BILL ANALYSIS Ó
SB 1032
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Date of Hearing: June 30, 2016
ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION
Adam Gray, Chair
SB
1032 (Galgiani) - As Amended May 19, 2016
SENATE VOTE: 38-0
SUBJECT: Alcoholic beverages: coupons
SUMMARY: 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.
Specifically, 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.
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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" to mean any person who owns or
holds any interest, directly or indirectly, in any license,
authorization, or permit issued pursuant to this division that
authorizes the manufacture, production, rectification,
importation, or wholesaling of alcoholic beverages, except for a
brewpub restaurant license issued pursuant to the ABC Act.
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)Permits a nonretail licensee, until and including March 31,
2017, to reimburse a licensee authorized to sell alcoholic
beverages at retail for any coupon providing a consumer with an
instant discount at the time of purchase of wine, if beer, malt
beverages, cider or perry are not advertised in connection with
such coupon, that is otherwise prohibited by this section of
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law, that was received, accepted, or possessed by such licensee
authorized to sell alcoholic beverages at retail on or before
December 31, 2016.
6)Makes it explicit that these provisions are not intended to
preclude or prevent or restrict an on-sale or off-sale retail
licensee that is not also a nonretail licensee from offering,
funding, producing, sponsoring, promoting, furnishing, or
redeeming a discount to consumers on the purchase of alcoholic
beverages that is not otherwise prohibited by this section of
law or any other provision of law.
7)Makes other conforming, clarifying and technical changes.
EXISTING LAW:
1) The enactment of the 21st Amendment to the United States
(U.S.) Constitution in 1933 repealed the 18th Amendment and
ended the era of Prohibition. Accordingly, states were granted
the authority to establish alcoholic beverage laws and
administrative structures to regulate the sale and distribution
of alcoholic beverages.
2) Establishes the Department of Alcohol Beverage Control (ABC)
and grants it exclusive authority to administer the provisions
of the Alcoholic Beverage Control Act (Act). This involves
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licensing individuals and businesses associated with the
manufacture, importation and sale of alcoholic beverages in this
state and the collection of license fees for this purpose.
3) States that the "Tied-House" Law, 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. Separates the alcoholic beverage industry
into three component parts of manufacturer, wholesaler, and
retailer.
4) 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. 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
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premises owned and operated by the beer manufacturer.
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.
FISCAL EFFECT: Unknown
COMMENTS:
Purpose of the bill : According to the author, there is a lack
of transparency in the beer market as it relates to beer
manufacturer coupons. Additionally, there is a high level of
inequity between the major beer conglomerates and the craft
breweries in the marketplace.
Instant redeemable coupons (IRCs) offered by beer manufacturers
are one type of discount that offers an instant reduction in the
price of a product when purchased at a retail licensee.
However, these beer manufacturer coupons could easily lend
themselves to fraudulent practices, such as counterfeiting.
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The author states, brewers and retailers are losing revenues and
are being exposed to unnecessary liability due to fake coupons,
which are often hard to distinguish from coupons that are
produced by the manufacturer.
The author further states that the elimination of coupons will
level the playing field between the major brewing conglomerates
and the craft breweries that are quickly becoming a sizeable
part of our state economy. Unlike the major conglomerates, most
craft breweries, which are much smaller operations, cannot
afford to offer their own beer coupons. The author points out
that a number of states, including New York, Massachusetts, and
Texas, already ban manufacturer beer coupons.
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 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.
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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 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."
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."
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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.
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.
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AB 2184 (Hall), Chapter 480, Statutes of 2012. Authorized,
until January 1, 2016, 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 778 (Padilla), Chapter 489, Statutes of 2012. Added a new
section of law to the Act that authorizes wine, beer and spirits
producers to conduct consumer "contests" or "sweepstakes."
AB 1245 (Torrico), Chapter 629, Statutes of 2008. Allowed beer
manufacturers to give adult consumers promotional advertising
items valued at $3 per unit original cost to the beer
manufacturer who purchased it.
AB 2293 (De León), Chapter 638, Statutes of 2008. Added a new
provision to the Act that permits a manufacturer of distilled
spirits, winegrower, rectifier, or distiller, or its authorized
agent to provide their product, as well as entertainment and
food to consumers over 21 years of age during invitation-only
events (free of charge), as specified. The events must occur on
premises for which a caterer's permit authorization has been
issued.
SB 993 (Burton), Chapter 544, Statutes of 1997. Among other
things: 1) provided that no rule of ABC may impose a dollar
limit for consumer advertising specialties furnished by a
distilled spirits supplier to a retailer or to the general
public of less than $5 per unit original cost to the supplier
who purchased it; and, 2) authorized a licensed distilled
spirits manufacturer to conduct tastings of distilled spirits on
the licensed premises under specified conditions.
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REGISTERED SUPPORT / OPPOSITION:
Support
Family Winemakers of California
Opposition
California Grocers Association
California Retailers Association
Analysis Prepared by:Eric Johnson / G.O. / (916)
319-2531