TABC Proposes Rule Changes for Coupons and On-Premises Promotions

The TABC will hold a stakeholder meeting on Wednesday, December 10, 2014 at 1:30 p.m. at Commission's headquarters in Austin to discuss possible amendments to Rules §45.101 (Rebates, Coupons and Premium Stamps) and §45.103 (On-Premises Promotions). Below is a summary of the proposed changes, and they are available for review on the TABC's web site.

The current version of Rule §45.103, commonly known as the Happy Hour rules, only applies to retailers conducting sales for on-premise consumption. There are no changes proposed to the substantive requirements of the rule; rather, the rule will be reviewed to discuss if and, if so, how to apply it to manufacturers conducting sales for on-premise consumption. We find nothing concerning in the current rule as applied to manufacturers, and it's advisable for manufacturers to adhere to the rule even though it currently does not apply to them.

The current version of Rule §45.101, in brief, prohibits manufacturers, wholesalers, and retailers from offering a coupon redeemable by the public for, or for a discount on, the purchase of an alcoholic beverage, except when offered as part of (a) a meal or hotel package or (b) airline frequent flier program or ticket purchase. If the coupon is offered under one of these exceptions, the complimentary or discounted beverage cannot be brand identified or, if offered by a retailer, redeemed by a wholesaler or manufacturer. The proposed version of Rule §45.101, which is effectively a complete re-write of the rule, would enable retailers to offer coupons for alcoholic beverages, enable manufacturers and wholesalers to offer coupons for non-alcoholic items, and authorize loyalty programs for all tiers of the industry, with limitations of course.

 COUPONS:

Under subsection (h) of the proposed version of Rule §45.101, retailers could offer coupons redeemable by the public for, or for a discount on, the purchase of alcoholic beverages.  Such coupons must be underwritten by the retailer and may not be underwritten, funded, or marketed by a manufacturer or wholesaler. For those retailers selling alcohol for on-premise consumption, the proposed rule limits coupon redemption to one coupon per consumer per day and restricts offering coupons valid for more than one free or discounted drink per day.  The proposed rule provides no such limitations for coupon redemption or offerings by off-premise retailers.

Manufacturers and wholesalers would also be able to offer coupons under the proposed rule, but the current restriction against offering coupons for the purchase of or discount on the purchase of alcoholic beverages stands, except when offered as part of a meal or hotel package or airline frequent flier program. Subsection (e) of the proposed rule would allow manufacturers and wholesalers to offer consumer coupons for discounts on the purchase price of any items they sell, excluding alcoholic beverages and non-alcoholic beverage products (defined as non-alcoholic beverages). We're unclear why non-alcoholic beverage products are excluded, particularly since the statutory prohibition on the offer of coupons is limited to the purchase of alcoholic beverages and the rule requires redemption exclusively through the manufacturer or wholesaler. This exclusion also seems inconsistent with subsection (c) which restricts upper tier members from offering a coupon redeemable for a free non-alcoholic beverage product or item only if purchase of an alcoholic beverage is required.  We would normally read such a restriction as allowing coupons for free non-alcoholic beverage products and items provided purchase an alcoholic beverage was not required. However, as noted above, subsection (e) restricts upper tier members from offering consumer coupons for non-alcoholic beverage products, which apparently leaves coupons for non-alcoholic beverage items (defined to exclude beverages).

Subsection (d) would authorize upper tier members to contract with a "non-alcoholic beverage manufacturer," excluding retailers, to offer consumers a cross-merchandise coupon for a discount or rebate on a non-alcoholic item, excluding a "non-alcoholic beverage product that is not sold by an upper tier member." We're not sure what to make of these conditions, given the limited statutory prohibition noted above, or the subsection itself, which seemingly authorizes legal co-merchandising with products not regulated by the agency.  Does "non-alcoholic beverage manufacturer" mean any manufacturer that does not produce alcoholic beverages, which we think is the intention, or are upper tier members limited to contracting for cross-merchandising with beverage manufacturers who produce only beverages that are non-alcoholic?  Also, is the product exclusion meant for non-alcoholic beverage products sold by upper tier members, which is consistent with other subsections in the proposed rule, or those "not" sold by upper tier members, which is confusing.  We'll seek clarity and examples of cross-merchandising coupons at the meeting.  Finally, the non-alcoholic beverage item manufacturer must fund and redeem the coupon and the coupon must make this clear; the manufacturer or wholesaler participating in the co-merchandising may not do so.

 LOYALTY PROGRAMS:

 The proposed version of Rule §45.101 would allow retailers and manufacturers authorized to sell directly to consumers to offer loyalty programs to them. Loyalty programs could include discounts for both alcoholic beverage and non-alcoholic beverage products and must be available to all consumers.   We question whether there is statutory authority for this latter restriction and plan to raise that with the TABC.  Retailers and manufacturers authorized to sell for on-premise consumption would have limitations on accruing up to the value of, and redeeming more than, one free or discounted alcoholic beverage per day. There are no such limitations for loyalty programs offered by retailers or manufacturers conducting alcohol sales for off-premise consumption.  There is a question how this rule would be applied to the holders of Wine & Beer Retailer's, Winery, and Distillers permits, which authorize sales for on- and off-premise consumption.

Wrapping up, subjection (j) of the proposed Rule §45.101 is cause for some concern. It provides that permittees and licensees violating the coupon and loyalty program rules will "no longer have the privilege of offering the programs." This strikes us as illegal.  The Texas Alcoholic Beverage Code provides the sanctions the TABC is authorized to inflict, and nowhere that we can find in the Code does it allow the agency to restrict a licensee or permittee from engaging in otherwise lawful promotional activities, particularly not forever as this proposed subsection seems to indicate.

 Please contact us with questions or if you're interested in offering comments at the meeting.