Can a soda maker pay grocery stores slotting fees to get its alcoholic 'hard' soda on the shelves?

Plain-English summary

Virginia Attorney General Jason Miyares concluded that the practice of paying "slotting fees" to a retailer in exchange for shelf placement of a producer's alcoholic "hard" soda can violate federal "tied house" rules under the Federal Alcohol Administration Act, 27 U.S.C. § 205(b). Slotting fees are payments a manufacturer makes to a retailer to obtain a product placement on store shelves, typically for a fixed period.

The opinion distinguishes between non-alcoholic soft drinks (which the FAA Act does not reach) and "hard" sodas, which are alcoholic beverages styled to look and taste like familiar soft drinks and which fall under the FAA Act's tied-house provisions. Where a payment from a hard-soda producer to a retailer puts the retailer's independence at risk and causes the retailer to buy less of a competitor's product, that payment satisfies the federal definition of an unlawful inducement and exclusion under 27 C.F.R. § 6.151.

Miyares stopped short of declaring any particular slotting-fee arrangement illegal. Whether a specific payment crosses the line is a factual determination that the AG's office traditionally declines to make in an advisory opinion. The opinion also expressly limited itself to federal law and offered no view on Virginia's parallel tied-house statutes (Va. Code Ann. § 4.1-216 and 3 Va. Admin. Code § 5-30-10 et seq.).

What this means for you

If you make or distribute hard seltzers, hard sodas, or other styled alcoholic beverages

Treat your shelf-space payments to retailers the same way a beer or wine producer would. The federal tied-house rules apply once the product is alcoholic, even if it looks and is marketed like a soft drink. A flat shelf-rental payment, an end-cap promotion paid in cash, or any "we'll pay you to feature ours" arrangement is presumptively risky under 27 C.F.R. §§ 6.21, 6.35, 6.41, 6.51, and 6.56, especially if the placement would push a competitor's product off the shelf. Have alcohol-compliance counsel review any payment-for-placement program against the criteria in 27 C.F.R. § 6.151.

If you run a grocery store, convenience chain, or other retailer that sells hard sodas

Accepting cash or in-kind value from a hard-soda producer in exchange for preferential shelf, end-cap, or display placement implicates federal tied-house enforcement, not just state ABC rules. The Bureau of Alcohol, Tobacco, Tax and Trade (TTB) is the enforcement agency. Document any payments and review whether they fall inside any of the safe-harbor categories in 27 C.F.R. Part 6.

If you are a Virginia legislator or ABC regulator

The opinion is deliberately narrow. It tells you that the federal rules apply but explicitly does not opine on whether identical conduct violates Virginia's own tied-house statute (§ 4.1-216) or ABC regulations (3 Va. Admin. Code § 5-30-10 et seq.). If you want a definitive answer on the Virginia overlay, that requires a separate request or rulemaking through the ABC.

If you are antitrust or alcohol-compliance counsel advising in this space

The opinion's value is in the framing: a "soft drink" that contains alcohol is regulated as alcohol for tied-house purposes. The opinion synthesizes the leading cases (B-21 Wines, Foremost Sales Promotions, Fedway Associates, Nat'l Distrib. Co.) on what counts as an unlawful "inducement" coupled with "exclusion in whole or in part." Use it as a roadmap when structuring trade-spend programs that touch alcohol categories. The ultimate fact-bound test (does the payment threaten retailer independence and reduce competitor purchases) remains the same as in the underlying federal regulations.

Common questions

Q: What is a slotting fee?
A: A slotting fee is a payment a manufacturer makes to a retailer to get its product onto store shelves, usually for an initial period of four to six months. The opinion treats the term broadly to include payments for end-cap placements, prime locations, and other display-space rentals.

Q: What is a "tied house"?
A: Historically, before Prohibition, alcohol producers would finance saloons in exchange for the saloons agreeing to sell only that producer's products and meet sales quotas. After repeal, both Congress and the states enacted laws to prevent that pattern from returning. Today the federal version lives in 27 U.S.C. § 205(b) and the regulations at 27 C.F.R. Part 6.

