Expert: Eric Hofer - 7/8/2010

Question
Eric,
I'm new to the beverage distribution business. There is a specific beverage which is not yet in many stores, but I believe has incredible promise. I want to approach the maker of this product about becoming an exclusive distributor. How do you suggest I approach this beverage company and where can I familiarize myself with exclusive distribution agreements ? I passed up an incredible opportunity to distribute Red Bull about 10 years ago before it hit many stores - I don't want to make the same mistake.

Answer
For some strange reason, AllExperts happily accepted a long post only to not show it.  Here's a 2nd attempt to reply.  Eric.

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Approach
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A manufacturer looks for various capabilities, competencies and qualifications when giving out a distribution right; more so when granting exclusivity.  For your part, you need to deduce what these are given the product, geography, competition, etc.  And as part of the assessment, how well you could meet the expectation/requirement, or if not, how you could compensate.  

Brain storm with "others" that you trust, know the predicament, etc. for the product and or geography.  Here're some ideas:-

- How well established are you?
- How strong are your processes?
- How vast your Sales Rep (CR) network
- Ability to operate promotions
- Balance sheet
 .. access to capital
 .. current level of leveraging
 .. outstanding debts
- Ownership and control - are you beholden to others
- Portfolio mix and complementation of the brand(s) you're seeking to represent
- Ability to expedite (logistics)
 .. Are you 24 / 48 hours (delivery)
 .. How well organized are you for handling orders, stock outs, etc.
 .. How strong is your delivery zoning, truck utilization, etc.
 .. How strong is your settlements, accounts receivable processes
- Competence with trade assets
 .. can you track
 .. ensure minimal cannibalization
 .. attain presence, position, etc.
- Trade execution as seen from a 3rd party (e.g. for the brands you have, how well are they represented in store)
 .. are you in the "right" positions in stores
 .. how well represented are the products you currently have
 .. how close are you to "market" saturation
 .. are you achieving target consumer
- Reporting
 .. do you analyse by channels?  are your channels recognizable
 .. are you able to report both sales and deliveries to customer level
 .. break out sales, cost of goods, cost to service
 .. able to break out sales by territory, historically
- Incentives
 .. set targets that your sales teams / staff can recognize and achieve
 .. meet and exceed targets
 .. have the right mixture of salary to incentives
- Pricing
 .. can show that your shelf price is maintained
 .. able to execute promotions
- Customer satisfaction
- Honoring agreements, reputation
- Work within the territory, not straying to "other" geographies for sales
- How do you compare with your competition
 .. those that also could rep the brand
 .. those who you currently compete in your geography
 .. those who currently rep the manufacturer (or are on-staff with the manufacturer)
- Are you looking to fully rep or partial rep
 .. Be for example just the Sales, or Logistics Partner.

Sorry, as I don't know you or your situation, I'm throwing the "kitchen sink" at this expecting you to figure it out yourself.  Your situation will boil down to perhaps some 7 items on which you might have 3 items you need to work.

Once you've hit on what you think is the "manufacturer's hot buttons" and what you can deliver and/or will develop in order to "win" the account, then you're on to the presentation:-
- Prospectus - what do you offer and why you stand out
- Your go to market strategy - this needs to have "some" of it figured out; but don't give away too much, lest the manufacturer choses to give it to somebody else (or do it itself)
- Project Plan - to take on the product(s) and develop the brand locally
- Sales expectations - modelling what you expect to do, showing model assumptions such as price, cogs, etc.

Exclusivity
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Any agreement is about protecting you if things go bad; and guaranteeing you that you'll reap the rewards of your time/capital investment.  The biggest things that one usually wants for protection are:-
- renewal terms
- ability to retain the rights past a certain point
- protection when "showing" marketing ideas, etc. that can otherwise be taken
- brand protection - such that one cannot bring the name of the brand into disrepute, destroy pricing, affect other "geographies"
- guaranteeing that the pricing doesn't change radically so as to make the proposition unprofitable.
- sufficient time to earn back and then profit from the investment
- ability to expand territory, product portfolio, etc.

Your ability to negotiate comes from:-
- your strengths - say for example, you're the only one that can deliver sales in the territory
- their weakness - for example, a need to get a product out quickly to customers before a copy-cat can gain a foothold
- amount of knowledge you have vs. what the supplier has (e.g. asymmetric information)

It's great if you have a reputation for being able to operate at "world class" levels.  A manufacturer is looking for the ability to execute.  Towards this end, think about how you can demonstrate that sort of a profile.  E.g. you have excellent process management of your field sales.  Towards this end, consider the www.salessuite.net.  They've got a great, SaaS application which rather than being for sale, is rented - and coupled with their processes, would provide you a Fortune 100 FMCG company's sales-to-cash set of processes - and would also assist you presenting your case to your target manufacturer.

Give me your thoughts, and we can continue.

Eric