Distributor or Direct: How to Choose the Right Path When Taking Your Business International

The first time we shipped a container of Rioja wine to the United States, we did it through a distributor in New Jersey who came highly recommended by another Spanish producer. The container sold through in eight months. The reorder took two years. By the time we understood why, three of our best SKUs had been replaced on his book by a competitor who paid a steeper slotting fee.

That is the central lesson of international expansion that no spreadsheet captures: distributors do not work for you. They work for their book, their margin, and their largest accounts. Sometimes those interests align with yours. Often they do not. And the only way to find out is to be inside the market — close enough to see the shelf, talk to the buyer, and watch the velocity reports as they come in.

After three decades of taking Spanish products into foreign markets — and eventually opening our own subsidiary, Manzanos Wines USA, with offices in Miami — I have come to believe that the distributor-vs-direct question is the most consequential strategic decision an exporter makes. Most companies get it wrong by defaulting to whichever option requires less capital this quarter. The right framing is different: which option preserves the most optionality in five years?

## The False Comfort of the Distributor Model

The standard playbook for international expansion is well-known and seductive. Find a reputable distributor in the target market. Sign a multi-year agreement, often exclusive. Hand over your brand, your inventory, and your introductions. Collect a transfer-price margin. Wait for the orders.

The appeal is obvious. You avoid the capital expenditure of a foreign subsidiary. You inherit an existing sales force and warehouse network. You transfer the risk of compliance, logistics, and credit collection to a local partner who knows the terrain. On a one-year P&L, the math always favors the distributor.

The problem is what the model costs you that does not appear on the income statement.

When you sell through a distributor, you do not own the customer relationship. You do not see the reorder data in real time. You do not know which accounts are growing and which are quietly declining. You receive a quarterly summary that has been polished by someone whose compensation depends on you continuing to like them.

You also do not learn. And in international expansion, the company that learns the market faster is the one that wins the decade.

## The Trap of Exclusivity

The single most expensive clause in the standard distribution agreement is the exclusivity grant. Distributors will demand it. Most exporters concede it without negotiating, because it feels like a reasonable price to pay for someone who is taking a risk on a foreign brand.

Here is what exclusivity actually does: it transfers all of the strategic optionality from you to them. If they execute well, both parties win. If they execute poorly — if your brand stalls at 60 percent of its potential because they are over-rotated on a competing line — you have no recourse for the duration of the contract. You cannot bring in a second distributor for an underserved region. You cannot sell direct to a national chain that wants to deal with the manufacturer. You cannot even leave easily; most agreements have termination clauses that require you to buy back the unsold inventory at full transfer price.

We learned this the hard way in our first decade in the US. The lesson distilled to a rule we now apply everywhere: never grant national exclusivity in a market you do not understand. Grant regional exclusivity, conditioned on volume thresholds, with annual reviews. If a distributor is unwilling to accept performance gates, that is information about how confident they are in the partnership.

## The Hybrid Path: Distributor First, Direct When You Earn It

The framing of distributor-vs-direct as a binary choice is itself the error. The right structure for most exporters is sequential, not either-or.

In the first phase — typically the first two to four years — a distributor is the right answer. The market is unfamiliar. You do not have the volume to justify a subsidiary. You need someone who already has accounts, salespeople, and warehouse infrastructure. The distributor's job in this phase is not just to sell product; it is to teach you the market.

Treat the distributor relationship as a paid education. Insist on monthly account-level data, not quarterly aggregates. Visit the market four times a year. Walk the floor with their sales team. Sit in on buyer meetings. Build direct relationships with key on-trade accounts even when the distributor handles the transactional layer. You are not violating the agreement — you are doing the work of an engaged brand owner, which any serious distributor should welcome.

In the second phase — once you have enough volume, enough market knowledge, and enough direct relationships to operate independently — you transition to a hybrid model or full direct presence. You keep the distributor for the segments where they add genuine value: small accounts, regional chains, the long tail of the on-trade. You go direct on key accounts, national chains, and any segment where the brand-building work matters more than the logistics layer.

This is the path we walked in the United States. We worked with distributors for nearly two decades before opening Manzanos Wines USA. The subsidiary was not a replacement for our distributor relationships. It was a complement to them — and a signal to the market that we were a serious long-term player, not a producer phoning it in from across the Atlantic.