Q: Do the federal tied-house rules cover non-alcoholic sodas?
A: No. The Federal Alcohol Administration Act applies to "distilled spirits, wine, or malt beverages" as defined in 27 U.S.C. § 211. A non-alcoholic soft drink falls outside that scope. The reason this opinion exists is that "hard" sodas are alcoholic, even though they share branding and shelf space with soft drinks.

Q: Did the AG say slotting fees are always illegal for hard soda?
A: No. He said they "undoubtedly could induce" exclusion of competitors, which would violate the Act, but whether any particular payment actually crosses the line depends on the facts. The opinion expressly declines to make that factual call.

Q: Does this opinion address Virginia's own tied-house law?
A: No. The request was limited to federal law, and the opinion repeats twice that it offers no view on the application of Va. Code Ann. § 4.1-216 or 3 Va. Admin. Code § 5-30-10 et seq.

Q: Who actually enforces the federal tied-house rules?
A: The Alcohol and Tobacco Tax and Trade Bureau (TTB) at the U.S. Treasury Department. State ABC authorities enforce parallel state-law restrictions.

Q: What about a third-party broker who buys the display space and sells it to the producer?
A: Footnote 21 of the opinion warns that earlier TTB guidance (Compliance Matters 95-2) treats arrangements where "suppliers are effectively buying display space from the retailer" through a third-party intermediary as potential tied-house violations if they threaten retailer independence and affect retailer purchases.

Background and statutory framework

The Federal Alcohol Administration Act of 1935 was Congress's response to the perceived risks of vertical integration in the alcohol industry after Prohibition was repealed by the Twenty-first Amendment. Section 5 of the Act, codified at 27 U.S.C. § 205, prohibits a producer or wholesaler of distilled spirits, wine, or malt beverages from inducing a retailer, directly or indirectly, to purchase the producer's products to the exclusion in whole or in part of the products of a competitor.

The implementing regulations in 27 C.F.R. Part 6 give the rule operational content. Inducement is defined to include furnishing money, services, equipment, fixtures, signs, or other things of value to a retailer (§ 6.21), paying or crediting a retailer for advertising or display services (§ 6.51), and renting display space at a retail establishment (§ 6.56). Exclusion is defined in § 6.151 as occurring when the practice (i) places retailer independence at risk by means of a tie or link between the producer and retailer, and (ii) results in the retailer purchasing less of a competitor's product than it otherwise would have.

The opinion analyzes slotting fees as a form of payment that falls squarely within the § 6.21 and § 6.51 categories of inducement and that, when applied to limited shelf space, is well-positioned to satisfy the § 6.151 exclusion test. The federal regulators have specifically called out "purchasing or renting display, shelf, storage or warehouse space" as a practice that puts retailer independence at risk (§ 6.152(b)).

The opinion stops at the federal threshold by design. It addresses only whether a slotting-fee program could violate federal law, not whether it does in any specific case, and not whether it would also violate Virginia's parallel ABC laws.

Citations and references

Statutes and regulations:
- 27 U.S.C. § 205 (Federal Alcohol Administration Act, unfair competition and unlawful practices)
- 27 U.S.C. § 211 (FAA Act definitions)
- 27 C.F.R. Part 6 (Tied-house regulations)
- Va. Code Ann. § 4.1-216 (Virginia tied-house statute)
- 3 Va. Admin. Code § 5-30-10 et seq. (Virginia ABC tied-house regulations)
- Va. Code Ann. § 2.2-505 (AG advisory opinion authority)

