Craft Debate Revisited: Consumers and Lawyers

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Further thoughts on the craft subject

Last March, I wrote about Craft Confusion and this past week two interesting pieces of information have come to my attention.

The first was a webinar co-sponsored by the law firms of Locke Lord, experienced in defending consumer products companies in class action lawsuits and Lehrman Beverage Law, a law firm specializing in the alcohol industry labeling and regulation.

A day later Wine and Spirits Daily reported two surveys on the topic – among its readers (industry leaders) and among 2,000 consumers via a survey conducted by Nielsen.

Both of these have had an impact on my view of the topic.

The Lawyers

In a webinar entitled, Spirits Industry Under Fire, Tom Cunningham and Simon Fleischman of Locke Lord and Robert Lehrman of Lehrman Beverage Law discussed what the flood of class action lawsuits are about, why they are filed, who the targets are and why. (Here is the full discussion.)

My takeaway is as follows.

Blame the bottom feeding plaintiff attorneys. As you can see in the report from Locke Lord, the filing of one case creates a “herd mentality” with copycat suits following. It started with Skinny Girl, largely because the label used the phrase “all natural” and that ambiguity was enough to generate a lawsuit. From there it became an epidemic with more than a half dozen other suits including Tito’s, Templeton and others. Follow the money.

According to Locke Lord:

Plaintiffs’ class action attorneys by and large don’t care whether your product is truly “handmade” or made in “small batches” or is “craft.” They trade in what is essentially blackmail and terrorism. If they have a basis for alleging that your product is not what you claim it to be, even if you fervently believe that it is, they will sue you. Very few cases go to trial. Especially class action cases, which can easily kill a company. They have the power to put you out of business simply by making a claim. Therefore, you are likely to pay them to simply drop their claim, even if it’s bogus.

In other words these attorneys are hoping for a payday in a settlement that includes their fees. The best example of this shame is that they use “professional plaintiffs.” Thomas Zimmerman is a class action attorney in Chicago, often referred to as the city that is the home of “numerous notorious plaintiff’s’ class action attorneys.”

It turns out that Zimmerman represents Mario Aliano and Mr. Aliano’s restaurant, Due Fratelli. Aliano and his restaurant claim to have purchased a number of different brands of liquors – both for personal consumption as well as for resale in the restaurant. So the ambiguity or other issues regarding marketing and labeling was enough for these folks to sue Templeton, Whistlepig, Angel’s Envy and Tin Cup on behalf of Aliano and Due Fratelli.

Does this sound to you like consumers or retailers who need to seek redress because they were deceived?

According to Locke Lord,

“Mr. Aliano and his restaurants are what we call “serial plaintiffs;” they act as Zimmerman’s plaintiffs and class representatives in numerous class actions and generally receive an incentive award of a few thousand dollars in the resulting settlements. In terms of sheer number of cases, Zimmerman is the leader.”

Until the US adopts a legal system involving a “loser pays” rule, class action suits will hurt all businesses. That’s a rule in many countries whereby the party who loses in court pays the other party’s attorney’s fees. Read this recent article in the Wall Street Journal.

The other solution involves labeling

Robert Lehrman offers some explanations and sound advice.

First, the fact that the Alcohol and Tobacco Tax and Trade Bureau (TTB) approved the label at the Federal level is not a so-called “safe harbor.” The TTB has the tools necessary to control anything “misleading” but does not enforce it and “risks being a bystander and ceding much power to the courts and private litigants.”

My interpretation – the TTB needs to “man up” and either become an agency protecting consumers who drink alcohol products or fold the tent and let another government entity do it.

The other answers involve substantiation of claims, transparency, revisiting marketing and above all (in my view) certification. If I were running a small batch production brand I would want the American Distilling Institute or American Craft Spirits Association seal on my label. In that way I would expect to reassure my consumers and hopefully also use it as shark repellant.

The Consumer

Wine and Spirits Daily asked consumers (through a Nielsen survey) “Which of the following are the top 3 terms you associate with the word ‘craft’ as it relates to alcohol beverage products?” This was the list of choices:

  • produced locally
  • handcrafted
  • environmentally responsible
  • small, independent company
  • artisanal
  • higher priced
  • small batch production
  • superb quality
  • healthy alternative
  • highest ethical standards

The top five consumer results: 1) small, independent company 2) small batch production 3) handcrafted 4) produced locally 5) artisanal.

The same question was posed to their readers (industry professionals) who were asked to predict what terms they thought consumers would use. The answers were fairly close – 1) small batch production 2) artisanal 3) small, independent company 4) handcrafted 5) superb quality.

Even more interesting, Nielsen asked about the influence of craft. “Which of the following describes how you feel when you hear an alcoholic beverage described as Craft? More interested, less interested or doesn’t influence purchase decision.

A third of all consumers surveyed said hearing something described as craft does make them more interested. BUT, nearly 50% of millennial males (21 to 34 years old) felt the same way.

Putting these two pieces together…

The consumer is not stupid. The WSD survey tells me that some don’t care about craft alcohol products and, among those who do, they have a strong idea as to whether the use of the term is genuine, marketing hype, or even outright deception.

Above all, I don’t think we need to waste the time of the courts with serial lawsuits and bogus plaintiffs just so a few attorneys can get a payday.

