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Thread: Distributor agreement and margins

  1. #1
    Join Date
    Jul 2007
    Posts
    11

    Distributor agreement and margins

    Hi Folks,

    I am looking for some sample distributor agreements. I searched the forum but could not locate anything related. If you have such information and wouldn't mind sharing, please let me know. You could either respond to this post or send me a private message.

    In addition, I am also looking for guidance on typical margins that a distributor looks for ?

    Since the brewery will be launching in Raleigh, North Carolina information in the region would be very much appreciated. Though, regardless of state the information would be welcome !

    Thank you for your help in this matter. Look forward to hearing from you.

  2. #2
    Join Date
    Dec 2007
    Location
    Plattsburgh, NY USA
    Posts
    220

    Me too!

    I could also use this info. Thanks in advance.
    Cheers
    Jay Stoyanoff
    Brewmaster
    Plattsburgh Brewing Co.
    Plattsburgh, NY

  3. #3
    Join Date
    Feb 2008
    Location
    Indiana
    Posts
    24

    Distributor Agreements

    I hope I can provide some insights here, but I don't think I can be too specific because there is so much variation from state to state and distrubutor to distributor.

    First of all, I think it's very important to understand that state law is going to guide many parts of your relationship no matter what sort of agreement you have. Bear that in mind when signing any agreement because that agreement may ultimately be worthless no matter how it is written. State law trumps any agreement when there is a disparity between the two.

    Agreements also vary from state to state as there are different requirements from state to state. Your potential distributor should be able to provide at least an outline of agreements that they are already using.

    Most agreements that I see are only about one page and the most important part of the agreement is a statement from you appointing the distributor as your distributor for a specified geographic territory. That territory could be the whole state, or just certain counties but you should make the territory clear in any agreement or appointment letter to a distributor.

    Beyond that, the average distributor margin is about 28% nationally calculated on FOB to the distributors door. The National Beer Wholesalers Association tries to track average margins and we pay close attention to their numbers and ours. I don't think that many distributors are actually using that number as a guide, but you'll probably see most margins falling into that neighborhood.

    The margin will be calculated on the laid-in cost to the distributor. That means you need to take freight, tax and any other expenses into account before you calculate the margin. And depending again on state law, a distributor may set a frontline margin that is higher than 28%, expecting that there will be various discounts and promos down the line that will lower that margin. For example, our front line margin is 32% but we are allowed to create quantity discounts in our state (Indiana) so after those discounts our ultimate margin comes very close to the national average and we look pretty hard at that each month.

    Depending on the situation in your state, either you or the distributor will be responsible for paying state tax, so bear that in mind. If you are sending beer to a distributor in your same state, sometimes the state makes you pay the tax. Otherwise, it would be payable by the distributor.

    I hope that helps!

  4. #4
    Join Date
    Jul 2007
    Posts
    11
    World Class Bev,

    Definitely Helps. Thank you for your detailed response. Are the average margins readily available from NBWA, or is that something only distribution agencies have access to ? Is there any other website besides NBWA that you would recommend to read up more on distribution statistical data ?

    I had heard the 28% number mentioned so your information confirms some of that. But I had usually heard that as the highest end, I probably need to look up more then.

    The tax information is useful as well, since that will be something we will need to take a look at.

    Thanks for such a prompt and useful response !

  5. #5
    Join Date
    Feb 2008
    Location
    Indiana
    Posts
    24

    Margins

    Lonerider -

    I had read that 28% is the latest average margin and these days with the cost of fuel I'd expect that some distributors are starting to push that. For what its worth, we talk to a lot of distributors around the country and most of them seem to be at or about that number on average, though I hear of more lately that are higher.

    Let me look into the source of the numbers to see if it is readily available and get back to you.

    Cheers!

  6. #6
    Join Date
    Jul 2007
    Posts
    11
    World Class Bev,

    Fantastic. Thank you. Look forward to hearing back !

  7. #7
    Join Date
    Feb 2008
    Location
    Indiana
    Posts
    24

    Average Margin

    Lonerider,

    NBWA is the source for the 28% average margin number and it is an average, but they do not publicly display that number anywhere that I can find. It is part of their membership package that they release those numbers. So I might have overstepped from an NBWA perspective by repeating it here, but I am pretty confident in their numbers and this one in particular.

  8. #8
    Join Date
    Jun 2003
    Location
    Athens, Georgia
    Posts
    26
    At one of the CBC seminars in SAn Diego last year it was mentioned that the average distributor margin was 27.5%. I do not recall which seminar or what their source was.

  9. #9
    Join Date
    Jun 2006
    Location
    Orange County, CA
    Posts
    66
    Barleyjac-- the seminar was "Getting to Know Your Distributor." Tom McCormick (the admin of this site and from Cal. Small Brewers Association), Jim Schembre (World Class Beverages).

  10. #10
    Join Date
    Jul 2007
    Posts
    11
    Quote Originally Posted by World Class Bev
    Lonerider,

    NBWA is the source for the 28% average margin number and it is an average, but they do not publicly display that number anywhere that I can find. It is part of their membership package that they release those numbers. So I might have overstepped from an NBWA perspective by repeating it here, but I am pretty confident in their numbers and this one in particular.
    World Class Bev,

    Thank you much for confirming the information. Its good to get relevant information.

  11. #11
    Join Date
    Jul 2007
    Posts
    11
    Barleyjac, Thanks !!

  12. #12
    Join Date
    Jan 2008
    Posts
    46
    I have a question as to who is responsible for freight charges and shipment setup to an out of state distributor. We currently do not deliver out of state and the distributor we work with already drives by our place so the stop to pick up their orders.

    As to the margin I know our distributor maintains roughly a 28%margin on most of their beers.
    BJ Knoke
    Hub City Brewing Company
    "The Largest Microbrewery In Stanley, Iowa"

  13. #13
    Join Date
    Feb 2008
    Location
    Indiana
    Posts
    24

    Freight Charges

    As a distributor we do both - sometimes we arrange and cover freight and sometimes the brewer does it. Of course both have a vested interest in getting the best possible freight rates to keep pricing as low as possible.

    Out of state distributors often have legal issues that will prevent them from picking up beer at an out of state brewery (trucks may not have permits for out of state operation) and even at that, them picking the beer up directly is not always the most cost effective way of getting beer to them.

    Bear in mind that just because a distributor is picking up beer with their own trucks does NOT mean that they are not accounting for freight costs. More and more distributors are increasingly aware of the growing cost of operating their truck fleets and many of them allocate costs for virtually everything, which means that they will allocate freight charges for picking up beer with their own trucks. I've talked to some brewers who seem surprised by this practice, but it honestly does cost a good bit of money to operate those trucks and they do not come free to the distributor.

    We work with some brewers who already have relationships with freight companies and because they want to be sure that they are controlling frieght costs to the best of their ability, they will sell us beer as "FOB Indianapolis," meaning that what we pay for beer includes freight to our door. Some brewers who are very distant from us consolidate deliveries to several states or distributors on one truck for economy, but that is not always possible.

    In other cases, we pay for beer "FOB San Francisco," for example, meaning that we cover the freight from San Francisco to Indianapolis. It is then up to us to make freight arrangements and pay for it.

    In the end, I'd suggest talking to your potential distributor about freight and what it will cost, no matter who is paying it. Freight rates these days are enough to make or break a breweries success in many markets.

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