Delaware Administrative Code
Title 4 - Alcoholic Beverage Control
Department of Safety and Homeland Security
Office of the Alcoholic Beverage Control Commissioner
900 - Trade Practices for Suppliers, Wholesales, and Retailers
901 - (Formerly Rule 46) A Governing the Contractual Relationships Between Suppliers and Wholesalers for the Distribution of Alcoholic Beverages
Section 901-1.0 - Preamble

Historically, in Delaware the distribution of particular brands of alcoholic beverages has been accomplished through dealings between an out-of-state supplier (i.e., distiller, vintner, brewer, manufacturer, rectifier or other business entity) licensed to supply alcoholic beverages into Delaware and one Delaware wholesaler (also sometimes referred to as an importer or distributor) licensed to sell and distribute alcoholic beverages to Delaware retailers. These exclusive relationships between suppliers and wholesalers have, through the years, proven to be an efficient and economical means of distribution in Delaware. Until recently such exclusive relationships had been utilized to the virtual exclusion of other methods of distribution. Today, exclusivity still remains the preferred method of distribution for the vast majority of brands being sold in Delaware.

Over the years, in reliance on the suppliers' custom and practice of establishing and maintaining exclusive distribution relationships, Delaware wholesalers have made substantial investments of time and money in efforts to promote and sell the suppliers' brands. As early as 1959, the Commissioner realized that some safeguards were necessary to protect wholesalers from arbitrary, discriminatory or otherwise unfair termination of the supplier/wholesaler relationship by national or international suppliers wielding far greater economic power than the local wholesalers. The Commissioner realized then, as the Commissioner does today, that should such abusive practices be permitted to occur, the adverse impact could be felt well beyond the affected wholesaler. As a result of the Commissioner's concerns, the Commissioner promulgated the original version of Rule 46 in 1959. The Rule was substantially revised in 1981 in an effort to provide more detailed criteria to govern the supplier/wholesaler relationship.

It is the Commissioner's view that the Rule has effectively regulated the relationships between out-of-state suppliers and Delaware wholesalers during much of this decade. Nevertheless, because of changes which have been occurring within the industry itself, and because the Commissioner has had several recent opportunities to review the Rule in intricate detail in differing contexts, the Commissioner has become convinced that certain issues must be addressed by means of the promulgation of a new Rule 46.

Specifically, over the last several years the supplier tier of the beverage alcohol industry has experienced widespread consolidation on a national and international scale. In several instances, this phenomenon has had a significant effect on supplier/wholesaler relationships in Delaware. Therefore, Rule 46 is being revised to recognize and address equitably the interests of both parties in such situations.

Another recent change affecting supplier/wholesaler relationships in Delaware has been the interest expressed by several suppliers in implementing systems of "dual distribution" (i.e., distribution of a particular brand or brands of alcoholic beverages by more than one wholesaler in the same geographic area). As a result, Rule 46 is being revised specifically to address issues related to this method of distribution.

Experience has also convinced the Commissioner that Rule 46 should provide suppliers with the ability to terminate an unwanted distribution relationship even in circumstances where the "good cause" requirements of the Rule cannot, be satisfied. Providing this flexibility is necessary in order to allow suppliers to adapt their systems of distribution to changing market conditions or otherwise to respond to legitimate business considerations. Therefore, the Rule is also being revised to allow for the termination or transfer of distribution rights even in those instances where "good cause" does not exist provided that the terminated wholesaler receives reasonable compensation from the supplier in recognition of its efforts to promote and sell the supplier's brands.

Finally, this new Rule attempts to define more clearly the "good cause" criteria which must be satisfied in order to permit the uncompensated termination or transfer of distribution rights from one wholesaler to another.

For the reasons stated and pursuant to the Commissioner's statutory authority, the Commissioner promulgates new Rule 46 in an effort to strike an equitable balance between the sometimes conflicting interests of out-of-state suppliers and Delaware wholesalers, as well as to allow, to the extent practicable, business parties to determine the nature and the extent of their contractual relationships free from governmental intervention. In so doing, the Commissioner intends to further the interests of the State and its people in maintaining a healthy, efficient and competitive alcoholic beverage industry - one in which consumers are assured a wide range of products at reasonable prices.