A wine exhibition in Beijing. (File photo/Xinhua)
US spirit and wine company Brown-Forman has been accused of illegally subsidizing distributors in China and delaying payments to them.
It is the second time that the US company has been found using the subsidies as a measure to boost its sales in bars and nightclubs. Brown-Forman asked its distributors to provide subsidies to these stores to encourage them to sell its spirits and wines, a business measure that is considered illegal in China.
The Shanghai Administration for Industry & Commerce slapped a 2 million yuan (US$320,000) fine on the US company last year for the illegal subsidies. Brown-Forman said it will not use the same measure again and paid the fine in full in February this year, according to Shanghai's First Financial Daily.
The amount of subsidies Brown-Forman offered this time was said to be higher than the figure in previous accusations, an employee of the company told the media. However, a member of the firm's staff contacted by the First Financial Daily refused to be interviewed and the Shanghai administration's PR department also said it was not familiar with the case.
A distributor, however, told the newspaper that the US company offered illegal subsidies to stores as a way to encourage them to sell its products. The production cost of a bottle of Jack Daniel's is around 52 yuan (US$8.30) but Brown-Forman sold it to the distributor for 105 yuan (US$16.80) per bottle. The price went up to 200 yuan (US$32) per bottle at bars and nightclubs. The US company gave stores 100 yuan (US$16) per bottle that they sold, according to the First Financial Daily.
The sources said Brown-Forman asked distributors to pay for the subsidies and the cost of recycling empty bottles in advance and promised to reimburse them within 30 working days. However, many distributors have not received their payments so far and have resorted to legal action.
Shanghai-based AllBright Law Office said the US companies owed 3.32 million yuan (US$531,000) to distributors in total. Brown-Forman promised to offer subsidies if its goods sold in stores exceeded a certain figure, according to their contracts. However, it also requested distributors and stores not to leave any traces of the subsidies in their account books and receipts, according to the newspaper.
A lawyer with the law firm said many distributors in Shenzhen, Guangzhou, Chongqing, Chengdu and Tianjin have not received Brown-Forman's reimbursements and the amount of money involved could reach ten of million of yuan. However, they can not press charges against the US firm since they signed a contract with its China division and agency.
They may still be able to prove that the company delayed payments.