Slotting fee

A slotting fee, slotting allowance,[1] pay-to-stay, or fixed trade spending[2] is a fee charged to produce companies or manufacturers by supermarket distributors (retailers) in order to have their product placed on their shelves.[3] The fee varies greatly depending on the product, manufacturer, and market conditions. For a new product, the initial slotting fee may be approximately $25,000 per item in a regional cluster of stores, but may be as high as $250,000 in high-demand markets.[4]

In addition to slotting fees, retailers may also charge promotional, advertising and stocking fees. According to an FTC study, the practice is "widespread" in the supermarket industry.[5] Many grocers earn more profit from agreeing to carry a manufacturer's product than they do from actually selling the product to retail consumers. Fees may serve to efficiently allocate scarce retail shelf space, help balance the risk of new product failure between manufacturers and retailers, help manufacturers signal private information about potential success of new products, and serve to widen retail distribution for manufacturers by mitigating retail competition.[6] For vendors, slotting fees may be a move by the grocery industry to profit at their suppliers' expense.[7]

Some companies argue that slotting fees are unethical as they create a barrier to entry for smaller businesses that do not have the cash flow to compete with large companies. The use of slotting fees can, in some instances, lead to abuse by retailers such as in the case where a bakery firm was asked for a six figure fee to carry its items for a specific period with no guarantee its products would be carried in future periods.[8]

The same practice is common in major bookstore chains in the US as well, as far back as the mid-nineties.[9]

References
  1. "The Use of Slotting Allowances in the Retail Grocery Industry | Federal Trade Commission" (PDF). Ftc.gov. 2003-11-14. Retrieved 2015-08-18.
  2. "H.J. Heinz Company and Milnot Holding Corp | Federal Trade Commission" (PDF). Ftc.gov. Retrieved 2015-08-18.
  3. Sparks, Brian. "Slotting fee battle continues." American Fruit Grower. January, 2001. Retrieved on August 1, 2006.
  4. Copple, Brandon. "Shelf-Determination." Forbes. April 15, 2002. Retrieved on August 1, 2006.
  5. "FTC Releases Grocery Industry Slotting Allowance Report". Federal Trade Commission. 2003-11-14. Retrieved 2020-01-17.
  6. Innes, Robert; Hamilton, Stephen F. (2013). "Slotting Allowances under Supermarket Oligopoly". American Journal of Agricultural Economics. 95 (5): 1216–1222. doi:10.1093/ajae/aat023. ISSN 0002-9092. JSTOR 24476902.
  7. Aalberts, Robert J.; Jennings, Marianne M. (1999). "The Ethics of Slotting: Is This Bribery, Facilitation Marketing or Just Plain Competition?". Journal of Business Ethics. 20 (3): 207–215. doi:10.1023/A:1006081311334. ISSN 0167-4544. JSTOR 25074132.
  8. Archived April 2, 2010, at the Wayback Machine
  9. In Bookstore Chains, Display Space Is for Sale New York Times. January, 1996. Retrieved on August 22, 2012.
This article is issued from Wikipedia. The text is licensed under Creative Commons - Attribution - Sharealike. Additional terms may apply for the media files.