Vince O’Brien assists beverage alcohol clients around the world in dealing with the complex regulatory restrictions governing the production, distribution and sale of beer, wine and distilled spirits for Nixon Peabody. His practice is exclusively dedicated to helping vintners, distillers, brewers and importers of beverage alcohol products deal with the maze of international, federal and state laws, rules and regulations applicable to the most regulated consumer products in the world.
The answer is YES – regardless of your size. Keep in mind that franchise protection laws were written as a result of distributor lobbying efforts. They were not written for supplier interests.
A contract is your only form of protection against laws that are designed to protect distributors – not you. In a contract you can establish what you expect of a distributor with regard to payment terms, market coverage, levels of expected performance for total sales, as well as, e.g., by account coverage, cold box placements, and sales by product/brand. You can also request any reports you expect on a timely basis (e.g. depletion reports) and any other issues of importance to you and your business.
In the absence of a contract covering the above points, and many others, your ability to replace a non-performing distributor in a franchise protection law state, without penalty, is slim at best – unless you are willing to pay for the privilege of leaving a distributor that failed to perform for you.
With a contract that spells out expected performance on both sides, a non-performing distributor may be subject to termination for cause – your best exit strategy– depending upon the strength of your contract.
Do you need a contract? YES – ABSOLUTELY.
