When a small software company filed an antitrust lawsuit in 2022 against the nation's two largest wine and spirits distributors, prominent beverage industry attorney John Hinman said: "This has the potential of turning over every rock these guys don't want turned over."
This week, Southern Glazer's apparently decided it did not want those rocks turned over. Southern and Provi, the software company, reached an agreement in principle Wednesday to settle the lawsuit. They filed a joint notice in US federal court that gives them 45 days to reach a final agreement.
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Importantly, the notice says they have "agreed to stay discovery". This means Provi will not get to look through Southern Glazer's business records seeking evidence of collusion with RNDC, the nation's second largest distributor.
"The parties have reached an agreement in principle to resolve the litigation," a Southern Glazer's spokesperson said in a statement to Wine-Searcher. "As a result, the parties have agreed to stay the litigation while they focus on reaching a final resolution."
The lawsuit between RNDC and Provi is ongoing.
Founded in 2016, Provi created software that allows retailers to look at one screen and see products from multiple distributors. For example, instead of having to look for cherry-flavored vodka from each distributor who sells to them, the retailer can quickly see all his options. It's sort of like Wine-Searcher for wholesale products. Retailers can order from Provi's software and the order goes to the distributor, who gets its full price for the product. Provi makes its money from producers listing and advertising their products.
Provi signed agreements with a number of national restaurant chains, including Chili's, Red Robin, Benihana, P.F. Chang's, Cinemark and AMC Theatres, and had pilot programs in place at Buffalo Wild Wings, Hilton, Circle K, Applebees and the Cheesecake Factory. According to the lawsuit, Provi placed more than 130,000 orders with Southern Glazer's and RNDC for nearly $200 million.
But Southern Glazer's and RNDC wanted to dominate the online ordering business with their own software, according to the lawsuit, so they notified retailers and restaurants that they would no longer accept orders using the Provi system.
"In furtherance of the boycott, on or about July 7, 2021, Southern sent letters to all its retailer customers – approximately 250,000 total – stating that Southern would not accept orders from Provi," the lawsuit stated.
Retailers and restaurants had no choice but to follow the big distributors' orders because, as the lawsuit explained, those distributors were the only source of "must-have" products including Tito's Vodka, Jim Beam, Tanqueray, Patron, Jack Daniel's and Absolut.
Big money
The total financial settlement Southern Glazer's will pay Provi has not yet be determined, but it may be substantial. Hinman estimated in 2022 that a court judgment against the two distributors could exceed $1 billion.
Beverage alcohol attorney Sean O'Leary said Wednesday that Provi had a higher-powered legal team than other companies that have tussled with Southern Glazer's, and that he assumes the Chicago-based software firm will get a big chunk of change.
"I think it's a good result," O'Leary told Wine-Searcher. "Southern couldn't put them out of business. They probably got a good financial settlement out of it. Wholesalers are used to having their way in the world. Sometimes you've got to cheer when the other team loses. Maybe they'll have a working relationship with Provi, who knows."
Southern Glazer's still faces an antitrust lawsuit from the Federal Trade Commission that was filed in the waning days of the Biden Administration. However, Biden's FTC chair Lina Khan used an unusual law, the Robinson-Patman Act, to claim that Southern charged different retailers different prices. The act is rarely used by the FTC because the impact of such differential pricing affects retailers but not consumers, who may get lower prices at larger retailers as a result. It's not clear whether the Trump Administration will ultimately decide to continue the FTC lawsuit.
Southern may have felt an urge to settle the Provi lawsuit before business gets even worse. The wine industry's struggles have naturally hurt the nation's largest distributor, which normally gets about a 30 percent cut of every bottle of wine it handles. In October, Southern Glazer's laid off hundreds of employees, including much of its fine wine division. Trump's new tariffs on imported products will likely hurt wine sales and thus Southern's business even more.
"While our industry remains resilient, these trade policies create significant uncertainty in supply chains and pricing, affecting the entire beverage alcohol industry and the broader hospitality sector," the Wine & Spirits Wholesalers of America (WSWA) said in a statement. "Ultimately, consumers will bear the brunt of these changes, facing higher prices and reduced access to the diverse selection of products they expect."