Cases (federal tied-house line):
- B-21 Wines, Inc. v. Bauer, 36 F.4th 214 (4th Cir. 2022), defining "tied-houses" as retailers controlled by larger manufacturing or wholesale interests
- Retail Digital Network, LLC v. Prieto, 861 F.3d 839 (9th Cir. 2017)
- Lebamoff Enters. Inc. v. Whitmer, 956 F.3d 863 (6th Cir. 2020)
- Nat'l Distrib. Co. v. U.S. Treasury Dep't, 626 F.2d 997 (D.C. Cir. 1980), primary purpose of the Act is preventing vertical integration where producers control "ostensibly independent" retailers
- Foremost Sales Promotions, Inc. v. Dir., Bureau of Alcohol, Tobacco & Firearms, 860 F.2d 229 (7th Cir. 1988), exclusion turns on the nature of the inducement and magnitude of the effect on competition
- Fedway Assocs., Inc. v. U.S. Treasury, Bureau of Alcohol, Tobacco & Firearms, 976 F.2d 1416 (D.C. Cir. 1992), leading inducement cases involve practices threatening retailer independence
- Distilled Brands, Inc. v. Dunigan, 222 F.2d 867 (2d Cir. 1955)
- Black v. Magnolia Liquor Co., 355 U.S. 24 (1957), U.S. Supreme Court case
- Stein Distributing Co. v. Dep't of Treasury, BATF, 779 F.2d 1407 (9th Cir. 1986)

Earlier Virginia AG opinions cited:
- 2002 Op. Va. Att'y Gen. 321
- 1996 Op. Va. Att'y Gen. 102
- 1991 Op. Va. Att'y Gen. 122
- 1987-88 Op. Va. Att'y Gen. 69
- 1977-78 Op. Va. Att'y Gen. 31

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2023/22-041-Leftwich-issued.pdf

Original opinion text

Best-effort transcription from a scanned PDF (pages 2 through 5 are scanned images; pages 1 and the headers are text-layer). Minor errors may remain. The linked PDF is authoritative.

COMMONWEALTH of VIRGINIA
Office of the Attorney General

Jason S. Miyares, Attorney General
202 North Ninth Street
Richmond, Virginia 23219
804-786-2071
Fax 804-786-1991
Virginia Relay Services 800-828-1120, 7-1-1

January 17, 2023

The Honorable James A. "Jay" Leftwich, Jr.
Member, Virginia House of Delegates
Pocahontas Building, Room W232
900 East Main Street
Richmond, Virginia 23219

Dear Delegate Leftwich:

I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issue Presented

You inquire regarding the impact of beverage manufacturers' practice of paying retail outlets in Virginia slotting fees for soft-drink placement on the retailer's placement of "hard" sodas. You specifically ask whether payment of such fees to influence, directly or indirectly, the shelf space of the soft-drink manufacturer's alcoholic or "hard" sodas violate federal "tied house" regulations.

Background

Slotting fees, also known as shelving fees, are payments a manufacturer makes to a retailer to obtain "initial placement of [a] product on the retailer's store shelves."[1] Usually one-time payments, these fees allow a manufacturer to obtain shelf space for its product for a particular period of time (usually four to six months), which gives the product time to establish its sales performance.[2] The term "slotting fees" also refers more broadly to payments made to secure special displays and prime locations in supermarkets, such as end-of-aisle locations.[3]

"Hard" sodas are alcoholic beverages that are created in the style of a soft drink.[4] They generally are formulated to look and taste like popular types of non-alcoholic sodas, and some soda manufacturers now also make "hard" products. To denote their alcoholic content, these products often will be identified by a brand name with the addition of the word "hard" or "spiked." Most of these hard sodas have anywhere from 4% to 8% alcohol by volume.[5] Consequently, they are restricted products and may be purchased only by adults who are at least 21 years old.[6]

Applicable Law and Discussion

A by-product of pre-Prohibition alcohol sales, a "tied house" refers to a monopolistic arrangement between a saloon and an alcoholic beverage manufacturer.[7] Under this system, the manufacturer provided financial backing to open a saloon in exchange for the saloon agreeing to sell only the alcohol provided by that manufacturer and to meet strict sales quotas.[8] This system resulted in large amounts of cheap alcohol being sold and led to widespread alcohol abuse.[9]

