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Q: Retail as a medium ( Answered 5 out of 5 stars,   0 Comments )
Question  
Subject: Retail as a medium
Category: Business and Money > Advertising and Marketing
Asked by: grinjuice-ga
List Price: $50.00
Posted: 19 Apr 2004 09:57 PDT
Expires: 19 May 2004 09:57 PDT
Question ID: 332592
How do gocercy stores set the value of shelf space and end aisles
for purposes of setting slotting allowances? What are the metrics used?
Answer  
Subject: Re: Retail as a medium
Answered By: czh-ga on 19 Apr 2004 14:31 PDT
Rated:5 out of 5 stars
 
Hello grinjuice-ga,

You are asking for concrete information about one of the most
secretive practices in the grocery retail industry. Even the most
recent Federal Trade Commission investigations have not been able to
come up with detailed information because of industry stonewalling.
The practice has been repeatedly challenged in court based on
anti-trust grounds but the cases have not resulted in information
about the specific fees and allowances involved. Most of the cases
have been defeated and a few have been settled out of court.

I?ve collected a variety of reports and news articles from the past
five years to help you get an understanding of the practice. These
reports offer some ballpark figures on how allowances are set and how
much various producers have to pay. They also include discussions of
changing trends in the grocery industry and how WalMart and other
discounters are avoiding slotting fees and how this is impacting
traditional grocery channels.

The resources I?ve collected will give you as much of a picture of the
practice of setting slotting allowances as is available outside the
industry.

Best wishes for your project.

~ czh ~




http://www.ftc.gov/os/2003/11/slottingallowancerpt031114.pdf
November 2003 -- The Use of Slotting Allowances in the Retail Grocery
Industry: A Report from the Staff of the Federal Trade Commission

***** This is a 119 page document.

http://www.ftc.gov/opa/2003/11/slottingallowance.htm
November 14, 2003
FTC Releases Grocery Industry Slotting Allowance Report

***** This is the press release that gives a brief overview of the report.

-------------------------------------------------


http://www.chicagotribune.com/business/chi-0312140364dec14,0,1639244.story?coll=chi-business-hed
December 14, 2003
High-stakes shelf games
Foodmakers and supermarkets don't want to talk about money paid for
ideal shelf space, but the practice has caught regulators' attention

Even though a typical store can stock several thousand products,
critics say that slotting fees inflate prices and limit competition
and consumer food choices. With the increasing concentration of the
grocery business, where five major chains control almost half of all
supermarket sales, the possibility for abuse of such a system is
significant, industry insiders say.

***** This is a long article expanding on the information in the FTC
press release. The article reviews the history of slotting allowances
and presents the facts reported in the lengthy FTC report in terms
that can be easily understood by the consumer.

-------------------------------------------------


http://www.bradenton.com/mld/bradenton/business/7682304.htm
Jan. 11, 2004 -- Placement is everything . . . but coincidence
Slotting fees give foodmakers prime grocery store shelf space

Retail secret
Few consumers know about the fees, which help place brand-name goods
in just the right spot to be noticed, yet the income they generate can
account for as much as half the revenues of a regional supermarket
chain.
Exactly how slotting deals are struck also remains a closely guarded
secret, but stories of cash payments and favorable treatment abound.
Even those responsible for placing the goods on display don't know how
deals are arranged and why certain products always seem to end up in
the best spots.

***** This is another article based on the FTC report.

-------------------------------------------------


http://www.supermarketalert.com/pdf%20docs/freeissu.pdf
Legal and Regulatory Developments

***** See page 10 regarding slotting fees and SEC Investigations from late 2003.

-------------------------------------------------


http://www.oligopolywatch.com/2004/01/20.html
January 20, 2004 -- The great tortilla war

Slotting fees enable oligopolies, since they are the best way to clear
shelf space for the big and the drive the small out of business. This
can be illustrated even in the niche market of making tortillas. The
tortilla industry has a low cost of entry. The materials (flour,
water, oil) are inexpensive, and the manufacturing process is simple.
Differentiation between products is pretty marginal. And brand
identities and loyalties are not particularly strong.

