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Thursday, March 24, 2011

Groupon and Alcohol Discounts: Do They Mix in California?

by Mike Mann

The State of Massachusetts ABC recently held that Groupon's online coupon discounts for alcohol at bars and restaurants run afoul of that state’s ABC regulation regarding happy hours. This case made clear that the many Groupon-type coupon marketing businesses currently in the market need to recognize the regulatory aspect of their offers when alcoholic beverages become part of the mix. Could the State of California ABC reach a conclusion similar to that of Massachusetts? The State of California doesn’t have the same specific “happy hour” restriction as does Massachusetts.  However, these coupon offers could raise other concerns in California under its regulations for alcoholic beverages.

As an example, the California ABC currently has an unresolved issue concerning the compensation of unlicensed third parties from the sale of alcoholic beverages. The assumption is that coupon-marketing businesses are compensated either by a percentage of the sale or by fixed fees which are paid by the participating business. These businesses include ABC licensed retailers, or in some cases manufacturers. If coupons offered to the consumer include alcoholic beverages, these marketing companies could unknowingly fall into this unresolved category of unlicensed third parties. If this were to occur, the unfortunate aspect for the retailers, bars, restaurants and wineries participating in these programs is that California ABC has no administrative authority over unlicensed businesses, only the licensees.  Thus, it would be the licensees that took part in these arrangements who would be prosecuted by ABC.  Therefore, so long as this remains as an unresolved issue with California ABC, there would appear to be some risk for retailers, bars, restaurants and wineries participating in these online coupon programs. 

More often than not, marketing companies are simply unaware of the regulatory intricacies surrounding the alcoholic beverage industry, as exhibited in the Massachusetts case. Many of these companies operate with good intention, but just don’t do their homework in the proper arena.  In turn, licensees who take part in these programs assume the programs are legal and comply with the law by the very fact that they exist.  However, when it comes to alcohol beverage regulation, the first rule is to not assume that a practiced activity within the alcoholic beverage industry is an acceptable and compliant one, it is always best to first seek guidance.

Some good news is that California ABC has reached out to industry members, their representatives and other stakeholders to examine these types of issues, as well as numerous others, that have resulted from the evolution of technology and marketing related to alcoholic beverages.  As a result, ABC has created committees which include representative stakeholders to review current industry trends and determine if they can be addressed with the archaic regulations which were established many years before current media capabilities and marketing techniques were ever contemplated. If attempts to fit the new marketing trends within the existing framework of regulations fail, the door will be open to seek legislative remedies to meet the current needs of the industry.  Until then, there remains uncertainty.

Mike Mann is a consultant in DP&F's Alcohol Beverage Department.  Mike worked for over two decades for the California Department of Alcoholic Beverage Control, retiring in 2008 as the District Administrator in charge of the Department’s Santa Rosa Office.  Mike is serving on the ABC committees formed to evaluate the framework of current regulations as applied to developing trends in the industry.  To provide Mike with input on these issues, or for assistance on regulatory matters, contact him at mmann@dpf-law.com.  

5 comments:

  1. i know a business directory for your business. It contains huge amount of suppliers database.

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  2. A reasonable question. Case law on "coupons" (Gonzales v. ABC (1984) 151 Cal. App. 3d 172) appears only to apply to retailers. It would seem that Groupon and similar sites are not acting as retailers - they never take physical possession of the product - but perhaps are acting as brokers and so should pull a Type 16 permit.

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  3. From a July 2009 ABC Advisory (http://www.abc.ca.gov/trade/Advisory-Third%20Party.pdf) "Service fees are not, in and of themselves, improper. However, the Department does have significant concerns when fees are based upon a percentage of the sale of alcoholic beverages. The Department does draw a distinction between sharing in the profits from the sale of alcoholic beverages and nominal transaction fees charged by independent financial service providers (such as credit card companies and banks). While financial service providers may typically charge a transaction fee based upon a percentage of the sale, such a fee is generally de minimus and is otherwise unrelated to the sale or promotion of the product. Moreover, unlike many Third Party Service Providers, such financial service providers are otherwise uninvolved in the program and have no vested interest in the promotion or sale of alcoholic beverages."

    Arguably, Groupon and similar sites "...have no vested interest in the promotion or sale of alcoholic beverages..." per se. The question is whether the cost to me as a supplier is a nominal transaction fee that meets the de minimus standard.

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  4. @John M. Kelly: How are they brokers if they never control the transfer of the property?

    How is Groupon any different than other media outlets such as print media in producing a coupon or advertisment?

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  5. @Miller - the difference is that they are collecting and holding monies from purchasers on the suppliers' behalf.

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