BROOKINGS, Ore. -- Warner Wellcome Consumer Healthcare, Miles Inc. and Schering-Plough Healthcare are among a handful of brand marketers now testing a new product introduction program that observers say may offer a viable alternative to conventional slotting fees.
Called "plus-out reimbursement," the program guarantees significant pass-through of introductory allowances in the form of retail price reduction, off-shelf display, special signs and timely distribution.
Health and beauty care and general merchandise product marketers began testing the program in September at C&K Market, a 30-store supermarket chain based in this city in southwest Oregon. C&K, which does business under the Ray's Food Place banner, is a member of the United Grocers wholesale cooperative.
"We're just taking a page out of the Efficient Consumer Response approach," said Dan Van Zant, health and beauty care and general merchandise buyer at C&K, who said the program "guarantees a full pass-through of the allowance" in the form of in-store marketing that supports the new product.
"We are looking for reimbursement, which amounts to a free initial shipment, but we are also promoting the item off-shelf, with a temporary price reduction
and item signage."
Van Zant said his company has created a "new item showcase," a specially designed fixture where participating new items are on display for 30 days. The fixture has a large sign that says "Health and Beauty Aids -- Look What's New."
In October, the outpost fixtures carried the new plastic Listerine bottles from Warner Wellcome; Miles' Alka Seltzer Gold, and Drixoral Cold and Allergy Tablets from Schering-Plough, among other items.
Participating items are also put on TPR for the first 30 days, and they are cut into the regular shelf sets with stand-out signs.
"The immediate result from trade was, 'gosh, this is another slotting allowance.' " Van Zant said. "That was a hurdle, but once they understood, the program has been met with a considerable amount of enthusiasm. To this point I have not had a broker or manufacturer rep who has not participated."
Said one regional sales manager who asked not to be identified, "C&K's program is unique in that most retailers just want a slotting allowance. But what he has done is put performance behind it, whether it is a price reduction, display, ad feature. That's what makes it appealing to us."
"It helps take the sting out of the slotting allowance," said the head of an independent rep firm in the Pacific Northwest that calls on C&K. To his knowledge the program has not yet been offered outside the HBC department.
By comparison, C&K's area competitors, Safeway, Fred Meyer Inc. and Albertson's all demand traditional slotting money, the rep added. "It is hard, cold, it's just there. All you get for the money is a code number."
But an area broker who is participating in the trial at C&K was more cautious about praising the program. He told Brand Marketing, "We are not sure it works yet. We're on the first item test right now." He added, "It is brutally expensive, so I am leery."
The "plus-out" in plus-out reimbursement comes from the ordering process C&K pursues with its wholesaler, United Grocers.
"The item is plussed-out automatically to our stores," said Van Zant, referring to the procedure by which enough products are delivered speedily from the wholesaler warehouse.
"As a company we want to get new items out at the same time as our competitors, possibly sooner," said Van Zant, explaining part of the retailer strategy behind the program.
Selected new products must first be accepted by the wholesaler, then C&K plans the introductory program with its suppliers and places projected orders into the wholesaler's system.
Explained Pete Edmonds, HBC/GM category manager at United Grocers, Portland, Ore., "C&K sends us a 'plus-out' sheet that tells us what stores and what quantities to ship out to retail." The wholesaler can then turn the product around rapidly upon its arrival.
C&K's program has no effect upon the normal wholesaler slotting fees, Edmonds added. Those are paid separately by the manufacturer.
With its guarantee of shipments to the retail stores, the plus-out program partly resembles what is sometimes called "forced-draft" distribution, said Jeffrey Hill, managing director of Meridian Consulting Group, Westport, Conn.
Combined with the promise of TPR and display, Hill said, "Forced-draft merchandising is a creative application to new products."
Mickey Goodman, managing director of consulting firm Market Growth Resources, Wilton, Conn., said his firm has been involved in designing alternatives to slotting for several of its manufacturer clients.
"We have done a lot of this in the last couple of years. But I haven't heard of a retailer initiating," he said.
