The Wall Street Journal reports that Kroger is attempting to make changes to the way in which it buys and merchandises beer, wine and spirits that has drawn much criticism from manufacturers and distributors.
According to the story, "The proposal would do away with a decades-old system in which the biggest alcohol producers such as Anheuser-Busch InBev NV and Diageo PLC were tapped by Kroger and other grocers to be 'category captains,' dispensing advice and influence about how much shelf space and prominence to give brands ranging from Budweiser to Robert Mondavi to Smirnoff.
"Instead, the plan, introduced late last year, calls for a privately held distributor, Southern Wine & Spirits, to oversee how much display brands get in the grocery aisles of the more than 2,600 Kroger stores in 29 states. It also asks the alcohol companies—not Kroger—to pay Southern for the service ... A spokesman for Southern said the fees would be voluntary and are designed to offset the estimated $12 million it would cost annually to provide shelf-planning services for Kroger. He said manufacturers who don’t pay into the program wouldn’t be 'adversely affected'."
The story goes on to say that "the liquor, wine and beer industry prefer the existing system in which they have more direct say in shelf placement ... In a rare show of agreement across the alcohol industry, trade associations representing liquor, wine and beer, and several alcohol-distributor groups all sent letters to federal regulators last month questioning the legality of the Kroger plan. Prohibition-era laws ban alcohol manufacturers from giving retailers anything of value to keep them from marketing too aggressively."
According to the story, "The proposal would do away with a decades-old system in which the biggest alcohol producers such as Anheuser-Busch InBev NV and Diageo PLC were tapped by Kroger and other grocers to be 'category captains,' dispensing advice and influence about how much shelf space and prominence to give brands ranging from Budweiser to Robert Mondavi to Smirnoff.
"Instead, the plan, introduced late last year, calls for a privately held distributor, Southern Wine & Spirits, to oversee how much display brands get in the grocery aisles of the more than 2,600 Kroger stores in 29 states. It also asks the alcohol companies—not Kroger—to pay Southern for the service ... A spokesman for Southern said the fees would be voluntary and are designed to offset the estimated $12 million it would cost annually to provide shelf-planning services for Kroger. He said manufacturers who don’t pay into the program wouldn’t be 'adversely affected'."
The story goes on to say that "the liquor, wine and beer industry prefer the existing system in which they have more direct say in shelf placement ... In a rare show of agreement across the alcohol industry, trade associations representing liquor, wine and beer, and several alcohol-distributor groups all sent letters to federal regulators last month questioning the legality of the Kroger plan. Prohibition-era laws ban alcohol manufacturers from giving retailers anything of value to keep them from marketing too aggressively."
- KC's View:
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I'm in no position to judge the legalities of the situation, but I do think that from a strategic point of view, Kroger is absolutely right to look to develop a system that actually gives it greater control over alcohol merchandising, especially at a time when there seems to be a lot of upheaval in the category driven by craft brands.
If the new system results in a pay-to-play structure that drives these smaller craft brands out of the store, then that won't be a good thing ... but since Kroger has spent considerable time and money developing a consumer-centric strategy, it seems to me that this is unlikely to happen. I think some vigilance will be called for ... but if the goal is greater control and responsiveness to what shoppers want, then this is a good thing. And heaven knows we shouldn't be guided by Prohibition-era laws.
