Distribution Agreements & Alternating Proprietorship Agreements

Distribution Agreements

Expanding into a new market is an exciting venture. Obtaining distribution representation can be both rewarding and stressful. 

Many distributors will provide suppliers with a lengthy agreement outlining the conditions of the relationship, often including terms that are vague or one-sided. While it may be tempting to sign paperwork to move forward with the commercial relationship, beverage companies should understand the risks associated with signing agreements. Some pain points may include, but are no way limited, to the following:

• Asymmetrical clauses (termination, liability, insurance, etc.)
• Rights of first refusal and exclusivity
• Lack of targets and other KPIs
• Cost shifting obligations and hidden charges
• Missing annual reviews and go-to market strategies and/or revisions of price points
• Franchise laws (typically state specific) 
• Termination with or without “good cause” or similar phrases and how the applicable statute defines “good cause”
• Notice requirements when terminating a distribution partner
• Calculation of fair market value
• Insurance requirements

And once you sign, you may be locked in.  The relationships between the three tiers of the alcohol beverage industry are so heavily regulated that in some states you may need government pre-approval to exit a relationship with a distributor. 

Lindsey Zahn P.C. understands that these are critical considerations for your business and will work with you to identify the legal pros and cons inherent in every agreement.

Alternating Proprietorship Agreements

Entering into an alternating proprietorship relationship can be a promising way for a new winery, brewery, or distillery to grow market share without the corresponding investment in equipment and production space. 

But there are risks. What happens if the relationship falls apart? What are the exit terms? How often can a tenant in the relationship access the property (and when)? Who is responsible for equipment maintenance and/or failure? Who bears the liability for spoiled products and/or ingredients? Which party is responsible for obtaining the ingredients? Does the tenant have the right to use the host’s employees? Does your partner have the requisite licenses and insurance? Are other third parties using the space as well? These are important considerations to think through at the negotiation stage. 

Distribution Agreements and Alternating Proprietorship Agreements: Services

Whether you’re about to enter your first distribution agreement or are in need of an alternating proprietorship agreement, Lindsey Zahn P.C. is ready to provide meaningful, practical advice.  Among many other services, the firm can assist you with the following:

• Reviewing distribution agreements
• Drafting distribution agreements
• Reviewing proposed alternating proprietorship agreements, including those provided by a potential distillery host
• Drafting alternating proprietorship agreements for submission to TTB, including as part of an original DSP permit application or an amended DSP permit application
• Providing training sessions to educate your team on the terms, conditions, risk, and limitations of an alternating proprietorship arrangement

Recent Representations

Some recent representations include: 

• Negotiated a national distribution agreement for wine and distilled spirits and advised on go-to market strategies
• Drafted an alternating proprietorship agreement for a distillery seeking to rent space and equipment from a pre-existing distillery
• Counseled a beer supplier on state-specific franchise laws and potential termination outlets
• Advised a supplier on the risks and gaps of a statewide distribution agreement provided by a potential distributor partner

For more information about how Lindsey Zahn P.C. can help your company, please contact us at lindsey@zahnlawpc.com.

Prior results do not guarantee a similar outcome.