The Federal Trade Commission sued the largest U.S. distributor of wine and spirits on Thursday, saying it is illegally discriminating against small and independent businesses.

Southern Glazer's Wine and Spirits doesn't give small and independent stores access to discounts and rebates that larger chains receive, putting the smaller stores at a competitive disadvantage, the FTC alleged in the lawsuit it filed in California.

"When local businesses get squeezed because of unfair pricing practices that favor large chains, Americans see fewer choices and pay higher prices--and communities suffer," FTC Chair Lina Khan said in a statement.

Miami-based Southern Glazer's called the lawsuit "both misguided and legally flawed."

"Alcohol distributors face numerous regulations that dictate how they compete and can price and discount products, and Southern Glazer's complies with those legal requirements," the company said. "Southern Glazer's strongly disputes the FTC's allegations and will defend itself vigorously in this litigation."

Southern Glazer's is one of the largest privately held companies in the U.S., with $26 billion in revenue from wine and spirits sales to retail customers in 2023, according to the FTC. It operates in 44 states and serves commercial customers such as Total Wine and Kroger.

According to the FTC, Southern Glazer's has repeatedly offered quantity discounts and rebates to large buyers that aren't justified by the difference in the costs of distributing products to different retailers.

Southern Glazer's also doesn't inform smaller retailers about quantity discounts, rebates and other special offers available to larger chains even when smaller stores could participate in the deals, the FTC alleged.