What is a slotting fee (or listing fee)?
A slotting fee is the amount of money/fee required by the retailer, once she/he found potentiality for your product, to cover some direct costs (e.g. opening a supplier code, checking quality standards, list in the IT system,etc.) but mainly to cover the costs of space that is the most scarce/valuable resource for a retailer (both online and offline).
What is a slotting fee (or listing fee)?
A slotting fee is the amount of money/fee required by the retailer, once she/he found potentiality for your product, to cover some direct costs (e.g. opening a supplier code, checking quality standards, list in the IT system,etc.) but mainly to cover the costs of space that is the most scarce/valuable resource for a retailer (both online and offline).
Getting supermarkets, convenience stores and drugstores as you distributor
We all want our products in full sight at the shelves of any supermarket, convenience store, drugstore or department store. This will boost your sales and give your product the status it deserves. However, in order to get there, you will have to pay for it, and the better the position, the higher the fee.
A listing is the introduction of a product/product line in the retail offer of a retail/foodservice company in a specific retail channel (offline or online), territory, store/s decided by a retail representative (Category Manager, Retail Manager, Store Manager, Buyer) after having received all information and deeply assessed the profit and sales potentiality.
The point of view of a retail category manager
A category manager of a Retail Chain has:
And a category manager knows that only 1% of new products launched in the market survive more than 1 year…
Slotting fees or listing fees, slotting allowances, pay-to-stay
These are all names for the fact that the supermarket or other retail outlet wants to optimise its shelf space. The specific metrics may vary, but the principe remains the same: its a way to share the risk/opportunity of a failure/success of a listing between the manufacturer and the retailer.
Getting supermarkets, convenience stores and drugstores as you distributor
We all want our products in full sight at the shelves of any supermarket, convenience store, drugstore or department store. This will boost your sales and give your product the status it deserves. However, in order to get there, you will have to pay for it, and the better the position, the higher the fee.
To list a product means delisting another one
The space in a retail shop is limited. And it is already fully optimised. This means that if you want your product on the shelves, the category manager has to remove another one to make space. So he has to disappoint another manufacturer who has already paid a listing fee, but whose products do not sell enough.
Profitability for a retailer is rotation x margin
Retailers make money by selling your goods at a margin. The quantity of goods sold in a certain period is the rotation, and as a manufacturer you have to make credible that the rotation of your product will be high. The other aspect is margin: but mostly retailers set a fixed margin per product category, which may range from 20 to 50% for fast moving consumer goods.
The same applies for online sales: although there you list as many products as you want, online retailers won’t do that. If the online customer has too much choice, he or she will find the website messy and perhaps even won’t buy.
By: Daniel Duffy, Principal Analyst
You asked if any state considered legislation on slotting fees charged by grocery stores.
The term “slotting fee” describes a variety of fees retailers charge their suppliers. Generally, suppliers pay these fees under an agreement that guarantees the supplier shelf space for a particular period of time. Some fees are charged for the introduction of new products, some to maintain existing shelf space, and some to exclude a rival's products. The term is associated with fees paid to grocery stores, but slotting fees may charged by other types of retailers as well.
We identified a bill considered by California in 2005 and another currently pending in Massachusetts.
California's Senate Office of Research prepared a slotting fee background paper in January 2005. It describes how the fees are imposed, summarizes some Federal Trade Commission (FTC) work on the issue, and reviews the positions taken by supporters and critics of the fees.
California considered, but did not adopt, a bill on slotting fees in 2005 (SB 582). The bill was significantly revised before it died.
In its first version, the bill prohibited any retailer from imposing a slotting allowance or a pay-to-stay fee on a supplier without disclosing, clearly and unequivocally, the amount of the charge the retailer imposes on other suppliers for the placement of similar products (SB 582). It defined “slotting allowance” as a lump-sum payment for the placement of a product on a shelf and “pay-to-stay fee” as a fee for continued placement on a shelf.
