Kroger Drops Plan to Charge Alcohol Suppliers for Shelf Display

Craft brewers expressed concerns over a possible pay-to-play system that favored large brands

Source: WSJ

By Tripp Mickle

May 3, 2016

Kroger Co. has dropped a controversial plan to charge alcohol suppliers for how it organizes beer, wine and liquor on store shelves.

Instead, it will pay a third-party provider to manage display space for alcohol beverage brands at more than 2,600 Kroger stores across 29 states.

The change comes less than three months after the Alcohol and Tobacco Tax and Trade Bureau, which regulates the industry, clarified its rules and threw the legality of Kroger’s initial plan into doubt.

Initially, Kroger wanted the alcohol industry to pay quarterly fees based, in part, on volume to Southern Wine & Spirits, which would handle shelf planning for the supermarket chain. However, prohibition-era laws designed to discourage aggressive marketing of alcohol ban manufacturers from giving retailers anything of value.

The Kroger plan met fierce opposition from alcohol producers who worried the fees would be illegal and costly. Craft brewers also expressed concerns that it would create a pay-to-play system that favored larger producers who could spend more on displays.

“Clearly [Kroger] recognized there were problems with their original plan,” said Frank Coleman, a spokesman with the Distilled Spirits Council, which is reviewing Kroger’s letter to the industry association and alcohol producers like Diageo PLC.

In addition to dropping the fees it had planned to charge alcohol producers, Kroger said it would hire P.L. Marketing to help design shelving plans for alcohol brands. Kroger spokesman Keith Dailey said the Alcohol and Tobacco Tax and Trade Bureau’s guideline clarifications meant the company couldn’t work with Southern Wine & Spirits because doing so could violate U.S. alcohol distribution rules.

Southern declined to comment.

Kroger isn’t abandoning all of its plans, however. It will go ahead l with its plan to overhaul the system used for decades to organize beer, wine and liquor brands on shelves. Currently, the supermarket chain taps alcohol producers such as Anheuser-Busch InBev NV and Constellation Brands Inc. to be “category captains,” dispensing advice and influence about how much shelf space and prominence to give brands ranging from Budweiser to Robert Mondavi.

Mr. Dailey said Kroger believes P.L. Marketing will be able to help it rearrange store shelves more frequently and in a more neutral manner to reflect changing consumer tastes by adding fast-moving, new craft brands such as Founders Brewing Co.’s All Day IPA or seasonally adjusting the wine aisle to emphasize Cabernet Sauvignon over Pinot Noir.

Kroger currently makes those changes inconsistently across its stores. “We have a tremendous opportunity to grow sales by improving the customer experience and speed to market,” said Mr. Dailey

The beer industry was encouraged by Kroger’s change. MillerCoors Chief Customer Officer Dan Werth said it would help Kroger update its beer aisles to more accurately reflect the “flood of innovation and churn of brands.”

Brewers Association Director Paul Gatza, who represents craft brewers, praised Kroger’s decision to eliminate the fees it previously planned. Now, he said brewers should be able to earn space based on factors such as sales.