Slotting Allowances in Supermarkets

Ever wonder how some brand name products in your supermarket seem to have a large amount of shelf space compared to other well known brands. Well Susan Midler, a New York private label manufacturer of a cold water wash product, has stopped wondering. She knows why — they’re called “slotting allowances.”

For eight months she has been trying to get her product on the shelves of supermarkets that have all “demanded exorbitant fees, free merchandise, and discount allowances.” Shelf space in these chain stores is treated like real estate — it is sold to the highest bidders by the square foot.

If you are a big and rich manufacturer of food, drink and other supermarket items, you can pay for the space. Who hasn’t seen Coco Cola widely displayed in one store while Pepsi Cola is given large space in another store? But if you are a small company trying to sell to retail outlets — even if you have a top quality and competitively priced product — it is hard to come up with money for this form of payola.

One reporter put it vividly when she wrote: “The most expensive real estate in New York City isn’t on Park or Fifth Avenues. It’s at your grocery store.” Supermarkets can charge anywhere from $500 to $3000 a store for a few feet of shelf space for a product. The current demand for new product shelf space in a Northeast supermarket chain is about $50,000

You are directly paying for that in higher prices and indirectly paying the price of a squeeze play on up and coming small companies that could give you better value.

The Grocery Manufacturers of America (GMA), a Washington, D.C. based trade group representing food processors, does not like slotting fees. The GMA estimates that these fees are a major part of the $30 in food industry waste annually. They push your prices up by about 10%.

Another New York small business man whose sales are stunted by slotting fees is Richard Worth who started the R.W. Frookie all-natural cookie company in 1987. In 1989, the Frookie sold briskly, locally and won commendable reviews. But Mr. Worth had trouble getting national distribution because he couldn’t pay the expensive shelf fees that the supermarkets wanted.

By now, you may be asking whether these shelf charges violate any laws? The Federal Trade Commission, supposedly a federal watchdog for consumers, receives complaints about this practice but has not found any violation of any statute. Non-meritorious competition, unrelated to the products price or quality, is lawful, until, that is, it becomes bribery.

That’s the grey area rub about shelf fees. Food brokers are the gatekeepers to what is legal or what becomes an illegal kickback. The National Food Brokers Association (NFBA) was not

responsive to Susan Midler’s inquiries. The trade association referred her inquiries to its counsel, the law firm of Maloney & Burch who have been very close-mouthed.

One Food Broker did tell her that “If you do not pay slotting allowances, you have as much chance as a snow ball in hell of ever getting a product on the shelves in America.”

Negotiating the amount of shelf fees is a breeding ground for commercial bribery. If two or three large companies are offering to pay shelf fees to elbow each other out of adequate or highly visible shelf space in a supermarket chain, payments under the table to brokers or to supermarket officials can make the difference in such a bidding war. These payments would be illegal and there are food brokers who are not known to be first in line in resisting such temptations.

Since June, Ms. Midler has been waiting for a reply from the U.S. Justice Department’s Antitrust Division to her numerous questions and request for an investigation of slotting practices.

Next time you come upon a supermarket manager while you are shopping, ask him or her what dollar amount of slotting fees are being paid in the store. After all, you’re paying for them.

(Interested readers can contact Susan Miller at 212-279-WASH either to give or receive further information).

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