As the article notes, "If the Gruma suit had succeeded, it could have
had ramifications in supermarket retailing beyond the $5.2 billion
tortilla market. The widespread use of slotting fees charged by chains
for positioning products has become controversial, with some lawmakers
demanding a ban on the practice." The decision is a blow to antitrust
efforts. It also is a missed opportunity to pry into the secretive
world of supermarket slotting fees. The plaintiffs plan to appeal.

***** This article reports on the most recent case where a suit
against slotting fees was denied.

-------------------------------------------------


http://www.dfw.com/mld/dfw/business/7651812.htm?1c
Jan. 07, 2004 -- Tortilla lawsuit dismissed

-------------------------------------------------


http://www.fmi.org/media/bg/slottingfees2002.pdf
Slotting Allowances in the Supermarket Industry
FMI Backgrounder

***** This is a 7 page brochure giving an excellent 10 point
explanation of the practice from the Food Marketing Institute.

-------------------------------------------------


http://www.ftc.gov/os/2001/02/slottingallowancesreportfinal.pdf
The Federal Trade Commission report: "Workshop on Slotting Allowances
and other Marketing practices in the grocery industry"

***** This is a 79 page report that is frequently referenced by the
articles in trade and business publications.

-------------------------------------------------

http://www.arentfox.com/PDFs/alert2001-02-23.pdf
FTC Report on Slotting Allowances.

***** This is a 2 page synopsis of the FTC report from a consultant to
the industry.

-------------------------------------------------


http://www.midtod.com/payola.phtml
Midwest Today, Summer 2000   
Missouri Rep Descries Payola At the Supermarket
Payoffs Affect How Merchandise is Presented to Consumers

-------------------------------------------------


http://www.nasvf.org/web/allpress.nsf/0/1205b2e939b1c56286256a130062afc4?OpenDocument
03/18/2001 -- Supermarket chains are secretive about fees

Preview:
Officials of some food processing companies, testifying at
congressional hearings in recent years on the fees they pay
supermarkets to place their products on the shelves, spoke from behind
screens or wearing hoods.

Such is the power of the large supermarket chains.

The top 20 food retail companies now hold more than 50 percent of the
market and some analysts predict the grocery business in the United
States will be largely controlled by perhaps five international
companies within the next decade.

These are "slotting" fees paid to gain shelf space for new products
and "pay-to-stay" fees, paid to keep products on the shelves.

***** This a long article explaining the practice of slotting fees in
the grocery industry.


-------------------------------------------------

http://www.consumerreports.org/main/content/display_report.jsp?WebLogicSession=QIQylSjWBbcyuYc6D7VV3zlu6W4G68QloqgneEZXZ2Bo8n6OOxUx|9150715762462228583/169937910/6/7005/7005/7002/7002/7005/-1|8712597262536951474/169937912/6/7005/7005/7002/7002/7005/-1&FOLDER%3C%3Efolder_id=348597&ASSORTMENT%3C%3East_id=333153&bmUID=1082405525839

August 2000 -- Who's minding the shelves?
How do new products make it to the shelves of your supermarket? In
many cases, money talks.

At the heart of the matter are "slotting" fees--up-front payments by
product manufacturers to retailers in exchange for access to shelves.
The fees, usually imposed to support new products, are believed to
range from a few hundred dollars to $25,000 per item per store, or as
much as $3 million per chain. In addition, slotting payments may be
required for premium product placement on eye-level shelving or on
end-of-aisle displays; to keep existing products on shelves; and to
cover the cost of removing an item if consumers don't buy it.

Surprisingly little is known about the payments since they're seldom
part of a written contract. For example, it's unclear whether the
payment is applied to a chain's gross profit or used to discount
prices. Not all companies pay or accept such fees; Procter & Gamble
and Wal-Mart say they don't.

But fees are common in crowded product categories such as frozen
foods, beverages, snacks, and now produce.

But small and medium-size manufacturers complain that many companies
have been forced off the shelves because they couldn't pay excessive
"pay to stay" fees, or have been denied access to key supermarket
chains because of exclusionary arrangements negotiated with their
larger national rivals.

