Beer distributors have been selling brand distribution rights and realizing tremendous gains for decades.
Why should they have all the fun?
As the name implies, brand distribution rights are rights granted to sell certain beer brands in specific territories.
These rights are created by a contract between brewer and distributor. The brewer grants the distributor the right to sell and distribute their brands, and the distributor sells, delivers and services the products.
While these rights are typically assigned to the traditional beer distributor, the rise of self-distributing breweries has created a new path to value for breweries.
Thanks to franchise laws and high demand from buyers, brand distribution rights can be extremely valuable.
Craft breweries self-distribute their own beer for many reasons. Control, trying to establish a separate business line or profit center, or they just don’t want to be stuck with the traditional beer distributor.
However, a huge benefit of self-distribution is the ability to create, grow and sell brand distribution rights.
In this article, we’ll review the basics of franchise laws, the value of distribution rights, and what this all means to your craft brewery.
The distribution landscape has changed and there is a lot of money at stake. Read on to see how you can get in on the action, and create a valuable asset for your brewery.
- Why Distribution Rights have tremendous value.
- What are brand rights really worth? The Math behind Gross Profit.
- Want to profit from your brand distribution rights? Here’s one rule you must follow.
- What all this means for your craft brewery: Why you should consider self distribution.
Why distribution rights have tremendous value
You own your beer brands. You own the name, the trademark, and the right to brew and sell the beer. However, once you sign a contract with a distributor you no longer own the distribution rights to your brands.
Franchise laws and the value of distribution rights. The very same franchise laws you despise can work in your favor to create value. Franchise laws provide for exclusive territories, and by their very nature exclusive territories are valuable.
Brand distribution rights have the potential for tremendous value due to the exclusivity of the territory and the brand.
How distribution rights value is created
Typically, a distributor is granted the right to be the only one allowed to sell your beer in a specified area. If retailers want your beer in Boston, Massachusetts for example, they have to buy it from your distributor.
The value of brand distribution rights is created when sales are made to customers, and repeat purchases occur.
The distributor’s job is to make the market. They develop customers and create recurring revenue. These recurring sales become an annuity – repeatable, consistent and predictable income.
Business people like recurring revenue, and this is what creates the true value of your brand distribution rights.
Beer brands and beer brand distribution rights are two different assets. Both hold tremendous value for your craft brewery.So, Before signing away the potential value of your brand distribution rights, it’s worth considering a self-distribution model in your business.
What are distribution rights really worth?
In the beer distribution world, the value of brand distribution rights is measured by the amount of gross profit the brands produce. Gross profit is the difference between the sale price to retailer and cost of the product, freight and taxes to the distributor.
The total pool of gross profit dollars is then multiplied by a factor – commonly known as a “gross profit multiplier”. The product of these two numbers is the value of the brand distribution rights.
Next week we’ll cover the math behind brand distribution rights, so that you can increase the value of your rights. We’ll also cover an example of a brand sale, and review the one rule you must follow to ensure the value of your brand distribution rights.