On August 25th, 2016 the Governor of California signed a bill into law that eliminates Instant Rebate Coupons (IRC) funded by suppliers or wholesalers for the promotion of wine in California. This mirrors the regulations that currently apply to Malt Beverages, however Distilled Spirits can continue to use IRCs for the promotion of their products. The law takes effect as of January 1st, 2017 (click here for the full text of California Senate Bill 1032).
California accounts for 61 million of the 397 million 9LE cases of wine (excluding cider) sold in the US market for the 12 months ending August 2016. Given the strength of multi-unit retailers in California it is reasonable to assume that at least one third of this volume may be sold with an IRC with a potential redemption value is excess of $200 million annually.
This law represents a significant change for how wine can be promoted in California going forward. While it is impossible to predict the overall market impact, the following areas will need to be addressed:
- Retailers are unlikely to continue promoting wines at the same prices without these promotional funds. As such, suppliers and wholesalers will need to identify other discounting methods to fund promotions moving forward.
- Many retailers set their programming calendars six months in advance or more. With the effective date of this bill, January 1st, 2017, less than three months away, retailers, suppliers, and wholesalers will need to revamp programs slated for early 2017.
- Programs run in California are often mirrored in adjacent states (most specifically in Arizona and Nevada). Suppliers and wholesalers will need to decide if they wish to continue similar IRCs in these markets.
- The use of IRCs is inconsistent across channels with some channels more heavily utilizing them than others. Elimination of IRCs could shift wine volume between channels as retailers seek other means to be price competitive.
- Should suppliers and wholesalers transition to volume discounts, they will find increased volatility in their monthly volumes as retailers purchase less frequently and at greater quantity.
- Additional opportunities exist in spirits, which can still promote using IRCs. Spirits suppliers may increase investment in IRCs to shift consumers away from beer and wine.
While more issues will arise as this transition occurs, this listing highlights some key areas to consider in making business decisions going forward. Ultimately, this law represents a significant change to the promotional landscape in California. There will be lasting effects across all three tiers wherein some industry members will find opportunity and others detriment.
At bw166, we provide multiple tools to enable you to understand the total beverage alcohol market. The bw166 Total Beverage Alcohol Overview Report tracks all tax paid shipments into the US market including domestic products, packaged imports, and bulk imports. The report also tracks total consumer spending on beverage alcohol in both the on and off premise channels. Subscribe now to receive the most complete view of the total beverage alcohol market. Additionally, to be able to track Beverage Alcohol imports and exports on a monthly basis for volume, value in USD, and value in local currency for all major trading countries, please see the bw166 Import and Export reports for Beer, Spirits, and Wine.