-------------------------------------------------

http://www.findarticles.com/cf_dls/m0EUY/37_6/65538583/p1/article.jhtml
Lawmakers Examine Slotting Fees in the Grocery Industry.(Brief Article)
Food & Drink Weekly, Sept 25, 2000

To shed some light on the subject, lawmakers charged GAO to study the
use of slotting fees in the grocery industry, and GAO presented its
findings earlier this month at a Senate Small Business Committee
hearing.
Exactly how sensitive is the food industry to the topic? Despite GAO's
best efforts and promised confidentiality, it was unsuccessful in
gaining industry cooperation needed to conduct the study. GAO said
industry officials expressed concern about providing it or any outside
group information that they consider sensitive and proprietary and
thus critical to their business success. Committee Chairman Sen.
Christopher Bond (R-Miss.) said it was "highly suspicious" that stores
would not disclose their fees.

Through slotting fees, manufacturers are, in effect having the
retailer conduct a live market trial instead of paying for test market
research, FMI says. Sources estimate slotting fees made up
approximately $11 billion of the $472.7 billion U.S. grocery industry
in 1999.

-------------------------------------------------


http://www.foodprocessing.com/Web_First/fp.nsf/ArticleID/SENN-4JTMK7?OpenDocument&Click=
May 03, 2000 -- Slotting fees under fire
After years of looking the other way, FTC is taking a long, hard look

"Slotting allowances are neither uniformly requested nor offered,"
Hammonds testified. "Well-tested, innovative products can and do reach
consumers without slotting allowances. And many supermarkets waive any
such fees for minority vendors or local suppliers in their same
communities."

Lack of uniformity, however, can be the rub, at least in the case of
the Robinson-Patman Act, the existing federal law that applies to
slotting allowances. In its case against McCormick, the FTC charged
the manufacturer engaged in illegal price discrimination by charging a
substantially higher net price to some retailers than others after
slotting allowances and other promotional deals were figured.

Ken Harris, partner with Cannondale Associates, Evanston, Ill., doubts
either the FTC or the courts ultimately will find any wrongdoing in
the sorts of efficient item assortment decisions that can lead to
brands losing their shelf space under category management.

"There is nothing that a manufacturer is telling the retailers that
they will do unless they want to," Harris says. "So to assume
manufacturers are in collusion with retailers . . . until they start
working on the same bottom line, it isn't going to happen. There's too
much healthy tension between manufacturers and retailers."

-------------------------------------------------

http://www.nfraweb.org/government_relations/ftc.html
Federal Trade Commission Looks at Slotting Fees

The following government report is provided by
NFRA's Government Representative, Michael R. McLeod, 
McLeod, Watkinson & Miller.

On May 31 and June 1, the Federal Trade Commission (FTC) conducted a
public workshop at its Washington, D.C. headquarters, to discuss
issues relevant to the use of slotting allowances. The workshop
provided FTC staff and the food industry "an opportunity to examine
the appropriate antitrust assessment of slotting allowances and other
grocery promotion practices." In bringing together food manufacturers
and retailers, marketing experts, consumer groups and antitrust
economists and lawyers ? the workshop was designed to give the FTC a
vehicle to learn more about the nature of slotting allowances and to
better assess whether they raise competitive concerns with public
policy and legal ramifications.

The supermarket sector argues that the overall cost to the industry is
unknown because the fees are not commonly broken out in contracts
between trading partners. However, some economists have estimated that
slotting fees can be up to $25,000 per item per store, which can
translate to $3 million for a nationwide chain. Economists have
estimated that slotting fees account for up to $9 billion in annual
promotional expenditures, and thus represent about 16% of all new
product introduction costs.

Why Do Supermarkets Charge Slotting Fees?
The principal reasons for supermarkets implementing slotting
allowances are: 1) to cover the considerable costs incurred to
introduce a new product; 2) to remove the item that previously
occupied the shelf space; and 3) to recover some of the investment in
the likely event that the new product fails. The Food Marketing
Institute argues that "supermarkets pay for the products and assume
the risk that consumers will buy them."

At the FTC workshop on slotting fees, Dr. Gregory T. Gundlach, of the
University of Notre Dame, pointed out that particular categories of
products were the object of "heavy" use of slotting allowances. He
noted that frozen foods, together with dry grocery, beverages,
household maintenance products, and snacks were especially the subject
of slotting allowances. On the other hand, fresh meats/seafood,
produce, and deli were only subject to "light" usage of slotting
allowances.




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grinjuice-ga rated this answer:5 out of 5 stars
Excellent answer with very good support.

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