Like I said, there are other solutions.

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Craft Confusion

When is the term ‘craft’ authentic and when is it marketing hype?

Craft StillThe spirits industry has seen amazing growth of craft distillers and brands. The Distilled Spirits Council of the US (DISCUS) has reported that there are nearly 730 “small” distilleries producing 3.5 million cases in 2014 (up from 700,000 in 2010) and with revenues of nearly half a billion dollars.

This craft spirits development is here to stay based on a number of factors including the interest in whiskies of all types; consumer trends regarding connoisseurship, craftsmanship and artisanal products in general; the focus on ingredients, process, and the distiller; and, attention to what’s in the bottle.

There are other forces at play here, particularly the rejection of mass-produced products in favor of small batches and hand crafted. A phenomenon affecting all consumer businesses from packaged goods to durables.

So it’s not surprising that the power of the words, “craft” “handmade” “small batch” would be adopted by large brands and used despite the intent of these words. When a brand sells hundreds of thousands or millions of cases, one needs to wonder whether the use of these words is marketing hype (as in “smooth”) or outright fraud. At the same time, there are also small distillers jumping on the bandwagon without the real credentials.

The lawsuits

The best and most succinct coverage of what is going on is to be found in the Feb 16, 2015 edition of Wine & Spirits Daily, under the headline, Truth Squad Discusses Transparency in Labeling Lawsuits. The “Truth Squad” is a panel of WSD readers (manufacturers and wholesalers) who express their professional views on a range of issues affecting the wine and spirits businesses.

There are a number of cases involving court action related to labeling:

  1. Templeton Rye was sued for claiming it was made in Templeton, Iowa when in fact it is made in a large multi-brand distillery. The implication was that the brand was a small batch product. They have since revised their label.
  2. Tito’s Vodka is being sued in California and Florida for the label claim that it is handmade as in, Tito’s Handmade Vodka. At roughly a million cases, how can you call yourself handmade? Unless, of course, you count turning on
    Tito's label
    Tito’s label

    the lights as part of the process.

  3. Maker’s Mark is also being sued for claims related to “handmade.” According to USA Today, “The lawsuit…accused the distillery of deceptive advertising and business practices with its “handmade” promotion on the labels of its bottles, known for their distinctive red-wax seal.” I know that they hand dip each bottle in the wax but can you totally hand make 1.3 million cases?
Maker's Mark
Maker’s Mark

Don’t get me wrong… I think these are outstanding, well-made products. I’m a fan of each of them but the words in question are not marketing hype words like “smooth” or “premium.” To many people, the misuse of these words appears to be deceitful.

Enter the Truth Squad

One member thinks too much is being made of this issue and suggests that the consumer doesn’t know or care. Maybe. But, how about the genuine small batch or craft distiller who has invested their life savings in a distillery and whose livelihood depends on it?

Another view was that it’s the lawyers “who make a fortune” with spurious lawsuits that are behind it all. Perhaps. People who are looking for the real deal deserve not to be cheated with misleading claims. And, if the regulatory people won’t deal with it, then the courts should.

A distributor executive put it nicely when he/she said,

“I think that the average consumer feels better about purchasing something with the perceived or real support to a small company, and dislike it when they find out it’s just part of a huge corporation. It would be…like someone buying… produce at a big box store, and then taking it to the Farmer’s Market on a Saturday wearing overalls, and making money on the perception that they are a farmer.”

What’s the answer?

Simply put, there needs to be a standard by which those using of the word ‘craft’ (and related phrases) are held accountable. Don’t expect the alcohol governing body (TTB) to do it. Even if they were so inclined, they don’t have the resources to police these types of label claims. For the same reasons, forget about the Federal Trade Commission.

I think the craft distillers associations like American Distilling Institute or American Craft Spirits Association should tackle this but, for whatever reason, seem to be disinclined to take a stand.

But, a fledgling craft organization seems more than willing to provide a solution.

Robert Lehrman, an alcohol industry attorney (Lehrman Beverage Law) together with a number of craft distillers has formed the Craft Beverage Association and its mission is to tackle this subject. This is from their (in development) website:

The Association was formed to try to find a way to set standards for the seemingly simple, yet hitherto amorphous and elusive — but fundamentally important term: craft.”

What they have in mind is analogous to the Good Housekeeping Seal of Approval or the Certified Organic Label. Their mission is: “To set craft standards for beer, wine and spirits, in a fair, modern, flexible, enforceable way, so the term can be filled with meaning and saved from abuse, for the benefit of consumers and craft beverage producers everywhere.

*     *     *

There’s a major shift occurring in the beer and spirits industries and it’s called craft and/or handmade and/or small batch. Large manufacturers have lots of options as to how to deal with this growing consumer interest. They can ignore it and present the merits of their brands as is. They can attack it, like Budweiser’s advertising. Or, they can buy legitimate craft-made brands, then screw it up, again like Budweiser. But to co-opt or misuse these terms is just plain wrong.

I prefer the industry to clean its own house but, until then, I guess we’ll continue to make the lawyers rich.

 

Handcrafted Sorel --  Jack From Brooklyn.
Handcrafted Sorel — Jack From Brooklyn.
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