BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1032| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 1032 Author: Galgiani (D) Amended: 4/5/16 Vote: 21 SENATE GOVERNMENTAL ORG. COMMITTEE: 12-0, 4/12/16 AYES: Hall, Berryhill, Block, Gaines, Galgiani, Glazer, Hernandez, Hill, Hueso, Lara, McGuire, Vidak NO VOTE RECORDED: Runner SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 SUBJECT: Alcoholic beverages: coupons SOURCE: Southern Wine & Spirits Wine and Spirits Wholesalers of California Wine Institute _________________________________________________________________ _ 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 SB 1032 Page 2 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 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 SB 1032 Page 3 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: 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 SB 1032 Page 4 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 December 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. This bill will prohibit winery-funded, instant redeemable coupons (IRCs) 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 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 SB 1032 Page 5 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 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. FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes SUPPORT: (Verified 4/25/16) Southern Wine & Spirits (co-source) Wine and Spirits Wholesalers of California (co-source) Wine Institute (co-source) Alcohol Justice Family Winemakers of California OPPOSITION: (Verified 4/25/16) 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 adverse impacts. Specifically, current coupon practices can create competitive imbalances between large and small wineries as well as large grocery chains and smaller independent SB 1032 Page 6 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. SB 1032 Page 7 Prepared by:Arthur Terzakis / G.O. / (916) 651-1530 4/27/16 15:57:18 **** END ****