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Feds Crack Down on Pay-to-Play Schemes at Miami Liquor Retailers and Bars

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Last month, federal agents and Florida state police joined forces in Miami to crack down on slotting fees, or the practice of paying retailers to prominently place a product. In this case, they were investigating local beer distributors, according to sources interviewed by New Times.

Slotting fees, also known as "pay-to-play," are a common practice among grocery stores, but they're illegal in the alcoholic-beverage industry. The Bureau of Alcohol, Tobacco, Firearms and Explosives banned slotting fees in retail alcohol sales in 1995.

The July operation lasted a week and involved agents from the Alcohol and Tobacco Tax and Trade Bureau (TTB) and the Florida Division of Alcohol Beverage and Tobacco. It's one of the largest enforcement operations of its type, TTB spokesman Tom Hogue says.

Hogue couldn't give many details about the specifics of the operation or who was targeted, citing an active investigation, but he added that the operation was conducted in the "greater Miami area" and could take up to at least a year before more details are released.

Lee Kessler, owner of Barracuda Bar & Grill in Coconut Grove, says he was aware TTB agents were investigating some bars in the immediate area but didn't know which ones were targeted.

In Miami Springs, Brandon Hume with Tom's NFL American Sports Bar & Grill tells New Times that agents were going to local bars, including the nearby golf course, and "asking little questions here and there" about local beer distributors. "They'd question anything," Hume says.

Such operations have become a focus given the explosive growth in alcohol producers, Hogue says. Since 2012, the number of distillers in the United States has increased by 116 percent, and breweries have increased by 140 percent, according to the TTB's 2016 annual report. The report also shows that pay-to-play services are a million-dollar business. The practice is considered anticompetitive.

"It's absolutely horrendous to these small businesses that are trying to get off the ground," Hogue says. "If they can't get access to the marketplace, it's a fatal flaw for them."

Last November, the TTB accepted a $750,000 settlement from the Craft Beer Guild in Massachusetts, which was accused of paying slotting fees.

In this case, the Craft Beer Guild was accused of paying bars cash — up to $2,000 per tap handle and as much as $20,000 each year — to get them to purchase certain beer brands.

How customers get to see which products are placed is all by design.  

In stores, shelf arrangement is typically done by planograms, which are diagrams that show where products should to be placed to maximize sales and are usually created by companies that are paid by distributors, says Eddy Torres, a Miami native who worked as a representative for Brown Distributing and now lives in Southern California.

Buy-back programs are also a focus. In March 2016, Anheuser-Busch settled with the TTB for $300,000 after being accused of buying back unsold and out-of-date products from wholesalers and distributors.

The TTB also enforces tobacco sales and last year fined Hialeah-based Mariola International Company after it was accused of failing to properly identify tax on cigars and maintain adequate import records.

"Pay-to-play really hurts the little guy," Hogue says.

Correction: In a quote, an earlier version of this story mentioned companies that had allegedly paid for planograms. There was no evidence for the mention, and it has been removed.

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