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12/21/87 Ted Sharpenter, Inc., v. the Illinois Liquor

December 21, 1987





518 N.E.2d 128, 119 Ill. 2d 169, 115 Ill. Dec. 603 1987.IL.1885

Appeal from the Appellate Court for the Second District; heard in that court on appeal from the Circuit Court of Kane County, the Hon. John L. Nickels, Judge, presiding.


JUSTICE MORAN delivered the opinion of the court. JUSTICE SIMON took no part in the consideration or decision of this case.


In November of 1983, Patrick Burke, Richard Ernzen, James McCue, Ronald Nichols and George Zobrest filed a complaint with the Illinois Liquor Commission (Commission) charging that Ted Sharpenter, Inc.'s, practice of offering preferential price discounts violated the Liquor Control Act of 1934 (the Act) (Ill. Rev. Stat. 1983, ch. 43, par. 93.9 et seq.). A hearing was subsequently held and the Commission found that Sharpenter's pricing policy violated sections 6-5 and 6-17 of the Act (Ill. Rev. Stat. 1983, ch. 43, pars. 122, 133). Thereafter, Sharpenter (plaintiff) filed a complaint for administrative review against the Commission and named individuals (defendants) in the circuit court of Kane County and the court reversed, holding that the plaintiff's pricing practices did not violate either section 6-5 or 6-17 of the Act. The appellate court reversed, holding that plaintiff's pricing practices violated section 6-5. (148 Ill. App. 3d 936.) We granted leave to appeal. 107 Ill. 2d R. 315.

Several issues are raised on appeal; however, because of our Disposition of the case it is only necessary that we consider the following issue: whether plaintiff's practice of offering preferential price discounts violates section 6 -- 5 of the Act, which prohibits distributors from giving "anything of value" to retailers.

Plaintiff is a wholesale beer distributor and the exclusive distributor of G. Heilman Brewing Company products within its designated four-county sales territory. Exclusive distributorships such as plaintiff's are permitted by statute (Ill. Rev. Stat. 1983, ch. 43, par. 301 et seq.). Any retailer located within plaintiff's sales territory who wishes to sell Heilman products must purchase them from plaintiff. Plaintiff, in turn, may not sell Heilman products to retailers located outside of its sales territory. Ill. Rev. Stat. 1983, ch. 43, par. 305(5).

Plaintiff has been the exclusive distributor of Heilman products for the past 50 years. Over the past 20 years, plaintiff has maintained a preferential discount system based upon the type of retail operation. Plaintiff divides its 350 retail accounts into three categories: "off-premise" accounts are retailers which sell beer for off-premise consumption such as liquor stores and packaged-goods stores; "on-premise" accounts consist of bars and taverns; and "combo" accounts are retailers which sell beer for both on- and off-premise consumption such as a tavern with an adjoining liquor store.

Under plaintiff's preferential discount system, off-premise retailers are offered larger and more frequent discounts than on-premise retailers. These large discount programs are only offered to off-premise retailers if they agree to both purchase a minimum quantity of beer and engage in "good faith" promotional efforts. Plaintiff broadly defines "good faith" promotional efforts to include such practices as newspaper advertising, in-store advertising or any other activity which might emphasize the discounted item. These discount programs are offered eight or nine times per year and are from one to two weeks in duration.

Two or three times per year plaintiff offered a lesser discount to on-premise retailers. These discounts were not contingent upon a minimum purchase or promotional efforts. On-premise retailers received a discount of $ .50 per case, while off-premise retailers received a $1.10-per-case discount. Retailers who operated combo stores generally received both types of discounts in relation to the percentage of their business which was on-premise and that which was off-premise.

Plaintiff's president, Robert Sharpenter, testified at the hearing before the Commission that he maintains his dual discounting system because of differences in the nature of on-premise and off-premise beer retailing. Sharpenter explained that off-premise retailers compete in a very price-sensitive market so that when discounts are given, they, in turn, lower the price of the item and this lower price, when coupled with promotional efforts, results in substantial increases in sales. Plaintiff therefore receives substantial volume increases by offering these discounts to off-premise retailers. Sharpenter stated that these discounts generate from 2 to 20 times the normal volume of sales. By contrast, Sharpenter explained, beer sales for on-premise consumption is not as price sensitive. On-premise beer consumers are motivated more by product loyalty than by price and, in addition, most brands of beer are sold at standard prices. Consequently, when on-premise retailers receive a discount they do not lower the price or promote the beer and as a result there is no increase in sales. Thus, as Sharpenter testified, "he gets the discount and we only get our normal volume." According to Sharpenter, the purpose of discounts to on-premise retailers is only to create good will.

Individual defendants are all on-premise and combo retailers located within plaintiff's sales territory. Each testified that they had attempted to obtain the greater discount from plaintiff for on-premise sales but were refused. Each stated that they would be willing to buy the minimum quantity and promote the product in order to obtain the greater discount. Several testified that plaintiff was their only distributor who maintained a dual-discount policy based upon the ...

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