Max Action Posted February 4, 2015 Share Posted February 4, 2015 We're currently talking to a big distributor and they want a contract with no expiration or renewal date, with our only option of getting out by having to pay a buy-out of 36 months of gross profits. With the state of the industry, they obviously have the advantage in negotiating, and insist they won't budge on the issue and everyone else is agreeing to these same terms. Is that really the case, is anyone else here signing up for a lifetime commitment with a 3 year buy-out? Does anyone else have an opinion on the matter? Link to comment Share on other sites More sharing options...
TetonDistillery Posted February 5, 2015 Share Posted February 5, 2015 That sounds like a crazy contract. I have never had anyone propose such terms to me. We have distribution in more than a dozen states. Does their contract guarantee that they will purchase a certain minimum amount on a regular schedule? Link to comment Share on other sites More sharing options...
Max Action Posted February 5, 2015 Author Share Posted February 5, 2015 No, there is no provision for minimum sales. Although they've verbally reassured us they'll immediately double or triple our sales. On the positive side, they are willing to work with a much lower margin than other distributors. Link to comment Share on other sites More sharing options...
Lucidi Distilling Co Posted February 5, 2015 Share Posted February 5, 2015 That is insane. Sounds like a "lock down" contract. Words are cheap - have them put in writing they will triple your sales, and then run your own numbers and see if that would justify a 36 month buyout. Me? I'd keep looking. You couldn't do anything to get me to sign a contract like that. Link to comment Share on other sites More sharing options...
brokenstraw Posted February 5, 2015 Share Posted February 5, 2015 Relatively new to the forums and to this business. However, I am a licensed attorney in Pennsylvania and New Jersey. I would never allow one of my many business clients to sign an agreement like that. And I certainly wouldn't do it either. Just my $0.02. Good luck! Link to comment Share on other sites More sharing options...
daveflintstone Posted February 5, 2015 Share Posted February 5, 2015 koo koo Link to comment Share on other sites More sharing options...
mattabv Posted February 5, 2015 Share Posted February 5, 2015 No way!!!!!!!!!!!!!!!!!!!!!!!!!!! Link to comment Share on other sites More sharing options...
HedgeBird Posted February 5, 2015 Share Posted February 5, 2015 By any chance does the distributor have a history in beer? Link to comment Share on other sites More sharing options...
leftturndistilling Posted February 5, 2015 Share Posted February 5, 2015 That's the way it works in New Mexico .. We have whats called a "franchise" state ... Which means that you get to pick your wholesaler but once you do they basically own your brands indefinitely !!! The state actually provides the contract language so really there is no written contract ... And the states franchise agreement favors the wholesaler ... Classic good old boy government, but we have no other choice on the retail end here .... Link to comment Share on other sites More sharing options...
jeffw Posted February 5, 2015 Share Posted February 5, 2015 For a franchise state that might not be so bad then. Some states you can leave the state for a couple/few years to get out of your agreement which seems more reasonable than agreeing to give them 3 years gross. Link to comment Share on other sites More sharing options...
Max Action Posted February 5, 2015 Author Share Posted February 5, 2015 It's not a franchise state, and not beer distributor. It's one of the top 20 spirits distributors in the country. We turned down an offer a couple years ago from a big competitor (who only wanted to carry one of our products) and their contract called for just a 6 month buy-out. I do believe the current distributor when they say their position is non-negotiable and that their other new clients are agreeing to the same terms. I also believe them when they tell us we should feel lucky they're willing to take our product, as they constantly turn down other brands they say would love a chance to work with them at any cost. I think it's unfortunately the result of so many new brands coming on the market in the last couple years competing for the attention of so few distributors that dominate the market. We're still undecided, but might have no other choice if we really want to make a big expansion (at the price point we want). Link to comment Share on other sites More sharing options...
TetonDistillery Posted February 5, 2015 Share Posted February 5, 2015 The 36 months of profits buyout is what is so bizarre. There are so many ways to make that number artificially higher or lower. You are going to get screwed there. I can guarantee it. Link to comment Share on other sites More sharing options...
Max Action Posted February 5, 2015 Author Share Posted February 5, 2015 I've had some good conversations with the assistants to the executives in charge of negotiating the terms, and they've been a bit more candid and said that generally if a brand is unhappy or isn't performing to everyone's satisfaction they'll generally release them from the contract without much hassle. The main benefit for them of the big buy-out is if the brand does really well and gets bought out by a big company, it then ensures the distributor gets to retain the business or at least get a piece of the buy-out. Of course with such a large penalty, that would obviously negatively impact the price a big company would be willing to offer us, assuming we even wanted to sell. Then there's the issue were the brand just does ok, maybe meeting their expectations but not ours, in which case we wouldn't have many options. Link to comment Share on other sites More sharing options...
daveflintstone Posted February 6, 2015 Share Posted February 6, 2015 ohhh, well that's alright then, wink wink we'll let you out of the contract no problemo if you're not happy, JUST SIGN RIGHT HERE RIGHT NOW, HURRY THIS OFFER WON'T LAST LONG! That has got to be the worst distributor deal I have ever heard of. And they sound like bullshitters to boot. Why have the terms in there if they will readily ignore them? Distributors make money by taking orders and delivering products. More products, more orders. Any distributor who claims they're doing you a favor by delivering your product for a 35% margin is, quite frankly, an asshole. By and large they will not sell your product, they will take orders. You are not getting a sales force, you are getting delivery trucks. FYI it is not uncommon for distributors with contracts to buy product and sit on it, secure that no one else will sell your products and cut into their quotas with the big guys. btw, the state of the industry is that craft produced spirits are booming and in demand, not that there's too many around. *This doesn't apply to vodka marketing brands. Link to comment Share on other sites More sharing options...
Skaalvenn Posted February 6, 2015 Share Posted February 6, 2015 ohhh, well that's alright then, wink wink we'll let you out of the contract no problemo if you're not happy, JUST SIGN RIGHT HERE RIGHT NOW, HURRY THIS OFFER WON'T LAST LONG! That has got to be the worst distributor deal I have ever heard of. And they sound like bullshitters to boot. Why have the terms in there if they will readily ignore them? Distributors make money by taking orders and delivering products. More products, more orders. Any distributor who claims they're doing you a favor by delivering your product for a 35% margin is, quite frankly, an asshole. By and large they will not sell your product, they will take orders. You are not getting a sales force, you are getting delivery trucks. FYI it is not uncommon for distributors with contracts to buy product and sit on it, secure that no one else will sell your products and cut into their quotas with the big guys. btw, the state of the industry is that craft produced spirits are booming and in demand, not that there's too many around. *This doesn't apply to vodka marketing brands. I have to agree. The "good conversations with the assistants to the executives" won't mean diddily if things go sour and they have a legally binding contract which states "we own your soul" and your signature at the end. It sounds shady and I'd strongly reconsider any dealings with that company. If you do decide to go ahead with it I'd strongly suggest having a competent attorney go over the contract before you sign it. Link to comment Share on other sites More sharing options...
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