Firing Under-performers Part 1: What?

image by Shoes on Wires

As we mentioned last week, business is not simply business when it comes to the alcoholic beverage industry. A brewery, winery, or distillery unhappy with a distributor cannot simply fire the distributor.

Many states have adopted detailed franchise laws governing the relationship between a manufacturer and its wholesaler, or distributor. State alcohol franchise laws often require a manufacturer to appoint an exclusive distributor for its products in a specific area for a specific time. The manufacturer is then prohibited from allowing any other distributor to sell that brand of beer, wine, or liquor in that location.

The manufacturer also cannot change distributors until the alcohol control division is notified with a document signed by both parties. Imagine how hard it will be to get the distributor you are trying to fire to sign this document. Most of the franchise laws also specify when a manufacturer may terminate its contract with the distributor. In most states with special franchise laws for the alcohol industry a manufacturer may not fire a distributor without just case, or good cause.

Good cause often does not include poor sales records, or even a change of ownership in the manufacturer or the distributor. In fact, in some states the manufacturer cannot enforce sales quotas on distributors. Good cause for terminating a distributor usually does include a revocation of the distributor’s license or the bankruptcy of the distributor. At least there is a little logic in the laws.

So, if a distributor fails to sell your beer, or fails to comply with your reasonable requirements (cold storage), it will be difficult to fire the distributor. And, until the state alcohol division is notified of the change, you cannot use a new distributor to sell that product in the area.

We will discuss the whys of the state franchise laws in the next post.