BILL ANALYSIS                                                                                                                                                                                                    



          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  







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            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:









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          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  








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          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.









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          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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