Page 2: Distribution Territories (clarification)
There are a few small areas scattered throughout the nation where more than one distributing entity can carry the same brand of alcoholic beverage. This is by far the exception to the rule, and from what I understand it can be a confusing, frustrating and stressful situation. Washington DC and Los Angeles apparently both have examples of this kind of overlap. There may be others.
Although it is standard to define territories by county, it is quite common to delineate the boundaries of the territory by major highways or other means. It’s also useful to know that a territory can be broken down to portions of streets or by specific addresses if needed.
The historical boundaries between territories can be quite complicated, and often has been handed down from verbal agreements or has been determined by splitting up a larger territory into sections in a manner that was agreed upon at that time…and doesn’t make a whole lot of sense now. History combines with growth in a convoluted way sometimes. However, when you file your distribution approval formally at the state level, you will need to be very specific about the boundaries of the territories that you are granting the distributor.
Distributing on a Trial Basis
When interviewing potential distributors, beware of offers to distribute your brand on a trial basis without a contract. You must file paperwork on the state level to authorize any distribution, and this authorization plus your permission for them to carry your products – even for a limited time – may be argued to be a verbal or implied contract. This implied contract may then be subject to franchise law, and you may not be able to leave this distributor even if you’re not happy during the trial period. There are a lot of possibilities here, and many of them are scary. It’s best to avoid this scenario and let the potential distributor know that you’re comfortable making your decision on the basis of riding with their drivers and sales reps, learning about how they handle the market, visiting with retailers, and discussing their strategy for handling your brand on paper.
A new brand of distributor is surfacing as craft beer is growing. This is the super-sized distributor with the craft beer division, usually with original roots in Anheuser-Busch or Miller-Coors volume driven distribution. The unusual growth that these distributors are allowing or targeting in the craft beer division has earned them the term “Mega Distributors”. The advantages to large distributors with a craft beer division are many, as discussed in the book.
However, these Mega distributors have such enormous portfolios of craft brands that mindshare of the sales rep is nearly impossible and breweries are being told simply that they must generate their own growth and be responsible for their own marketing/advertising in the distributor’s territory. Beware, especially if you are a small brand looking to get started in an area that isn’t familiar with your products. You must have unique specialty products in order to succeed in this environment, and even then it’s going to require a substantial time and marketing investment that you might not otherwise have chosen to make.
Another warning here: Many of these Mega distributors are pursuing the rights to as many craft brands as they can get their hands on in their territory simply so their competitors can’t have them. They don’t really have any interest in representing them or building their brands. They’re just collecting them, and often their state franchise laws will make it difficult to escape this kind of situation if you find yourself stuck in it. Bottom line here: Do not sign a distribution contract without researching both the contract and the franchise laws thoroughly and with the help of an attorney. This is becoming more and more important. Good faith simply doesn’t hold water when you get to court.