## When Direct Investment Is the Right Move from Day One

There are markets and products where the standard distributor playbook does not work, and direct presence is the only viable path. The pattern looks something like this:

- **The product requires education.** Premium wines, specialty foods, complex industrial products — anything where the buyer needs to understand the story before they buy. Distributors do not have time to tell stories. They have time to take orders.

- **The market is concentrated.** If 80 percent of the addressable revenue is held by ten accounts, the distributor's account-management overhead does not add value. You can manage ten accounts directly with a small team in-market.

- **The brand is the asset.** If your competitive advantage is the brand itself — the heritage, the positioning, the relationship with the end customer — handing it to a distributor dilutes the very thing you are selling.

- **The market is strategically critical.** If the country represents 20 percent or more of your long-term plan, you cannot afford to outsource your learning rate to a third party.

In our group, we have applied this framework across wine in the US, real estate in Spain, hospitality at Palacio de Manzanos in Haro, and mineral water expansion through Mineraqua. The verticals where we own the customer relationship outperform the verticals where we do not — not just in margin, but in the speed at which we learn and adapt.

## Three Questions Before You Sign Any International Agreement

Whatever model you choose, three questions should be answered in writing before the agreement is executed.

**1. How will we know if this is working in 18 months?**

Define the specific, measurable outcomes that would constitute success. Account openings. Velocity per account. Geographic distribution. Pricing maintenance versus discount drift. If you cannot define what success looks like in advance, you cannot enforce it later, and you will end up arguing about feelings instead of facts.

**2. What happens if it is not working?**

The exit clause is the most important clause in the contract. How is the relationship terminated? Who buys back inventory? Who owns the customer relationships that have been built? At what notice period? These questions feel adversarial during the courtship phase. They are essential for the same reason a prenuptial agreement is essential — not because you expect failure, but because the cost of having no plan is catastrophic.

**3. What are we learning that we could not learn another way?**

If the answer is "nothing — we are just collecting margin," the relationship is fragile. The strongest international partnerships generate genuine information advantages for both parties. The exporter learns the market. The distributor learns the product, the technical specifications, the brand story. When both sides are learning, the partnership compounds. When only money is flowing, the partnership is one missed quarter away from being renegotiated.

## The Capital Decision Beneath the Strategic Decision

International expansion always looks more expensive than it is. The visible costs — a country manager, a warehouse, a sales team — are real but containable. The invisible costs of not being in the market — slow learning, lost optionality, distributor capture — are larger and almost never modeled.

I am not suggesting every exporter should open a foreign subsidiary on day one. The capital intensity of direct operations is real, and the management bandwidth required is real. But when you do the analysis, do it honestly. Compare the cost of a small in-market team — a country manager, a brand-builder, an administrative assistant, totaling perhaps $400,000 to $600,000 per year in a US-equivalent market — against the cost of growing 30 percent slower for a decade because you outsourced your learning rate to someone whose interests are not aligned with yours.

In our experience, the in-market team almost always pays for itself within three years, and pays compound dividends for the next twenty.

## Key Takeaways

- The distributor-vs-direct decision is not a financial question, it is a strategic question about who owns the customer relationship and the learning rate in a new market

- The standard exclusivity clause is the most expensive concession in the typical distribution agreement — never grant national exclusivity in a market you do not understand

- Use distributors as a paid education in the first phase; transition to a hybrid model once you have enough volume and market knowledge to operate independently

- Direct investment is the right answer from day one when the product requires education, the market is concentrated, the brand is the asset, or the country is strategically critical

- Define measurable success criteria, clear exit provisions, and explicit learning expectations before signing any international agreement

- The cost of being in the market is finite and modelable; the cost of being absent — slow learning, lost optionality, distributor capture — is invisible and usually larger

- The strongest international partnerships generate genuine information advantages for both parties; if only money is flowing, the relationship is fragile

International expansion is not a transaction. It is a multi-decade commitment to a market, executed through a series of intermediate decisions about control, capital, and learning. The companies that build durable global presence treat every distributor agreement and every foreign subsidiary as a step in that longer arc — not as an isolated decision to be optimized on this year's spreadsheet.