BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Isadore Hall, III
Chair
2015 - 2016 Regular
Bill No: SB 1032 Hearing Date: 4/12/2016
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|Author: |Galgiani |
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|Version: |4/5/2016 Amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Arthur Terzakis |
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SUBJECT: Alcoholic beverages: coupons
DIGEST: This bill expands a provision of the Alcoholic
Beverage Control (ABC) Act that currently prohibits beer
manufacturers and beer wholesalers from offering consumer
coupons, as defined, that can be redeemed at the point of sale
by licensed retailers and also prohibits licensed retailers from
accepting or redeeming such coupons from beer manufacturers and
beer wholesalers, to include a broader range of nonretail
licensees, as defined.
ANALYSIS:
Existing law:
1)Establishes the Department of ABC and grants it exclusive
authority to administer the provisions of the ABC Act in
accordance with laws enacted by the Legislature. This
involves licensing individuals and businesses associated with
the manufacture, importation and sale of alcoholic beverages
in this state and the collection of license fees.
2)Prohibits a beer manufacturer or a beer wholesaler from
offering, funding, producing, sponsoring, promoting,
furnishing, or redeeming any type of coupon, as specified.
Also, prohibits licensed retailers from accepting, redeeming,
possessing, or utilizing any type of coupon that is funded,
produced, sponsored, promoted, or furnished by a beer
SB 1032 (Galgiani) Page 2 of ?
manufacturer or beer wholesaler.
3)Provides that a coupon does not include: (a) a mail-in rebate
by which the consumer purchases an item and submits required
information in order to receive a rebate or discount from the
beer manufacturer; (b) a coupon offered and funded by a
winegrower, a wine rectifier, a wine blender, a beer and wine
wholesaler, a beer and wine importer, a wine importer general,
or a wine broker that offers a discount on the purchase of a
wine product if beer, malt beverages, cider, or perry are not
advertised in connection with the coupon; (c) a coupon that is
offered and funded by a distilled spirits manufacturer,
distilled spirits importer general, distilled spirits
importer, or distilled spirits wholesaler that offers a
discount on the purchase of a distilled spirits product if
beer, malt beverages, cider, or perry are not advertised in
connection with the coupon; and, (d) a discount that is
offered and funded by a beer manufacturer on the purchase of
beer, malt beverages, cider, or perry at the licensed premises
of production or other licensed premises owned and operated by
the beer manufacturer.
4)Separates the alcoholic beverage industry into three component
parts of manufacturer, wholesaler, and retailer. The original
policy rationale for this body of law was to prohibit the
vertical integration of the alcohol industry and to protect
the public from predatory marketing practices. Generally,
other than exemptions granted by the Legislature, the holder
of one type of license is not permitted to do business as
another type of licensee within the "three-tier" system. This
is known as the "tied-house" law.
5)Prohibits any licensee from giving any premium, gift, or free
goods in connection with the sale or distribution of any
alcoholic beverage, except as specifically authorized.
6)Defines an "on-sale" license as authorizing the sale of all
types of alcoholic beverages: namely, beer, wine and distilled
spirits, for consumption on the premises (such as at a
restaurant or bar). An "off-sale" license authorizes the sale
of all types of alcoholic beverages for consumption off the
premises in original, sealed containers.
This bill:
SB 1032 (Galgiani) Page 3 of ?
1)Modifies an existing provision of law that prohibits beer
manufacturers and wholesalers from offering, funding,
producing, sponsoring, promoting, furnishing, or redeeming
certain consumer coupons by expanding the type of "nonretail
licensees" that will be prohibited from offering consumer
coupons that can be redeemed at the point of sale by licensed
retailers.
2)Makes an identical change to the companion provision in law
that prohibits a licensee authorized to sell alcoholic
beverages at retail from accepting, redeeming, possessing, or
utilizing any type of coupon that is funded, produced,
sponsored, promoted, or furnished by beer manufacturers and
wholesalers by substituting the term "nonretail licensee" for
beer manufacturers and wholesalers.
3)Defines "nonretail licensee" as a manufacturer, winegrower,
wine blender, manufacturer's agent, rectifier, bottler,
broker, importer, wholesaler, or holder of an out-of-state
beer manufacturer's certificate, or any beer manufacturer or
winegrower located without the state, or any officer,
director, agent, or affiliate of such person, or a beer and
wine wholesaler that also holds an off-sale beer or wine
retail license and only sells wine.
4)Revises the definition of coupon, as specified, and clarifies
that wineries are not precluded from offering discounts
directly to their consumers through wine clubs or purchases
made over the Internet.
5)Provides that a nonretail licensee may offer, fund, produce,
sponsor, promote, or furnish a coupon until 12/31/2016.
6)Permits a nonretail licensee to redeem a coupon submitted by
an off-sale licensed retailer prior to March 31, 2017.
7)Makes other conforming, clarifying and technical changes.
Background
This bill expands the above-referenced coupon ban applicable to
beer manufacturers and wholesalers to include winemakers,
winegrowers, wine blenders, amongst others, and also prohibits
alcoholic beverage retail licensees from redeeming such coupons.
The bill will prohibit winery-funded, instant redeemable
SB 1032 (Galgiani) Page 4 of ?
coupons on direct wine purchases, as well as cross-merchandizing
coupons where a consumer purchases bottle(s) of wine and
receives a discount off of food and non-food items. This bill
however, does not ban winery funded, mail-in coupons and does
not preclude any coupons or discounts offered and funded by
licensed retailers. Additionally, this bill allows wineries to
offer discounts directly to their consumers through wine clubs
or purchases made over the Internet.
