Two of New Jersey’s largest wine and spirits wholesalers will pay record-high fines for “rigging the market” to unfairly favor their largest retail customers — putting smaller outlets at a competitive disadvantage.
Allied Beverage Group and Fedway Associates will pay $4 million each after a state investigation found that the two liquor behemoths gave chosen retailers rebates more often and in greater amounts than allowed. The rebates often were deployed as “interest-free loans” to the retailers, according to prosecutors.
Allied and Fedway together account for 70% of all wine and 80% of all spirits sold at wholesale in the Garden State, according to the Attorney General’s office.
Among the beneficiaries of the wholesalers’ rebate arrangement were 20 retailers, including the Pennsauken-based liquor store Roger Wilco, Lawrenceville-headquartered Joe Canal’s Discount Liquor Outlet, and nine storefronts of the North Jersey chain known as Vingo Wine and Spirits.
Each of the 20 retailers agreed to pay a minimum $90,000 in penalties rather than having its license suspended for months. Roger Wilco, for example, will pay $200,000. The penalty, paid in yearly installments, will be reduced to $150,000 if no further violations are found within two years. Corporate officials at the wine and spirits retailers did not respond to requests for comment.
The state expects to collect a total of $10.4 million as a result of the two-year investigation by the Division of Alcoholic Beverage Control into trade practices. An investigator said the rebate abuses were “so egregious” that immediate action was required while the division continued its investigation.
“Simply put, Allied Beverage Group and Fedway Associates rigged the market in favor of a handpicked group of powerful retailers, leaving smaller businesses struggling to compete,” Attorney General Gurbir S. Grewal said in a statement. “The unprecedented monetary penalties imposed reflect the egregiousness of this conduct and the widespread negative impact it had on New Jersey consumers and retailers.”
The arrangement allowed the big retailers to use the rebate money to pay for the orders for which the rebates had been issued, according to Attorney General’s office. That practice is forbidden by ABC regulations. Smaller retailers had to use all of their own money to pay for their orders. The investigation also found that Allied and Fedway falsified records related to the rebates or used undocumented gift cards to reward chosen retailers.
“Retail incentives are a legitimate marketing tool as long they are aboveboard and available equally to all retailers. Discriminatory practices like these foster instability in the market by harming smaller retailers,” said James Graziano, acting director of the ABC. “If left unchecked, the ability of small retailers to remain in business may have been jeopardized and consumers would have less access to retail stores and the specialized product selections that they offer.”