LOUISVILLE, Ky. (WDRB) -- Liquor wholesale giant Republic National Distributing Co. shot back at Buffalo Trace owner Sazerac Co., arguing in a countersuit that Sazerac's distribution problems are the result of its own ill-conceived plan to boost profits by circumventing the three-tier system governing the U.S. alcohol industry.
RNDC's court filing, dated Friday, deepens the acrimonious and unusually public feud between two of the largest privately owned players in the spirits industry.
Sazerac is the maker of Fireball Cinnamon Whiskey as well as some of the world's most sought-after bourbons, including Blanton's and Pappy Van Winkle. RNDC is a national distributor with territory in 38 states.
Sazerac and RNDC had been business partners for decades — RNDC claims it "served as Sazerac's distributor of choice across the country" — until their relationship fell apart late last year, according to court filings.
The fight erupted in January, when Sazerac announced it was cutting ties with RNDC in about 30 states and then sued RNDC in federal court in Louisville, saying the distributor's performance had deteriorated and that RNDC owed Sazerac $38 million and counting.
RNDC stayed silent until Friday's court response, in which it rejected Sazerac's claims and asserted that it is in fact Sazerac which owes tens of millions of dollars.
"The relationship between RNDC and Sazerac thrived for decades but has been torn apart by Sazerac's two-plus year effort to strip RNDC of its distributor role and circumvent the three-tier system that has helped make this industry so successful," RNDC said in the court filing.
The lawsuit, closely watched in the bourbon world, provides a rare window into the relationship between two of the industry's biggest private players.
Texas-based RNDC, cobbled together by dozens of acquisitions over the last few decades, is the second-largest wine and spirits distributor in the country behind Southern Glazers, with estimated revenues of $13 billion in 2022, according to Shanken's Impact Newsletter, which tracks the industry.
Meanwhile, Sazerac — a Louisiana company with a corporate office in Louisville — is the No. 2 spirits supplier by volume in the U.S. as of 2021, according to Shanken's Impact Databank.
RNDC and Sazerac each declined to comment, spokespeople said Monday.
Brian Haara, a Louisville attorney and the author of "Bourbon Justice: How Whiskey Law Shaped America," said the fact that the Sazerac-RNDC saga landed in federal court speaks to the depths of the companies' feud.
Normally, companies are loathe to expose their private business disputes in court, he said.
"I don't think either side wants this to be a public affair," he said.
RNDC: Sazerac 'circumvents' three-tier system
In the United States, alcohol producers like Sazerac are required to sell their products to distributors such as RNDC, who act as middlemen between breweries and distilleries and their ultimate customers, such as bars, restaurants and liquor stores.
The system, which emerged in the wake of Prohibition, generally forbids suppliers like Sazerac from having say over the prices that retailers pay for their products.
Sazerac claimed in January that it had to spend $100 million to create its own "marketing force" because RNDC was not living up to its obligations to sell Sazerac products.
But, according to RNDC, it was Sazerac who insisted on a short-sighted approach that fundamentally challenges the division of roles in the three-tier system.
In RNDC's telling, Sazerac since 2021 has pursued a plan to take over many of the sales and marketing functions traditionally handled by distributors, while relegating RNDC and its competitors to a diminished role as "four wheels and a truck." In other words, low-paid transporters of the products.
RNDC alleges that Sazerac's plan was not only destined to fail, but contrary to the laws of many states, including Kentucky.
In 2021, Sazerac imposed new terms on RNDC which greatly cut the distributor's profits for selling Sazerac products, according to RNDC. RNDC would be entitled to a flat $8.50 per case sold, according to RNDC's countersuit.
Sazerac promised that it would also reduce RNDC's expenses by hiring "market development representatives" and "market development managers" who would assume much of RNDC's work dealing with liquor stores and restaurants.
"Though Sazerac had promised that RNDC would do less work for less money, in many instances, RNDC was doing the same work while earning far less money, all while the few (marketing) personnel Sazerac had hired were potentially violating various states' laws," RNDC says in the countersuit.
The fact that Sazerac continues to employ "market development" people even after severing ties with RNDC shows that Sazerac wasn't merely trying to make up for RNDC's shortcomings, but playing a longer game, according to RNDC.
Sazerac's goal, according to RNDC, is to "strip all its distributors—not just RNDC—of their typical and, in many states, legally mandated distributor functions regardless of performance."
Meanwhile, Sazerac also interfered with RNDC's ability to offload Sazerac products that RNDC still possessed after the companies split — by discouraging replacement distributors from buying from RNDC and "inundate(ing)" those new distributors with fresh Sazerac product, RNDC alleges.
The relationship between the two companies was so cozy that Sazerac had the ability to order its own products on RNDC's behalf, and in the last four months of 2022, Sazerac "saddled" RNDC with more than $552 million in inventory, according to the lawsuit.
