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Alcohol Distributor RNDC Alleges Sazerac ‘Schemed’ to ‘Circumvent the Three-tier System’ and Claims Millions Owed

The Republic National Distributing Company, LLC (RNDC) filed a counterclaim against spirits conglomerate Sazerac on March 17, in response to a mid-January lawsuit initiated by Sazerac.

The 51-page document, shared with VinePair by RNDC’s PR firm, alleges that Sazerac’s initial lawsuit lacked proper context and contained incorrect information about RNDC. The distributor claims that Sazerac attempted to work outside of the three-tier system of alcohol distribution and took an overreaching role — in conflict with U.S. distributor regulations — in selling the product.

In January of this year, Sazerac filed a high-profile lawsuit against RNDC claiming $38.6 in unpaid invoices and unprofessional conduct by the company, citing tie-in sales of lucrative bourbon labels. Among other grievances against the distributor is Sazerac’s claim that RNDC didn’t effectively promote Sazerac products in retail stores.

The companies’ relationship formally (and quite publicly) ended Feb. 1, 2023, cutting ties after a more-than-decade-long partnership.

Relationship Prior to Late 2021

RNDC and Sazerac enjoyed a close supplier-distributor relationship prior to a breakdown in their partnership beginning fall 2021, RNDC states. Sazerac products composed a large portion of RNDC’s portfolio and represented a large percentage of its business. While the two companies had worked together for over 10 years, RNDC stated that Sazerac would not enter a written contract throughout its partnership lifetime, otherwise relying on email communication and assumed mutual partnership to continue the relationship.

Under the three-tier system in the United States, producers work with distributors to properly sell, market, and ship their products to individual retailers. Under this relationship, RNDC regularly set price points for Sazerac’s products, took care of in-store marketing and promotional events, and conducted other business regarding merchandising.
“The relationship between RNDC and Sazerac thrived for decades but has been torn apart by Sazerac’s two-plus year effort to strip RNDC of its distributor role and circumvent the three-tier system that has helped make this industry so successful,” RNDC states in the counterclaim.
Sazerac and RNDC’s relationship was so tightly intertwined that Sazerac allegedly controlled RNDC’s product orders, introducing a supply system in 2021 that mandated minimum purchase requirements and automatic shipments to the RNDC. Under this system, RNDC states that Sazerac ordered the product, sent it to the distributor, and then billed RNDC for the shipment.

Partnership Begins to Dissolve

RNDC says that Sazerac began to “set unattainable standards for RNDC that seemed designed to set up RNDC for failure” and downplayed the distributor’s successful ventures, such as promotional campaigns.

Under the new product shipment system, Sazerac repeatedly ordered excessive amounts of products — more than RNDC could reasonably sell — and failed to properly address concerns by RNDC, per the filing. In September 2021, an agreement between the two companies established RNDC’s gross profit as a set $8.50 per case, regardless of the product contained inside. This agreement acknowledged annual adjustments for inflation.

To recoup those losses in profit, Sazerac stated that the company would take on RNDC’s marketing and promotional responsibilities in-house — a concern for RNDC, as this could potentially violate regulations on the separation of supplier versus distributor responsibilities. RNDC alleges that Sazerac intended to launch a campaign to circumvent the three-tier distribution system.

RNDC also claimed it struggled with increases operational and shipping costs, which Sazerac dismissed, stating that business expenses “had not changed at all and that RNDC’s concerns were unfounded,” according to RNDC.

“According to Sazerac’s own executives, RNDC’s role as distributor amounted to no more than ‘four wheels and a truck,’” RNDC states in the claim.

In June 2022, “after repeatedly trying to encourage Sazerac to negotiate a new rate,” RNDC allegedly served Sazerac with a notice that terminated the Sep. 2021 pricing agreement, effective as of Aug. 2022.

The conflict further escalated on Dec. 30, 2022, when Sazerac allegedly alerted the distributor of the termination of their partnership late on Friday evening of a holiday weekend. RNDC states that its leadership did not receive prior notification of Sazerac’s intention to terminate, and if they had, the company would not have invested time and resources into planning marketing activations for 2023.

Compounding matters, RNDC claims Sazerac immediately announced the termination of the companies’ long-standing relationship to the media and trade, “resulting in widespread confusion amongst the industry, the parties’ customers, and the media—all of which could have been avoided through typical discussions regarding a transition plan.”

Roughly an hour after RNDC was notified of the partnership termination, Sazerac published a public press release and statement via the email newsletter “Industry Market Report.” Published daily by Sazerac CEO and president Mark Brown, the email newsletter includes an aggregation of alcohol-related stories across the industry. While the so-called Mark Brown newsletter for the day had already arrived in subscribers’ inboxes, Sazerac published a second, special edition of the newsletter on Dec. 30, sharing news of its distributor changes, according to the claim.

RNDC Tries to Offload Inventory

Throughout last December, Sazerac continued to order product on RNDC’s behalf, leaving the distributor with an excessive $123 million in inventory and no “indication that RNDC would soon no longer be Sazerac’s primary distributor across the country.”

RNDC claims that instead of assisting the distributor in selling excess inventory, Sazerac intentionally created challenges in the marketplace and “misrepresented” the distributor to retailers.

“For example, Sazerac deliberately caused its new distributors to accept product from Sazerac, rather than purchasing RNDC’s remaining unsold inventory of Sazerac products from RNDC,” the lawsuit states.

Sazerac also refused to accept returns of the product, instead slapping RNDC with a lawsuit over millions in inventory invoices.

The lawsuit was filed in Louisville on March 17 and remains ongoing. Sazerac declined to comment and RNDC did not immediately respond to VinePair’s request for comment.

The article Alcohol Distributor RNDC Alleges Sazerac ‘Schemed’ to ‘Circumvent the Three-tier System’ and Claims Millions Owed appeared first on VinePair.

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