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Jeremy Halpern, a partner in Nutter’s Food and Beverage Group and co-chair of the firm’s Emerging Companies Group, wrote an article in Food Processing discussing commercial agreements in the food and beverage industry. In the article, “Power Lunch: A Primer on Commercial Agreements,” Jeremy notes that while commercial arrangements are often an absolutely critical part of ensuring a brand’s success, it is important to be careful of long-term or exclusive commitments when just getting started. He outlines the risks that signing a commercial agreement may pose, and addresses when it makes sense for a food and beverage company to bring on an outside partner, including what to consider when selecting a partner.

According to Jeremy, entrepreneurs should avoid deals that solve problems for the short term but which may inhibit or even prohibit future growth. In every case, these deals should support real growth in terms of creating sustainable gross margins for the product and repeatable sales into a broad customer base, and should always create alignment in the performance incentives so that both sides have the opportunity to win. Jeremy points out that entrepreneurs should pay careful attention to grants of exclusivity to manufacturers, grants of geographic or channel exclusivity to distributors or brokers, production or sales minimums, termination fees, non-compete obligations, and retainer obligations.