Isn't A Written Agreement With A Distributor Worthless In A Franchise State?

We get this question all the time from clients, and we understand the pessimism. Why bother to draft an agreement when state law would trump any contract that conflicted with franchise laws designed to protect distributors?

If you’re a producer who sells your products in multiple states, you are probably already acquainted with alcohol franchise laws –legislation protective of distributors that seems more appropriate for, say, a McDonald’s franchisee whose entire livelihood rests on its right to use the McDonald’s name than for an alcoholic beverage distributor that sells dozens or even hundreds of brands.

Lawmakers might once have been able to make the dubious claim that alcoholic beverage franchise laws were needed to counter the “intimidation, bullying and abuse” (as one franchise state’s law puts it) of the small and powerless distributor at the hands of the big bad supplier.

Of course that notion is laughable now, when distributor consolidation and the proliferation of small craft producers have flipped that power dynamic on its head. Now it’s the giant distribution companies that wield the power, and suppliers find themselves without leverage or even a route to market in many states. Yet these outdated protectionist laws remain on the books in many states – in fact they have been recently added to the books in certain jurisdictions -- in part due to robust lobbying by the distributor tier. It’s no wonder our clients have resigned themselves to thinking the only way out in these states is through protracted litigation or expensive buyouts.

But that’s not the whole story. In the August issue of Practical Winery & Vineyard, we lay out in detail some of the reasons why a written distribution agreement can provide important protections even in franchise states, and we provide real-life tips for tracking distributor performance and managing your brand in franchise states.  Read more here.