Purpose of SB 1032. According to the author's office, this bill
is intended to address the problem over a lack of transparency
with winery-funded instant redeemable coupons (IRCs). The
author's office argues that their use makes tied-house laws
prohibiting the gift of anything of value being exchanged
between a supplier and retailer unenforceable by the Department
of ABC. In contrast, mail-in coupons are transparent and
provide the winery with valuable demographic data.
The author's office states that this bill seeks to provide a
level playing field for medium-sized wineries competing with the
large wineries for highly sought after, supermarket shelf space
as well as amongst large and small retailers. Additionally, the
author's office claims that IRC programs are generally skewed
towards large retailers which have the electronic equipment to
handle "scanback" programs and carry a large variety of grocery
items.
Furthermore, the author's office points out that this bill is an
extension of AB 1928 (Bocanegra, Chapter 145, Statutes of 2014)
which established a coupon ban applicable to beer manufacturers
and distributors - the wine industry, at that time, sought
specific exemptions to that prohibition.
Prior/Related Legislation
AB 1928 (Bocanegra, Chapter 145, Statutes of 2014) prohibited
beer manufacturers and beer wholesalers, from offering, funding,
producing, sponsoring, promoting, furnishing, or redeeming any
type of coupon, as defined. Also, prohibited alcoholic beverage
retail licensees from accepting, redeeming, possessing, or
utilizing any type of coupon that is funded, produced,
sponsored, promoted, or furnished by a beer manufacturer or beer
wholesaler. In addition, this bill exempted from the definition
of coupon certain rebates, coupons, and discounts.
SB 1032 (Galgiani) Page 5 of ?
SB 778 (Padilla, Chapter 489, Statutes of 2012) authorized wine,
beer and spirits producers to conduct contests and sweepstakes
and award prizes to consumers subject to various restrictions.
Furthermore, this bill exempted prize awards from provisions
limiting premium awards in connection with the sale or
distribution of alcoholic beverages.
AB 2184 (Hall, Chapter 480, Statutes of 2012) created a new
tied-house exception in the ABC Act that authorized wine, beer
and spirits producers to participate in promotional events held
at an off-sale retail licensed location for the purpose of
providing autographs on bottles or other items to consumers.
AB 2293 (De Leon, Chapter 638, Statutes of 2008) added a new
provision to the ABC Act that permits distilled spirits
manufacturers and winegrowers to provide their product offerings
directly to consumers (free of charge) during invitation-only
events on premises for which a caterer's permit authorization
has been issued.
AB 1245 (Torrico, Chapter 629, Statutes of 2008) modified an
existing provision of the ABC Act to allow beer manufacturers to
give adult consumers promotional advertising items valued at $3
per unit original cost to the beer manufacturer who purchased
it.
FISCAL EFFECT: Appropriation: No
Fiscal Com.: Yes Local:
Yes
SUPPORT:
Alcohol Justice
Family Winemakers of California
Southern Wine & Spirits (cosponsor)
Wine Institute (cosponsor)
Wine and Spirits Wholesalers of California (cosponsor)
OPPOSITION:
California Grocers Association
California Retailers Association
ARGUMENTS IN SUPPORT: Proponents of this bill believe that "the
evolution of instant redeemable coupons has led to a number of
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adverse impacts. Specifically, current coupon practices can
create competitive imbalances between large and small wineries
as well as large grocery chains and smaller independent
retailers. The deep discounting nature of IRC's reduces brand
equity of California wine brands, which the state's wineries
strive to maintain. In addition to not being as effective as
other promotional activities, some couponing programs
potentially damage the wine industry's social responsibility
ethic as a beverage of moderation to be enjoyed with family and
friends. For example, some coupon programs observed in the
marketplace would require consumers to purchase six bottles of
wine in order to receive $25-$30 off groceries."
Proponents state that such programs raise social responsibility
issues, do little to help build California wine brands, and are
cost prohibitive for smaller and mid-sized wineries. Proponents
emphasize that "eliminating winery-funded instant redeemable
coupons will further provide regulatory certainty and if signed
into law, California would follow similar laws prohibiting IRCs
already in place in nearly half of the nation's states."
ARGUMENTS IN OPPOSITION: Writing in opposition, the California
Grocers Association states, "While we appreciate the efforts to
increase transparency, reduce fraudulent activity, and reduce
waste by eliminating paper coupons, we utilize electronic
discount programs to help drive innovation and bring new
products to consumers. These programs are important to many
retailers and to our consumers. They are viable options to
paper coupons and by their very nature help prevent fraud and
eliminate waste."
Additionally, opponents argue that "this bill is unnecessary and
that product manufacturers to whom SB 1032 would apply are not
required by law to offer or fund discounts on their products. A
statute is not required to eliminate manufacturer coupons -
manufacturers can simply stop offering them. In the retail food
industry, for example, some grocery companies have decided to
stop honoring double coupons to help address fraud. They did not
need a statute to do that. And in fact, some very successful
manufacturers do not include coupons in their business model at
all."
Opponents believe that this bill is overly broad, creates a
dangerous precedent, and in reality is not needed to accomplish
the goal articulated by supporters.
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