Worcester Requests State Investigate Liquor Wholesaler For Alleged Unfair Trade Practices

Worcester Requests State Investigate Liquor Wholesaler For Alleged Unfair Trade Practices
File Photo

SNOW HILL — In the latest chapter of the county’s ongoing and longtime liquor distribution history, Worcester County has requested a state investigation into alleged unfair trade practices by a major wholesaler.

According to a letter sent to Field Enforcement Division Director Jeffrey A. Kelly, county attorney Sonny Bloxom is requesting an investigation into what the county’s Department of Liquor Control (DLC) believes was an unfair trade practice and false advertising by wholesaler Reliable-Churchill in relation to a rather large purchase of Captain Morgan rum at a deeply discounted price in advance of the summer season. According to the letter, the DLC purchased 400 cases of Captain Morgan at an advertised sale price of $12.79 per bottle in April based on the representation by Reliable-Churchill that the sale price would be locked in until October.

However, in July, Reliable-Churchill issued another sale flier advertising Captain Morgan at a sale price of $9.99 per bottle, or nearly $3 less than what the county purchased its 400 cases in April under the assumption the price was fixed until October. As a result, the county alleges it overpaid for the 400 cases by over $8,300 and sought a rebate from Reliable-Churchill, which the company tacitly denied by failing to respond to the request.

Worcester County is now seeking an investigation by the state Comptroller’s Office Field Enforcement Division into what it alleges are unfair trade practices and false advertising.

According to the letter, the county purchased the 400 cases of Captain Morgan under the assumption the $12.79 per bottle sale price would be locked in until October and that no better pricing would be available.

“First, in April of this year, Reliable advertised Captain Morgan Spiced Rum for $12.79 per bottle,” the letter reads. “Their price sheet also stated ‘this deep price will not return until October.’ Based on this representation by Reliable, the Worcester County Department of Liquor Control purchased 400 cases at this price to last it until October.”

However, the omission of a single word in the county’s letter could be one source of confusion at best and misrepresentation at worst. The county’s letter states Reliable’s flier announcing the sale says “this deep price will not return until October.” The flier, however, does say “this deep price will not return until October,” but includes the word “projected” in parentheses.

Another source of potential confusion lies in the minimum number of cases needed to be purchased to lock in the sale price. While the April flier lists the sale price at $12.79 per bottle, it stipulates a five-case minimum in order to take advantage of the special. A subsequent flier issued by Reliable in June also locks in a $12.79 per bottle sale price with a five-case minimum. However, the July flier lists a special one-time offer of $9.99 per bottle with the stipulation of a 10-case minimum.

By any definition, the county’s large 400-case purchase meets the minimum case standard for both specials, but the DLC is contending it was duped into believing the $12.79 sale price was as good as it was going to get and would be in place until October. Based on that presumption, it purchased its entire 400 cases needed to meet the demands of its wholesale and retail operations for the summer season in April, only to see the $9.99 sale offered in July. For that reason, the county believes it is owed a rebate of the roughly $8,300 difference and is calling for a state investigation.

For their part, Reliable-Churchill officials said this week they had not seen the letter from the county requesting the investigation, and, therefore, was not prepared to respond.

“Reliable-Churchill has not yet received a copy of the notice of investigation,” said company attorney Robert Douglass this week. “Obviously, we’re not in a position to comment without any communication yet from the state or Worcester. There is nothing really for us to say at this point.”

According to industry sources, Reliable will likely report the county made its 400-case purchase at the locked-in price of $12.79 assuming the price would be in place until October based on its own sales literature. However, the key word omitted in the county’s letter is “projected,” which essentially means the sale price is subject to change based on a variety of factors. Reliable will likely also rely on the two different five-case and 10-case minimum purchases for the two sale prices.

The dispute is the first official one since liquor license holders in the county have been able to buy directly from wholesalers and bypass the DLC, which is essentially a middle-man of sorts. Starting July 1, restaurant and bar owners and retailers have been able to buy directly from companies such as Reliable or continue to purchase from the DLC or, in most cases, a combination of both. The change was promulgated by the disbanding of the county’s old Liquor Control Board (LCB) amid much controversy two years ago and the creation of the new DLC in its wake.

The DLC now purchases alcohol from wholesalers and distributors for sale to the liquor license holders and through its various retail outlets across the county. State law requires the DLC to mark up its alcohol sold to the licensees by 15 percent, which puts it at a competitive disadvantage with its private sector competitors. However, many licensees continue to purchase from the DLC for a variety of reasons including the convenience of one-stop shopping, no minimum purchase amounts, which is important because of the seasonal nature of the business, among other reasons.

In the case at hand, the DLC maintains it is already at a competitive disadvantage with the wholesalers and the alleged price change only compounded the issue.
“Because of Reliable’s false and/or misleading April advertisement, DLC overpaid $8,310.40 for Captain Morgan Spiced Rum and is now unable to be competitive in selling that item,” the letter reads. “DLC contacted Reliable about the issue demanding an explanation and a refund, but to date, Reliable hasn’t responded and apparently is not going to do so.”

The DLC believes Reliable changed the sale price with the intent of duping the county into making a large purchase at the higher $12.79 per bottle rate.

“The county feels that Reliable deliberately misled it to get the DLC to purchase a large amount of the product at a higher price, knowing that later in the summer, Reliable would dramatically drop the price, therefore putting the county in an uncompetitive market position vis-à-vis Reliable.”

The county also alleges Reliable sent the July price sheet only to the DLC and one other major purchaser in Worcester.

“The prices listed therein were not on Reliable’s website and were not in the August beverage journal,” the letter reads. “This is a blatant violation of the laws and regulations regarding alcoholic beverage advertising and sales. Therefore, we assert that Reliable has committed unfair trade practices and misleading advertising to the detriment of the county and other retailers. We respectfully request that your office immediately and thoroughly investigate this matter and advise us of your findings.”

The county’s charge this week against Reliable is what got its predecessor in trouble with the Comptroller’s Office over about five years ago. The then-Liquor Control Board (LCB) was caught offering the same product to different customers at different prices and in some cases below cost. The LCB was eventually disbanded and the county’s DLC was created to replace it.