Following the passage of the Twenty-first Amendment and its repeal of Prohibition, the federal government and individual states sought to prevent the tied house system from re-emerging by enacting laws prohibiting anti-competitive arrangements between manufacturers and retailers of alcoholic beverages. Under the Federal Alcohol Administration Act ("the Act"), it is illegal, by engaging in certain practices, for any

producer . . . of distilled spirits, wine, or malt beverages . . . directly or indirectly or through an affiliate . . . [t]o induce . . . any retailer, engaged in the sale of [such products], to purchase any such products from such [producer] to the exclusion in whole or in part of distilled spirits, wine, or malt beverages sold or offered for sale by other persons in interstate or foreign commerce . . . .[10]

The prohibition extends to inducements that are "made in the course of interstate or foreign commerce," practices that "substantially . . . restrain or prevent transactions in interstate or foreign commerce in . . . such products," or inducements whose "direct effect . . . is to prevent, deter, hinder, or restrict other persons from selling or offering for sale any such products to such retailer in interstate or foreign commerce[.]"[11] Among other practices, a producer can violate the Act "by furnishing, giving, renting, lending, or selling to the retailer, any equipment, fixtures, signs, supplies, money, services, or other thing of value" or "by paying or crediting the retailer for any advertising, display, or distribution service."[12]

The Act therefore, in part, is "designed to prevent producers . . . from engaging in certain practices that might induce retailers to purchase products 'to the exclusion in whole or in part' of products from other producers . . . in interstate commerce, where the 'direct effect' of the prohibited practice is 'to prevent, deter, hinder, or restrict other persons from selling or offering for sale any such products to such retailer in interstate or foreign commerce[.]'"[13] Federal regulations implementing the Act establish "criteria for determining whether a practice is a violation" of the Act.[14] In addition to setting forth specific examples of practices that constitute "inducement,"[15] the regulations describe how "exclusion" occurs:

(a) Exclusion, in whole or in part occurs:

(1) When a practice by [a producer], whether direct, indirect, or through an affiliate, places (or has the potential to place) retailer independence at risk by means of a tie or link between the [producer] and retailer or by any other means of [producer] control over the retailer; and

(2) Such practice results in the retailer purchasing less than it would have of a competitor's product.[16]

Accordingly, "whether a supplier induced a purchaser to exclude competing suppliers within the meaning of [the Act] depends on the nature of the inducement and the nature and magnitude of the effect on competition."[17] One federal circuit court of appeals has noted that "the principal cases holding a[n] . . . inducement unlawful under the 'tied house' . . . provisions involved practices plainly threatening to retailer independence."[18] Another federal appellate court explained that "transactions between suppliers and retailers do not induce the 'exclusion in whole or in part' of competing suppliers unless their purpose or potential effect is to lead to supplier control over ostensibly independent purchasers."[19]

You present scenarios in which a soft drink producer pays slotting fees to a retailer in order to either directly or indirectly influence the shelf space allotted for the producer's hard soda. The applicable federal regulations specifically include "purchasing or renting display, shelf, storage or warehouse space" among examples of practices that "put retailer independence at risk."[20] Consequently, I must conclude that the slotting fees used as you describe undoubtedly could induce a retailer to allocate finite shelf space to the fee-paying producer, to the exclusion of other competitors. Such an outcome, where the fees paid cause a retailer to exclude another producer from the market constitutes an example of a "tied house" and thus a violation of the Act.[21]

Nevertheless, the extent to which any particular fee payment is intended to or does directly or indirectly influence the shelf space allotted by a retailer, to the detriment of other producers, is a factual determination that is beyond the scope of an official opinion of the Attorney General. This Office traditionally declines to render official opinions when the request involves a question of fact rather than one of law;[22] this Office does not make factual determinations or resolve factual disputes when responding to opinion requests.[23]

Conclusion

Accordingly, it is my opinion that slotting fees paid by a soft-drink producer to a Virginia retail outlet to directly or indirectly influence the retailer violate federal "tied house" laws when they directly affect the shelf space of the producer's alcoholic or "hard" soda to the exclusion, in whole or in part, of competitors; however, whether any particular payment of slotting fees would constitute a violation of the Act is a factual determination beyond the scope of an opinion of this Office.

