Ep. 474 Steve Raye U.S. Market-Ready | Contracts Part 1.

Thanks for tuning in. I'm Steve Ray, author of How To Get US Market Ready. And in this podcast, I'm going to share with you some of the lessons I've learned from thirty years in the wine and spirits business, helping brands enter and grow in the US market. I've heard it said that experience is what you get when you don't get what you want. My goal with the book and this podcast is to share my experience and the lessons learned from it with you so you can apply those lessons and be successful in America. So let's get into it. Hi. This is Steve Ray. And this week, we're gonna be talking about importer and distributor contracts and agreements. Does this sound familiar? I have an importer in the US, but they're not returning my calls. They pay late, and they don't provide me with any information on how or where the product is selling. What can I do? And oh, by the way, can yelp me find a new importer? Well, that's an example of a common position supplier's find themselves in beginning a relationship based on the perception that they are negotiating from a position of subordination or inferiority and have to accept whatever terms the importer sets. I can remember one case where a supplier actually wrote a solicitation email to prospective importers saying they were, quote, desperate to find a new importer. Not a good idea. So as we go through this section, I'd like to, have you start with this thought and keep it in mind. The simple fact is that if someone is negotiating with you, you are on an even playing field. And it's important to remember that. You're not negotiating from a position of inferiority. You are on an even playing field. The purpose of this chapter is not to counsel readers on how to become better negotiators nor is it to be considered legal counsel of any kind. Rather our goal is to give you a sense of the range of issues that can be negotiated so you can then prioritize them for what's important to you. Once you've categorized the issues, you can then think through each and determine an entry or initial offer and a walk away point. The absolute worst mistake people make, and it happens all the time in negotiating, is to wing it. And by that, I mean, figure it out at the time it comes up. It's no surprise then that they end up with bad deals, like the opening quote, in this chapter. So I present the following issues, criteria, and stuff that may come up in a contract negotiation. You don't need to include or negotiate all of these terms, but knowing that they might come up and having thought through them puts you on a more even playing field than even the heaviest and most experienced negotiators. We're going to go over a lot of, details and technical terms. So I'm glad that you're listening to the podcast, but I think you might find it very, very helpful to actually have a hard copy or, electronic copy of the book. At hand when you're listening to this section. In the book, we have a picture of Ben Franklin on this page, and that's because he said by failing to prepare, you are preparing to fail. And I find if you're looking to differentiate yourself in this market, learning and understanding all the things that I talk about in this paragraph can set you apart from everybody else in a good way. So the section below is an overview of issues, terms, definitions, and caveats, from a layman's perspective. And let me be clear. I absolutely urge that anyone involved in negotiating agreements or contracts, whether they're with importers, distributors, brokers, whatever, get counsel from an industry experienced attorney. Do not try and save a couple of bucks and do it on your own. Chances are it's gonna be a problem in the future. Oh, and related to the question about changing importers in the beginning of this chapter. Our point of view is that it is always better to try and resolve problems with your existing importer than to look for a new one. For one thing, changing importers is fraught with issues from use up agreements, warehousing costs, labels, and the inevitable loss of business inherent in any transition. For another, there's no guarantee that you're not trading the devil you know for the one you don't. So if you're having troubles with your importer or distributor, the first place to start is to get it out on the table and be discussing it. So let's start with the first question. Do I need a contract? And the answer is, maybe not. Often, a simple agreement that's written down or equivalently stated in an email will suffice. The important thing is to have a record of what was discussed and agreed upon. Both sides tend to start out as friends in the beginning conversations but the real value of an agreement or contract comes when one of the parties thinks it has been violated. And in that case, it's much easier to deal with a written document than someone's memory. So why do I need a contractor agreement? The simple answer is to keep you out of trouble. What may seem simple to you is complicated by the fact that there are fifty two different regulatory entities in the US, the fifty states plus two counties that operate. Separately. And each one has its own unique issues, and what is legal in one may be illegal in another. And in the US, ignorance is not an excuse for breaking the law. The second reason is, as to why you need a contract because or an agreement. It makes it clear to everyone involved and everyone who comes in later exactly what was agreed to, including deliverables, timing, performance metrics, etcetera. Again, I I can't stress this highly enough. You may not be the board manager at a a time when the contract comes up, and no one's gonna remember what was discussed. If it's in writing, you can point back to something that's a fact. Then what's the difference between a contract and an agreement? Well, like I said in the beginning, I'm not a lawyer. So don't sue me if I get this wrong. But simply