Circumstances may arise where many manufacturers will be unable or unwilling to distribute their own goods. This is where a master distributorship becomes a feasible arrangement that will allow those manufacturers to hand over the task of supplying their goods to someone else (the distributor). Firstly, this article will explore the nature of a master distributorship. Secondly the rights and obligations you can expect from this sort of relationship. Lastly, the common terms that dictate how this arrangement will be carried out.
What is a master distributorship?
Under a standard distribution agreement, a distributor is granted permission to sell assigned goods in a specified area for one manufacturer or brand. A master distribution agreement does the same thing, however, on a larger scale. Moreover, under a master distributorship, a distributor can represent a range of different businesses within the same industry. They become the head distributor and may appoint sub-distributors for the purposes of fulfilling their obligations under the distributorship.
Furthermore, the distributorship network (or supply chain) will cover a wider geographical area and channel all the goods the master distributor has to sell throughout a country or beyond.
For more on distribution agreements, check out our guide on ‘What is a Distribution Agreement?’.
Essential elements of a distributorship agreement
To continue, parties under a master distributorship will set out the scope of their obligations, compliance with regulations and any competitive clauses.
The essential terms that will be stipulated by this agreement will encompass the following:
- Firstly, the time period that the contract will continue to operate within;
- Terms and conditions of supply; and
- Lastly, the territories the goods will be distributed and sold to.
Another critical element that will be up for debate between the parties to the arrangement is whether the agreement will be exclusive or non-exclusive.
- Exclusive rights grant the master distributor the sole right to sell the business’s goods; whereas
- Non-exclusive relationships will enable the business to supply other distributors who may or may not be competing against the distributor to their current arrangement.
Other terms that may negotiated include:
- Performance.
- Reporting.
- Termination clauses.
- Marketing rights.
- Lastly, trademark licensing.
Want to make sure you set out a fair contract? Check out our guide on ‘Mistakes in Your Contract: What Effect Do They Have?’.
Benefits of a master distributorship
Master distributors can be an optimal avenue for businesses looking to quickly enter into their intended market. Their experience, knowledge and relationships provide for an effective channel to establish an income stream.
Moreover, some benefits a master distributorship can offer include:
- Effectively reaching customer bases through their developed marketing tactics and networks;
- Mature storage and logistical chains;
- Flexible and wider distribution channels;
- Financial savings – master distributors handle most of the costs associated with marketing, transportation etc; and
- Lastly, motivation – master distributors gain title to the goods under an agreement and will therefore treat them as their own.
Summary
- Master distributors appoint sub-contractors.
- Offer their services to multiple businesses.
- Lastly, they are more effective and experienced than standard distributors.