With kindest regards, I am,

Very truly yours,

Jason S. Miyares
Attorney General

Footnotes

[1] FED. TRADE COMM'N, SLOTTING ALLOWANCES IN THE RETAIL GROCERY INDUSTRY: SELECTED CASE STUDIES IN FIVE PRODUCT CATEGORIES, at i (Nov. 2003), https://www.ftc.gov/sites/default/files/documents/reports/use-slotting-allowances-retail-grocery-industry/slottingallowancerpt031114.pdf. See also BEDROCK ANALYTICS CORP., What Goes Into A Slotting Fee? (Aug. 14, 2019), https://www.bedrockanalytics.com/blog/what-goes-into-a-slotting-fee/.

[2] FED. TRADE COMM'N, supra note 1, at iii; BEDROCK ANALYTICS CORP., supra note 1.

[3] Benjamin Klein & Joshua D. Wright, The Economics of Slotting Contracts, U.S. DEP'T OF JUSTICE (Nov. 8, 2006), https://www.justice.gov/atr/economics-slotting-contracts.

[4] See Liz Abere, What Is Hard Soda, and Where Can I Find It?, SPOON UNIVERSITY (Aug. 1, 2017), https://spoonuniversity.com/lifestyle/what-is-hard-soda-and-can-i-find-it.

[5] See id.

[6] In the absence of a clear definition of "hard soda," I assume, for purposes of this Opinion, that you refer to hard sodas that fall within the regulatory purview of the Federal Alcohol Administration Act. The Act applies to beverages that qualify as "distilled spirits," "wine," or "malt beverages," as those terms are defined in the Act. See 27 U.S.C. § 211. I note that Virginia has adopted its own "tied house" laws, see VA. CODE ANN. § 4.1-216 (2021) and 3 VA. ADMIN. CODE § 5-30-10 et seq., but I offer no opinion on their application as your inquiry is limited to federal law.

[7] See B-21 Wines, Inc. v. Bauer, 36 F.4th 214, 218 (4th Cir. 2022). "The term 'tied-houses' refers to retailers and saloons that are controlled by 'larger manufacturing or wholesale interests.'" Retail Digital Network, LLC v. Prieto, 861 F.3d 839, 843 (9th Cir. 2017) (quoting Cal. Beer Wholesalers Ass'n v. Alcoholic Bev. Control Appeals Bd., 487 P.2d 745, 748 (Cal. 1971)).

[8] Bauer, 36 F.4th at 218.

[9] See Lebamoff Enters. Inc. v. Whitmer, 956 F.3d 863, 867 (6th Cir. 2020).

[10] 27 U.S.C. § 205(b). With respect to malt beverages, subsection (f) of 27 U.S.C. § 205 provides that the provisions of subsection (b) of the statute "shall apply to transactions between a retailer . . . in any State and a brewer . . . outside [of such] State only to the extent that the law of such State imposes similar requirements with respect to similar transactions between a retailer . . . in such State and a brewer . . . in such State[.]" 27 U.S.C. § 205(f). Although this Opinion is limited to federal law, I note that Virginia law generally contains requirements similar to the relevant federal tied house provisions, see VA. CODE ANN. § 4.1-216(B) & (C), so that 27 U.S.C. § 205(b) applies to malt-beverage transactions between a retailer in the Commonwealth and a brewer outside the Commonwealth.

[11] 27 U.S.C. § 205(b).