stated, my understanding is a contract is a legally binding document. An agreement, a letter of intent, LOI, memorandum of of understanding m o u, a term sheet to discussion paper, etcetera, are all terms, and they are generally not legally binding. Think of them as a gentleman's agreement, but not necessarily legally enforceable. Notice the qualification there. In many states, it's a gray area. So, Steve, if a written agreement isn't legally binding, then what is its real value to me? And the simple answer is, so nobody has to remember what they said and agreed to. What are the major items I should plan to negotiate in an agreement or contract? And I'm gonna give you a list here. I'm trying to go slowly. And, if you're driving, you might wanna pull over to the side of the road and take out a pen and paper because, it it's a long, but very, important list. And again, these are the major issues I recommend that you think about, we're gonna get to the minor ones a little bit later. Things that you need to think about and or negotiate and or include in an agreement or a contract. Brand ownership and rights to the name, trademark and trade dress, the right to sell parallel products, formula ownership and rights. Territory exclusivity and what it covers. The rights to sell direct to consumer, direct to trade, via a wine club or other non traditional three tier system channels. Production commitments and guarantees. Production issues costs, liquid, bottles, labels, reshipers, compliance, and responsibilities, meaning legal compliance, marketing and promotional responsibilities, services, and costs. This is one that often, people make assumptions that the importer is going to be doing all this, promotional work where the distributor is doing it. And in fact, it was never agreed to in the beginning, and so you're kind of behind the eight ball when you start. So it's very important that you get that out on the table early on, marketing and promotional responsibilities. Who's gonna do what? How is it gonna get paid for? Next comes forecasting. And you need to do the forecasting not only for sales, but also raw material purchases and contracts. Often in a contract, you'll have a state of jurisdiction and governing law. And that can be important when there is a dispute. So it's something to consider. Also a factor of the right to not renew with no penalty. Next is a definition of, quote, for cause, unquote, and a definition of termination fee if a distributor keeps a brand. And, lastly, mutuality for indemnification and other contract terms. Oftentimes, I get NDAs, non disclosure agreements with people, who are written, I guess, by well meaning attorneys, and it is all one-sided for the benefit of them. And the detriment of me. I like to revise those. So the same restrictions and rules apply to both parties, not just one. So that's a start. Okay? Those are the major issues that need to be thought about and or discussed and or included in an agreement or contract. And you can see that a lot of them require a lot of understanding not only of of English, but also American law and a recognition that the laws are different in fifty two different markets. So, yeah, I recommend you get an attorney who's familiar with the US market. And if you don't know any, give me a call. Write me at steve at bevology inc dot com, and I can make a bunch of references to you of people who specialize in this. Inventory minimums and disposition of inventory on transition to a new importer or distributor, and a waiver of no value in franchise states. Now, many of you may have heard about franchise states. I'm not gonna go into the definition here, but suffice to say that franchise states are kind of a unique situation in America, and you have to be very, very aware of which states you're working with that are. In fact, considered franchise states. Basically, what it means is in these states, and examples include Massachusetts, Connecticut, New Jersey, Georgia, the distributor basically controls the rights to continue an agreement. So once you make an agreement with a distributor, you basically can't fire them. It's a reality. Something to think about. The good news is those franchise worlds really only apply to about three states when we're talking about wine. So if you're taking notes, I'll go through the list one more time of major items real quickly so that you can, capture everything. Brand ownership and rights to name, trademark, trade dress, the right to sell parallel products, formula ownership and rights, territory exclusivity and what it covers, meaning the rights to sell, direct to consumer, direct to trade, through wine clubs, or other channels, e commerce, for example, production commitments and guarantees, production issues, costs, liquid bottles, labels, reshippers. Compliance and responsibilities, marketing and promotional responsibilities, services, and costs, forecasting sales for raw material purchases, as well as contracts, state of jurisdiction governing law, the right to not renew with no penalty, definition of, quote, unquote, for cause, and a definition of termination fee if a distributor keeps a brand. Mutuality for indemnification, inventory minimums, disposition of inventory on transition to new importer or distributor, and lastly waiver of no value in franchise states. Yeah. Not the, most interesting subject. I get that, but judging from the number of times, I've been asked to come in and untangle problems. Pretty much every time I've had to do that, the situation would not have occurred at all, had the winery and contracted in quarter distribute or whatever it happens to be negotiated these things, in the beginning. So that's it for the major items for this week. Stay tuned for next week, and we'll talk about the minor items. This is Steve Ray saying thanks again for listening on behalf of the Italian wine podcast. I have learned that opportunities are never lost Someone will take the ones you miss.