Ep. 479 Steve Raye U.S. Market-Ready | Contracts Part 2

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, 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 welcome to the Italian wine podcast. And this is really section two of, we started last week, which is about importer distributor agreements. In last week's issue, we covered the major items that ought to be discussed when negotiating with an importer or distributor in the United States. This week, we're gonna be talking about the minor items. And I would highly recommend not just because I'm trying to sell it, but because it's gonna be a lot more useful for you to get a hard copy of the book, which you can buy from Amazon dot IT in Italy, Amazon dot com in the United States, or directly in both print and PDF format, from get us market ready dot com. So I'll read through the items and then repeat them for those of you who, are taking notes to make sure you catch everything. And as I said, in last week's session. I'm not an attorney. This is not legal advice. We highly recommend that as you go down this road, as you hire someone, a lawyer with experience in the beverage alcohol market in the US, And if you need some recommendations, feel free to reach out to me at steve at bevology inc dot com. So we talked about all of the major items last week. And that was the sexy stuff. And now we get into the not so sexy stuff. So what are the minor items that might come up? Well, I'm gonna list them here. There's about ten. The right of first refusal for additional products. Line extensions, indemnification for best versus commercially reasonable or industry standard. Those are three separate things, best commercially reasonable or industry standard. Statements of performance, injunctive release, force majeure, reps and warranties, representations and warranties, notifications of change. Inventory use up if product or package changes. IP or intellectual property ownership. A m p, advertising, merchandising and promotion, whose responsibility, what commitments and what rights are being granted. And last on this list is payment currency, exchange rate agreement, and triggers. So the next question I get usually is, oh my god, do I have to do all this stuff? You don't have to negotiate at all, but you should be aware of it and whether or not some of these items may come into play with your product and then think about when the right time to bring this stuff up is. So this applies to importers. What about distributor agreements? Yep. Okay. So for distributors, we have a bunch of other specific terms that apply to them. One is term, two is termination. Next is a fee. Usually, it's a trailing twelve to thirty six months gross profit which is one that shocks a whole lot of people, but, is pretty common. Inventory use up. Exclusivity, indemnification, state of jurisdiction and governing law, price, meaning the cost of goods and differentiate between whether you're talking about X Works or FOB on board a ship coming from Italy, maybe from Livorno. And also differentiate between, in the US, we talk about the suppliers FOB meaning the price of the goods when purchased from the supplier, and FOB as a distributor defines it, which means what is the cost he's going to pay. Payment timing is also another one that comes up a lot. Things like data reporting and level of transparency, really important to make sure that you're asking for and getting the kinds of reports that you need, accounts sold, inventory, on hand, velocity, and so on and so forth. So monthly sales and completions, access to distributor data, access to real time communications. Many wholesalers, for example, will give you access to their, all the data that they have for you as a supplier for access on your own. And then frequency and level of reporting if that's not the case. And continuing on, there is responsibility or commitment to provide marketing information, the sample policy, territory represented, and the inventory to be held or safety stock. Now, each one of those things can be an hour long conversation and a disagreement. I'm not saying that you have to negotiate all of these things, but you need to be aware of them. And it may be something that you just wanna write out a document and say, This is our point of view on all of these other terms, and the other person could react to it. So the next question we get a lot is if if this only applies to open states, how do I negotiate with control states? Well, generally speaking, you're gonna be following their leads and their process, and there isn't negotiations. It's just stated. And each one is often radically and wildly different from the other Pennsylvania versus Michigan, for example. I also hear about I already have importers, and we have neither a contract nor a written agreement. What should I do? Wow. This is the big one. And more often than not, we hear about it when there is a dispute, which is not the time to not have records of what was agreed upon in the first place. So, of course, it depends on the relationship. If you ask an existing importer for an account sold report, when you've never asked for one in the past, chances are they're gonna think something's up like maybe you're going to dump them and pull the brand. So you have to be careful about what you ask for and when you ask for it because those questions may be fraught with unintended consequences. I recommend that you be upfront with your partners and stress the importance of getting ahead of any problems that might come up down the road and acknowledge that it's something that should have been discussed initially, and you'd like to catch up on it now. If you put a positive spin on it, like, understanding where the business is, will allow you to make work with that much more effective work with, meaning when you go into the market and work with their distributor reps. But more importantly, yeah, it's gonna be hard to go back and negotiate or discuss some of these things. And most of the time people don't until they have a dispute, and now they got a bigger problem than they thought they would have had in the beginning. Another big question I get, especially from Italian producers, I plan to have different importers in different states. Will I have to go through all of this with each of them? And the answer is pretty much yes. That's one of the downsides of having different importers in different markets. It's okay to have different distributors in different markets. But if you have a different importer in each market, it's like different countries. New York is Sweden, and New Jersey is Germany. Here's another question we get. My importer is not living up to the written agreement that we have. What are my options? Well, here's the case where you did do the negotiation upfront, and they're not living up to their side of it. Well, This one also comes up a lot, and there's no simple answer as to what to do. It depends on so many variables, such as the tenor of the existing relationship, its length, and history, whether the original people who negotiated the deal are still in place, Whether you think the relationship is salvageable or even worth salvaging, quite often the disagreement is about a minor issue that has escalated. So on a formal basis, consider bringing a mediator or arbitrator in And perhaps even a simpler version of the same thing is to bring in a person from the industry who is trusted by both sides to informally help work out a solution. This is something I end up doing a lot. It's not it's something I wanna do. But it comes up a lot because you have someone who takes the emotion out of the equation and is able to dig down into really what is the fundamental issue at play here. And nine times out of ten, it can be resolved and put away without any rancor on either side. So that's it for the minor ones. Again, I know this wasn't the sexiest of sections of the book. But I can't stress strongly enough how important it is to discuss these things and have agreements on them upfront rather than to have to deal with them when they have not been discussed and everyone's going to be upset. So different ways of dealing with both the majors and the minors and your negotiations and different strategies on how to do it. I think a key to all of it is to make sure you have an experienced US attorney by your side while you're doing this or at least on call so they can advise you where there may or may not be troubles. And if you need a recommendation on attorneys, with experience, give me a buzz or ping me at steve at bevologyinc dot com, and I'll be able to give you some recommendations. So that's it. The Steve Race signing off on important distributor agreements and contracts. And next week, we're gonna be talking about trade shows. Thanks again, and thanks for listening to the Italian wine podcast.