June 8, 2004

Cross Merchandising – Legal or Illegal in California?

Michael Brill Newman

“Cross-merchandising” of alcohol beverages with non-alcohol products has become an increasingly popular method for promoting the sale of alcohol beverages. Some natural alcohol beverage and food combinations that come to mind include “wine and cheese” or “beer and potato chips.” California provides an ideal market for cross-merchandising because, unlike many other states, all types of retailers can sell all types of alcohol beverages and all types of non-alcohol products. But as they are selling alcohol beverages, suppliers and retailers who cross-merchandise such products must be mindful of the laws and regulations that govern such activity.

Section 25600 of the ABC Act prohibits generally the giving of any “premium, gift, or free goods” in connection with the sale of any alcohol beverage. The ABC, however, several years ago adopted Rule 106(j) which allows a premium or gift “cross-merchandising” promotion with a non-alcoholic beverage product if the value of the premium or gift does not exceeds $0.25 if it is cross-merchandised with beer, $1.00 with wine, or $5.00 with distilled spirits.

The ABC’s policies interpreting these provisions have evolved since it adopted Rule 106(j), particularly in response to a court case in 2002, Department Of Alcoholic Beverage Control v. Miller Brewing Company. In that case, a court of appeals held that giving consumers cash rebates or refunds on the purchase of beer when they bought certain non-alcohol products was lawful. The court distinguished a “rebate” from a “premium, gift, or free good.” Since that case the ABC has expanded its policy to allow any amount of rebate on either the alcohol beverage or the other item purchased in conjunction with the alcohol beverage unless the rebate results in the giving of something free. The rebate therefore may not equal or exceed the cost of the product for which it’s offered. Rebates may be given either at the time of purchase or by mail-in to the manufacturer or importer. The ABC continues to prohibit the actual give-away of a non-alcohol beverage item itself (as opposed to a rebate or refund) when the value exceeds the dollar limits mentioned above.

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