Diageo is suing its principal Missouri wines and spirits distributor Major Brands, alleging ‘unacceptable’ performance, but Major CEO Susan McCollum insists her firm has a long record of 'outstanding performance' with the drink's giant's brands.
Speaking to BeverageDaily.com this afternoon, Major Brands CEO, Susan McCollum, said the firm did not want to comment on the litigation, but said her firm had been "blindsided by the lawsuit, especially given our multi-generation long relationship with Diageo".
"We've been carrying the Diageo brands for generations, and we have an equally long record of outstanding performance as their distributor in Missouri. Even after the termination, Diageo has said that Major Brands remains the most respected distributor in the state of Missouri," she said.
In a March 6 complaint filed in the US District Court District of Connecticut, Diageo Americas said it had given Major Brands notice that it planned to end their distribution agreement as of June 30.
Diageo said it expected Major Brands to challenge the validity of the termination, as the latter did earlier this year with Pernod Ricard USA, with Major claiming this would violate the Missouri Franchise Act because “suppliers can terminate liquor distribution agreements only with good cause”.
Pernod Ricard argues in a January 17 complaint filed in Missouri that it can exit distribution deals with both Major and rival Glazer’s, since neither involved a franchise agreement under the above act.
Diageo claims the same thing in relation to its contracts with Major, and seeks a court declaration that it (1) has contractual right to terminate the agreement on June 30, and (2) to ensure Major Brands did not retain rights to distribute or selling Diageo drinks thereafter.
‘Major Brands acts solely in its own interest’: Diageo
Thirdly, in its complaint signed by law firms Day Pitney and McDermott Will & Emery, Diageo also seeks a declaration that Major breached distribution contracts, and desires further damages upon this basis.
“The quality of Major Brand’s performance on behalf of Diageo, and the business relationship between Diageo and Major Brands, are unacceptable,” Diageo says in its complaint.
“Major brands profits substantially from selling Diageo’s products, but fails to devote even close to equivalent resources to the promotion and sale of Diageo’s products.
“Far from acting in a collaborative way consistent with a community of interest, Major Brands acts solely in its own interest,” the drink’s giant adds.
Diageo said that Major Brands distributed around 86% of its Missouri spirits and wine portfolio in by nine-liter case volumes, with Glazer’s Midwest picking-up the balance.
The UK-headquartered firm's spirits and wines represented around 32% of Major Brands’ portfolio in these categories, the court said, but (with beer and non-alcoholic drinks included) under 25% of Major's total business.
As of July 1 2013 – when Diageo gives up the right to supply Jose Cuervo tequilas, cocktails – these numbers will fall to 27% and 21% respectively.
‘Regularly acts adversely to Diageo’s interests’, suit claims…
But Diageo claims that Major Brands spends “substantially less” than 25% of employee time, advertising funds and promotion dollars on Diageo products, even using Diageo-derived resources to subsidize its costs and promote products from rival suppliers.
Diageo also alleges that Major “regularly ignores or rejects” suggestions on how to best sell Diageo products: Captain Morgan rum, Smirnoff Vodka, Seagram's 7 whiskey.
Major has no incentive to improve performance, Diageo claims, since it also sells rival drinks such as Absolut Vodka (Pernod Ricard) Sailor Jerry Rum (William Grant & Sons) and Jim Beam Whiskey (Beam Inc.)
Since Major Brands wanted customers to purchase products of all of its suppliers, the firm did not have predominantly common interests with Diageo, the latter claims.
“To the contrary, Major Brands regularly acts adversely to Diageo’s interests,” the firm said, adding that it Major even refused a request made on fairness grounds to better resource Diageo's portfolio.
Major Brands is Missouri’s highest volume alcohol distributor; acting as a distributor for hundreds of producers and suppliers of brands it carries 5000+ products and employs 700+ staff.