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If you are planning to start a distribution company in New Zealand, you may encounter high barriers to entry, depending on the business and industry you choose to operate in. For example, the electricity, medicine, financial services, and vehicle distribution process are heavily regulated industries. Therefore, it is essential to create a thorough business plan that takes these barriers into account and outlines how you will overcome them. 

There are a few critical factors that will help you determine your success in entering a new industry in New Zealand or the speed at which you gain market share from your competitors. These include: 

  • having good knowledge of the products or services you are selling; 
  • maintaining sufficient inventory levels; 
  • sharing marketing and sales responsibilities and expenses with your supplier; and 
  • maintaining good communication with all parties involved. 

This article will explain what a distributor is and how to draft a distribution agreement. It will also offer some tips on how to start and grow a distribution company in New Zealand. 

What Is a Distributor?

As a distributor, you act as an intermediary or middleman between the manufacturer or service provider, and retailers or consumers. Depending on the business model that you choose, you will purchase products or services from a manufacturer or service provider, and sell them:

  • to retailers (as a wholesaler); or 
  • directly to the consumers (as a retailer).

A supplier or manufacturer can outsource the distribution process of their products or services to multiple distributors based in different locations. They may have a better knowledge of and connections in the target markets.

Research Your Industry

When becoming a distributor, it is essential to consider the barriers to entry in the specific industry where you are planning to operate. This is normally a part of creating your business plan. 

For example, some of the factors that could impact your success in entering a new market and quickly gaining market share include: 

  • strong competition especially from first movers; 
  • if you sell directly to consumers, their attachment or brand loyalty to existing distributors; and 
  • geographical barriers.

You can overcome some of these barriers by selling your products or services at lower prices or negotiating geographical limits in your distribution agreement. 

Understand Your Distribution Agreement

A distribution agreement sets out the terms of the relationship between the company that supplies or manufactures the goods or services and the company that distributes them. 

As a distributor, you enter into a relationship with suppliers or manufacturers to sell their products or services at a retail or wholesale level. Therefore, you must understand the key terms of a distribution agreement. These can vary depending on:

  • the products or services you distribute;
  • the exclusivity of the appointment;
  • the geographical limits for distribution; 
  • how the supplier will pay you;
  • the length or terms of the agreement; 
  • who is in charge of the marketing, sale and distribution; and
  • how you will resolve disputes if any.  

Pro Tips

To avoid competition within your distribution network, you may want to consider signing an exclusive distribution agreement. This type of contract gives you the rights to be the sole distributor of the products or services, but you also need to ensure that you have adequate support from your supplier.

Your distribution agreement should contain an explicit clause to explain how you will receive payment. For example, you can earn a commission for selling the products or services. The most appropriate payment structure may depend on your product.

Negotiation is usually the best way of resolving disputes because it is affordable, and it requires the least formality.

Consider New Zealand Regulations for Your Distribution Company

As part of creating your business plan, it is vital to understand the regulatory environment for distributors in New Zealand, as some industries are heavily regulated. For example, electricity, medicine, financial services and vehicle trading. Some of these regulations include:

  • minimum product warranties and importing goods (the Consumers Guarantees Act);
  • the transfer of private and personal data between territories (the NZ Privacy Act); and (or)
  • any industry-specific or local regulations.

Depending on the complexity of the industry and your distribution channel, you may want to discuss these regulations with your lawyer to ensure that you cover all bases. 

Take on Business Insurance

When you start a distribution company, it is a good idea to protect your business against certain risks. Your business insurance policies will depend on the location you operate from and should reflect the needs of your business. At a minimum, you should consider: 

  • commercial property insurance; 
  • vehicle insurance;
  • professional indemnity insurance; and
  • public liability insurance.

If you need help understanding the various types of insurance that would be beneficial for your business, as well as finding competitive providers and policies, consider:

  • consulting the Insurance Council of New Zealand’s guide; and 
  • talking to an insurance broker.

How to Run a Successful Distribution Company 

There are some important factors that will help you grow your business and gain market share. These include:

1. Understanding Your Products

Before you start distributing your products or services, dedicate some time to understanding their features and benefits. Work alongside your supplier to schedule regular training sessions for yourself and your sales and support teams.

2. Including Notice for Price Changes Into Your Agreement

Make sure that you agree with your supplier to give you enough notice before price changes.

For example, for a minimum of 30 days. 

Doing this will help you remain competitively priced in your market.

3. Sharing Marketing and Sales Activities With Your Supplier

Sharing marketing and sales responsibilities with your supplier can help you drive sales and minimise your operating expenses. 

For example, can you ask your supplier to provide you with: 

  • marketing collateral such as brand assets including high-resolution images, and product-specific data sheets; 
  • product and sales training for your sales and support teams, so they can promote the products or services with confidence; and
  • sales leads that arise from the supplier’s own marketing activities. 

4. Holding Adequate Stock Levels 

If you manage stock on your premises, it is essential to ensure that you hold sufficient quantities to meet your customers’ immediate needs. For example, if you are selling fast-moving items, you should have at least one month worth of stock.

Inventory forecasting can help you ensure that you do not run out of stock. As part of this process, you estimate how much inventory you will need to fulfil future customer orders based on your sales predictions. Forecasting is particularly important if you take on a new customer or an existing customer is planning to increase their usage. 

5. Maintain Good Communication With Your Supplier

Good communication is essential in a multi-party relationship like a distributorship. Some tips for maintaining an open communication line with your supplier include: 

  • knowing who to reach out if you have any questions; 
  • sharing any customers concerns or feedback with your supplier; and 
  • sharing insights or concerns about your competitors’ activities. 

Key Takeaways

As a distributor, you can choose to operate as a wholesaler or retailer. A wholesaler purchases products or services from a manufacturer or supplier and sells them to retailers; while a retailer sells them directly to the consumers. This choice will affect specific clauses in your distribution agreement with your supplier, and which types of insurance policies you will need for your business.  

You may also need to comply with industry-specific legal obligations, especially if you are entering a heavily regulated industry. As well as understanding these regulations, it is a good idea to research any barriers to entry in your industry to determine how you will tackle issues such as strong competition or geographical barriers. If you need assistance setting up a distribution company in New Zealand or drafting distribution agreements, contact LegalVision’s employment lawyers on 0800 005 570 or fill out the form on this page.

FAQs

What is a distributor?

As a distributor, you act as an intermediary or middleman between the manufacturer or service provider, and retailers or consumers. Depending on the business model that you choose, you will purchase products or services from a manufacturer or service provider, and sell them to retailers or consumers.

What is a distribution agreement?

A distribution agreement sets out the terms of the relationship between the company that supplies or manufactures the goods or services and the company that distributes them.

Will my business need insurance?

When you start a distribution company, it is a good idea to protect your business against certain risks. Your business insurance policies will depend on the location you operate from and should reflect the needs of your business.

How do I start a distribution business in New Zealand?

To start a distribution business in New Zealand, you need to choose whether you want to operate as a wholesaler or retailer, as this choice will determine specific clauses in your distribution agreement with your supplier, and which types of insurance policies you will need for your business. If you are planning to enter a heavily regulated industry, you need to understand industry-specific legal obligations. You should also research barriers to entry in your industry to determine how you will tackle issues such as strong competition or geographical barriers. Other setup business tasks include choosing a legal structure, name and registering your business, protecting your IP and registering for tax.

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