[12] Id.; see 27 C.F.R. § 6.21 ("[I]t is unlawful for any [producer] to induce, directly or indirectly, any retailer to purchase any products from the [producer] to the exclusion, in whole or in part, of such products sold or offered for sale by other persons in interstate or foreign commerce by . . . furnishing . . . money, services or other thing of value [or] . . . [b]y paying or crediting the retailer for any advertising, display, or distribution service . . . ."). Virginia has adopted its own "tied house" laws, see VA. CODE ANN. § 4.1-216 (2021) and 3 VA. ADMIN. CODE § 5-30-10 et seq. As your inquiry is limited to federal law, I offer no opinion on application of the Virginia regulations.

[13] Nat'l Distrib. Co. v. U.S. Treasury Dep't, Bureau of Alcohol, Tobacco & Firearms, 626 F.2d 997, 1001 (D.C. Cir. 1980). "The primary purpose . . . seems to be prevention of a form of vertical integration whereby wholesalers or producers might gain effective control of ostensibly independent retail outlets." Id. at 1004.

[14] 27 C.F.R. § 6.1.

[15] See, e.g., 27 C.F.R. § 6.51 ("The act by an industry member of paying or crediting a retailer for any advertising, display, or distribution service constitutes a means to induce within the meaning of the Act . . . ."); 27 C.F.R. § 6.56 ("A promotion whereby an industry member rents display space at a retail establishment constitutes paying the retailer for rendering a display service within the meaning of the Act."); 27 C.F.R. § 6.41 ("Subject to [certain exceptions], the act by an industry member of furnishing, giving, renting, lending, or selling any equipment, fixtures, signs, supplies, money, services, or other things of value to a retailer constitutes a means to induce within the meaning of the Act.").

[16] 27 C.F.R. § 6.151 (emphases added).

[17] Foremost Sales Promotions, Inc. v. Dir., Bureau of Alcohol, Tobacco & Firearms, 860 F.2d 229, 238 (7th Cir. 1988).

[18] Fedway Assocs., Inc. v. U.S. Treasury, Bureau of Alcohol, Tobacco & Firearms, 976 F.2d 1416, 1422 (D.C. Cir. 1992) (citing Distilled Brands, Inc. v. Dunigan, 222 F.2d 867 (2d Cir. 1955); Black v. Magnolia Liquor Co., 355 U.S. 24 (1957); Stein Distributing Co. v. Dep't of Treasury, Bureau of Alcohol, Tobacco & Firearms, 779 F.2d 1407 (9th Cir. 1986)).

[19] Foremost Sales Promotions, 860 F.2d at 237.

[20] See 27 C.F.R. §§ 6.1 & 6.152(b).

[21] See 27 U.S.C. § 205(b). See BUREAU OF ALCOHOL, TOBACCO & FIREARMS, Compliance Matters 95-2, 1995 WL 844919, at *8-9 (1995) (warning that a certain practice whereby, despite third-party involvement, "suppliers are effectively buying display space from the retailer" could constitute a "slotting fee violation" of the Act "if the practice threatens retailer independence and has an impact on the retailer's purchases"). I further advise that a producer can violate the Act by "acquiring any interest in the real or personal property owned, occupied, or used by the retailer in the conduct of his business." 27 U.S.C. § 205(b); 27 C.F.R. § 6.21. Because "[t]he renting of display space by an industry member at a retail establishment constitutes an interest in the retailer's property within the meaning of the Act[,]" 27 C.F.R. § 6.35, the payment of slotting fees for designated space potentially could violate the Act in this manner as well.

[22] See, e.g., 1991 Op. Va. Att'y Gen. 122, 124; 1987-88 Op. Va. Att'y Gen. 69, 72; 1977-78 Op. Va. Att'y Gen. 31, 33.

[23] See 2002 Op. Va. Att'y Gen. 321, 326; 1996 Op. Va. Att'y Gen. 102, 103.