh whatever if they wanted six bottles of a highly allocated item.

    • Dave - July 8, 2017

      Great Blog

      • Dave - July 8, 2017

        Ooops, wrong comment.

        What i meant to say was really solid observation, I have been playing that “buy the Sauv Blanc for a year to get 1 case of Cab” game for 3 decades.

  8. James Barger - July 7, 2017

    As a new whiskey (and whisky) drinker, the sordid world of limited release products, and who gets them and how, has made me aware of the somewhat ugly underbelly of the alcoholic beverage distribution and sales sectors. This article comes as really no surprise based on my observations. It’s almost mystical and magical, like the auto sales business; impossible for mere mortals to comprehend without the secret code. Any of the charges against this distributor will fall flat on lack of evidence, or lead to civil and criminal charges if the evidence stands in court. That is provided the judges have not been promised a case of Stagg or Pappy for their complicity, a possibility I can’t discount in our current judicial/ political climate. As usual, the consumer is the ultimate victim, as dollars for influence purchasing dwindle down the chain. More power to these individuals and businesses who’ve pooled their money to fight the behemoth, hegemonic booze dragon. I’d personally rather see the distillers charge more, and open the market to those who can afford to pay. I don’t have a Ferrari because I can’t afford one, and that’s ok with me. I’m not touting “equality”, just ball busting monopoly.
    My inexperienced 2 cents.

  9. Cameron Sisk - July 7, 2017

    My first week as a salesperson at a New York distributor my manager pointed out to me that everyone (distributors) kicks back cash or product or sells below published price when the numbers have to come in. No one rats, he said, because everyone does it. I was told that almost all distributors, not what we call suppliers-such as Constellation brands- were privately owned because public trading would expose them to scrutiny. I, while working as a salesperson at a distributor out West actually saw a double set of files when such things were physical. The files confirmed that in fact the numbers on Absolut Vodka came in and the supplier-Seagram’s that was-paid the incentive money. We as a sales team were told the number fell short of the goal, sorry, and that the money wasn’t paid. Saw lots more of that stuff. But the capper was when a sommelier new in town in charge of an important wine program was threatened in my presence. “We can do a lot to help you in this town. We would hate to do the opposite. Right now we would like to have 85% of your glass pours.” Poor fool was badly shocked but my boss informed me that he ought to have known better, like that was normal. I don’t work for those companies anymore and I worked for three and one supplier.

  10. Coach694 - July 7, 2017

    I work there alot of this well I used to work there alot of this is true I know a guy who steals from them and they allowed him to right statements and intrap the he was stealing for he was the mole the whole time but I see alot of this we pulled free samples we don’t ask for license alot of this is true Glazer’s is most definitely the cause of there mishaps there so many returns daily I’m sure favors and the manager is no smater than the average person has no class so we’ll see how this turns out …alot is true tho

  11. James - July 8, 2017

    Just look what Glazer tried to do in Texas to Specs.
    Glazers PAC bought TABC.

  12. Keller - July 8, 2017

    Let’s be real. The pressure that the big suppliers puts on distributors is the cause. They are the ones that need be investigated. Too much consolidation in all levels of the alcohol industry!

  13. Caroline - July 8, 2017

    FYI There is another lawsuit pending in New York:

    I have spent a majority of my work in retail and restaurants but currently work on wholesale and absolutely love my company – we are on the larger size of smaller distributors who actively promotes integrity. The big ones have always played dirty but the recent mergers and acquisitions have caused them to make promises they cannot keep in terms of quotas – often devaluing the wines they represent to make said quotas. In my prior job as a buyer for a larger retail chain, I told my receivers that nothing ever, ever, ever was to be received if it was not accompanied by a PO signed by me – or if pricing did not match – too hard to ever get credits resolved with Southern. (15 + years ago, I worked as a rep for a similarly large company in a different state and quit after 5 months because of similar practices – I have too much respect for my accounts and myself to do so)

  14. Wes Wakeford - July 12, 2017

    I’m one of the lawyers working on the Southern Glazer’s case. I am reaching out to people who may have knowledge of Southern’s practices. If you would like to speak with us about this case please call me at 415-578-3510 x1 or at [email protected].

    • LaTonya Anzley - September 11, 2017

      I know quite a bit but I was laid off and signed waiver not to talk to anyone

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