Shockwaves sent through the Liquor system, the Provi lawsuit and its potential impact
This week shockwaves were sent through the liquor legal world when Privo filed an antitrust lawsuit against Southern Wine and Spirits (Southern) and Republic National Distributing Company (RNDC). The complaint takes aim at alleged anti-competitive behavior of Southern and RDNC acting together to destroy Provi’s business and create their own model based on Provi’s success.
It shines a light on the concept of wholesalers behaving badly in the marketplace.
I want to make clear these are allegations and nothing is certain until legal discovery shines a light on things and the matter if finally adjudicated.
Provi is an online ordering platform which connects retailers that want to order liquor to liquor distributors. A retailer when looking for a specific product can go onto Provi find the listing amongst the wholesalers in the market, compare prices between wholesalers and utilize Provi’s platform to place their order. The wholesaler’s platform accepts the order from the retailer made through Provi.
Provi, started in 2016, gained momentum with its great and convenient service and signed up national accounts such as Chili’s, Red Robin, Benihana, P.F. Chang’s, Cinemark and AMC Theatres.
According to the lawsuit, Southern and RNDC wanted in on the game and decided to create its own platforms. In paragraph 128 of the complaint, it alleges that Southern sought competitive intelligence from Provi under the guise of interest in a potential partnership, where Southern would integrate its distribution services with Provi’s marketplace. Specifically, Southern sought information on Provi’s business model, data-collection and use policies, and marketing practices. After receiving this information Southern went silent and started its own platform nearly simultaneously with RNDC.
RNDC and Southern subsequently were determined to block Provi’s users from accessing Southern and RNDC’s platforms and notified retailers they would no longer accept orders using Provi’s system.
As Southern and RNDC together dominate numerous state markets and have exclusive rights in marketplaces for brands like Tito’s, Jim Beam, Tanqueray, and Robert Mondavi, and Yellow Tail, Provi needed access to Southern and RNDC’s marketplace in order to grow and even survive. To illustrate, in the biggest liquor market, California, Southern and RNDC control 80%+ of the liquor distribution network. There is no retailer which could operate a liquor ordering business without utilizing Southern or RNDC.
Using its enormous market powers Southern and RNCD acted to eliminate Provi from having access to the marketplace. The complaint alleges that the distributors sent letters to approximately 250,000 retail customers indicating that they would not accept orders from Provi. Because of the collective power of Southern and RNDC, the retailers had no other option than to move away from Provi’s application onto RDNC and Southern’s application. The complaint states that RNCD and Southern essentially orchestrated a boycott against Provi by forcing Provi’s customers to stop working with them.
The complaint also alleges that not only did the two big wholesalers seek to box Provi out of the market, but that they colluded together to force this action. Legal discovery will determine if this is true, but if the allegations are accurate, this is a disturbing trend of wholesalers working together and using their powers to destroy competition in the marketplace.
What this all means?
Provi’s complaint is not a fly by night complaint that should not be dismissed out of hand. There are serious allegations made with evidence of emails and statements to support the assertions. The devil is in the details, but legal discovery will uncover the salacious details such as whether Southern and RDNC worked in collusion to shut Provi out of the marketplace.
Another interesting aspect of the complaint is the reliance on the Treasury Report to bolster its case. The Treasury Report asserted that the concentration in power with the major wholesalers is “the greatest threat to competition in the alcohol market.” This complaint goes to great lengths to demonstrate the collective power of RNDC and Southern to dominate specific state markets, and how they used their concentrated powers against Provi to block out a competitor in the alcohol market.
As all of us in the liquor world know, this would not be the first instance of wholesalers behaving badly in the liquor world and wielding their great powers. An interesting question is with the Treasury Report shining a light on what is occurring in the industry, will this lead to more lawsuits against major wholesalers?
The Treasury Report singled out liquor franchise laws as an area that impedes competition, could a legal challenge to state franchise laws be next?
Finally, people should watch this lawsuit carefully, the complaint is well written, the plaintiffs seemed to be well funded, their attorneys are top notch, and their evidence for their allegations appear to be sound. I think this is a lawsuit for Southern and RNDC to be worried about. I guess my next question is, what is the next shoe to drop in the upcoming legal drama!