Distribution agreements for food businesses:

Whether you are the supplier or distributor we can help you to ensure you are protected and the agreement is fair. The agreement needs to detail all aspects of the operating arrangement to prevent uncertainties and disagreements down the track. While a verbal distribution contract is legally binding it can be difficult to enforce if troubles arise, so getting the terms down on paper early is crucial.

If you are currently signed up to a distribution that is not working in your favour, there may be a way to get out – it is worthwhile to seek legal advice.

Manage your distribution relationship:

Your distribution agreement needs to unambiguously state who does what. Put in writing agreements on:

Food product range;
Territory – geographical area;
How will the food be delivered? Who provides/pays for delivery and delivery equipment? Shipment is a key consideration as affects food safety and product integrity. Make sure the packing and temperature is adequate to the foods’ needs;
Will there be online sales? Who will manage that market?
Commission amount and terms if applicable;
Reporting requirements;
What happens if there is a delivery delay or customer issue; and
Ownership of trademarks and intellectual property.

What is the expiry date on the contract? Can it be renewed?

It is a good idea to have the contract run for a year, or two years, or three years and renew if both parties are happy. Renewal is a good opportunity to consider if the other party has met your service/sales/product expectations, and renegotiate terms and pricing accordingly, or withdraw.

Perhaps you would like the contract to automatically renew with the option of not renewing provided with notice? This can all be worked out in your agreement.

Is the distribution exclusive?

If you are a supplier/distributor, ensure your distributor meets sales performance requirements before entering an exclusive arrangement with them.

Frequency of Price Changes:

During times when food products become more expensive (remember that year when bananas were wiped out by a cyclone in Queensland and became unaffordable?! It was 2006…) it is useful if the supplier is able to pass on increases in cost, with a certain amount of notice. But this needs to be worked out and correctly detailed in the contract. As food price can vary wildly depending on time of year be specific as to how the market price will vary the contract price.

Provide for termination if the arrangement is not going well:

In case the other party is failing to meet your expectations, include an early termination clause that clearly defines how and under what circumstances termination can take place. Make sure that it is possible to get out of an arrangement in the event of non-performance by serving the other party with a Notice of Termination and consider your minimum notice period.

If applicable, any post-termination obligations should be set out clearly.

Allow for the agreement to be changed as needed – as both of your businesses will expand and change, the agreement should be able to accommodate this when necessary.

A well-written distribution document can mean make-or-break for the profitability of your food business. If we can help you with some legal advice regarding your distribution agreement, please get in touch.

This is general advice only. Liability limited by a scheme approved under Professional Standards Legislation. 

Published Apr 19, 2018

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