In its second version, the bill required retailers, on request from a qualified supplier, to disclose (1) placement fees or arrangements charged for the placement of similar products and (2) all trade information for the placement of a similar product if (a) information about a specified product has been shared by the retailer with a manufacturer or supplier that neither supplies nor manufactures the product or (b) information about a product has been shared with the retailer by a supplier that neither supplies nor manufactures the product.
The bill defines (1) “placement fees or arrangements” as a promise of shelf space, specific shelf placement, guaranteed advertising, payment to keep a product on a shelf, slotting fees, or any other benefit; (2) “qualified supplier” as one who can supply the retailer with a product similar in character; (3) “shelf” as a specific location in a retail store where the product is offered for sale for more than five days; (4) “slotting fee” as a lump-sum fee for product placement on a shelf; and (5) “trade information” as all retail pricing, sales volume, and promotional information for all similar products within specific stores or a grouping of stores.
The 2007 Massachusetts bill, in the form of a proposed bill, prohibits slotting allowances from being charged by grocery stores (AB 324). It defines “slotting allowance” as an exchange of anything of substantial value in return for desirable shelf space. It received a public hearing in June.
CALIFORNIA BACKGROUND PAPER
The California Senate Office of Research prepared a background paper in 2005. It states that “there is no standard definition of the term “slotting fee,” but that it has been used to describe lump-sum fees paid for a new product introduction. It relies on certain FTC reports to state that it is difficult to determine the amount of or frequency with which slotting charges are imposed. The FTC surveyed seven retailers in 2003 and only one reported that it kept historical electronic records of slotting fees. The FTC concluded that even with retailers' cooperation, it is difficult to obtain historical data. As a result, the FTC states that “the frequency and overall amounts of slotting dollars reported by the retailers in this study may be lower than the actual incidence of slotting.”
Relying on a report issued by the Food Marketing Institute, the California report states that slotting fees are charged to (1) cover the costs of introducing a new product, (2) remove the item that previously occupied the shelf, and (3) recover the retailer's investment if the product fails.
Relying on another FTC report, the report states that slotting fees have been criticized for (1) increasing the cost of introducing new products, (2) adversely affecting smaller suppliers more than larger ones because larger suppliers are more likely to be able to afford paying them, (3) adversely affecting smaller retailers in favor of larger ones because smaller retailers cannot extract slotting fees from suppliers, and (4) reducing competition by stifling innovation and product variety.
A Practice Note discussing the key features of slotting fees, sometimes called slotting allowances, which grocery retailers impose on manufacturers, distributors, and other suppliers of grocery products, in exchange for the placement of new product items on store shelves. Together with free fills and introductory allowances and discounts, slotting fees help retailers to recoup the cost of and reduce potential losses arising from new product introductions.
What are slotting fees?
If you've been in the retail business for long enough, you'll have no doubt come across slotting fees. You may even have paid your fair share, depending on the products you offer or the category you supply, so you might not think it's worth unpacking the term.
For the sake of this piece, though, and for any supplier who is new to the business or hasn’t heard about them before, here’s a brief description:
A slotting fee, also known as a slotting allowance, is a payment (usually once-off) that you would offer to a retailer to ensure your products appear on the shelf in their stores. That's why you'll also hear it referred to as a shelf placement fee.
Of course, paying for shelf space isn’t a new trend. It’s been part of the retail industry for at least the last 35 years (it was first referenced in the early 1980s) if not longer. And it’s especially widespread across grocery stores and supermarkets.
But that doesn’t mean it’s not controversial.
For example, it’s common to hear talk of it being unethical. That argument is especially valid if you’re a small supplier with a limited budget. By making use of a slotting fee, retailers create high barriers that make it difficult for you to compete with your larger competitors. There is also the point that retailers can abuse their position and ask for exorbitant fees, thereby profiting at your expense.
An initial slotting fee could be as much as $50 000 per product per store on an annual basis. That cost could also climb significantly if you’re attempting to get into a high-demand market. Then again, you do need to view this from the side of the retailer. They’re looking to fill their shelves with products that will sell. They can’t afford to stock just any product.
