NEW YORK -- Manufacturers should band together and form an industry coalition to combat retail slotting fees, said Deborah Runte, director of retail research, Menasha Packaging Co.
"We've got to say, 'No [to slotting fees],"' Runte said in a presentation at the POP Show, held here this month.
Such a coalition could include representation not only from manufacturers, but also retailers, POP providers and even the Federal Trade Commission, Runte said in a seminar titled, "Demystifying Slotting Allowances and Their Impact on the POP Industry." Menasha, Mequon, Wis., is a package and POP design firm.
Runte's call to action comes at a time when manufacturers spend about $18 billion each year on slotting fees -- charges to get new items on the shelf, along with special displays and other product placements. Fees range from $5,000 to $10,000 per item, per store, she noted.
Retailers defend the practice as a way to improve distribution efficiency and stimulate competition. About 71% of retailers charge the fees.
Retailers maintain the fees are especially helpful in dealing with new-product introductions, of which up to 80% fail. Retailers are affected by these failures through costs associated with price reductions to move the product off the shelf. The average retailer spends about $957,000 each year on products that fail, according to Runte.
Last year, 32,035 new consumer packaged goods products were introduced in the United States and Canada, a 1.9% increase from 2000, according to Productscan Online, a database of new products from Marketing Intelligence Service, Naples, N.Y., a new-product reporting firm. This year, based on figures through the end of last month, 21,739 products were introduced, up from 20,529 for the same period in 2001. Manufacturers contend, however, that the fees are discriminatory and put smaller brands at an unfair advantage. According to an SN survey [see SN, July 15], just 1% of manufacturers said slotting fees are acceptable as is, compared to nearly 24% of retailers. In comparison, 87% of manufacturers called for either major change or elimination. The survey showed that many retailers apparently are open to system modification, with 15% reporting that there should be major change; 42%, rethinking; and 15%, fine-tuning.
Currently, there are no industry standards governing the practice. But the issue is getting FTC attention. While the agency has investigated the practice and decided not to regulate it, it has earmarked about $900,000 for further research, Runte said.
"Most definitely, slotting fees are under a microscope," she said.
The topic is relevant to the POP industry because manufacturers have reduced POP expenditures to absorb slotting-fee costs, a move that could hurt business in the long run, said Runte.
"We don't want manufacturers to stop using in-store ads to reach consumers," Runte stressed.
Most manufacturers are fearful to speak up about -- much less counter -- slotting fees, although a few have taken a stand against them, she said.
"I'd like to see manufacturers say, 'Our products are good. We stand behind them. We're not paying [slotting fees],"' she said. "We need more of that kind of courage."
Until that happens, manufacturers can overcome slotting fees in other ways. In lieu of slotting fees, they should offer "impactful, retail-specific POP materials that will move product out the store." Marketers should also provide category management system and support, efficient consumer response, shelf sets, planograms, efficient product-replenishment systems, product buyback programs and product advertising, according to Runte.
