WASHINGTON -- Slotting fees for the national introduction of a new product could range from a little under $1 million to more than $2 million, according to a report from the Federal Trade Commission released last week.
The 119-page study, "Slotting Allowances in the Retail Grocery Industry: Selected Case Studies in Five Grocery Categories," examines in detail the slotting-fee practices in five categories (fresh bread, hot dogs, ice cream, pasta and salad dressing) of seven unnamed supermarket companies, six manufacturers and two food brokers, all of which agreed to participate voluntarily.
Slotting fees were less likely to be paid for products distributed through direct store delivery and more likely if products passed through the retailer's warehouse. Also, slotting fees were lower for products distributed through DSD.
For some products, slotting fees surpassed product revenues. For example, the study found that 10% of ice cream products fail to earn enough revenue in their first year to cover their slotting fees.
However, the study also backed up retailer claims that slotting fees do encourage the stocking of new products.
"The report provides substantiation for many of the reasons why slotting allowances promote efficiency," David Balto, an attorney with White & Case, Washington, and a former staff counsel for the FTC, told SN.
The study noted, in particular, that "slotting allowances help defray the costs (including risk) associated with new product introductions." The sources of these costs include rearranging products in the warehouse, modifying the retailer's plan-o-gram, setting up the product in the retailer's computer and accounting systems, putting the new product on store shelves and marking down the price of old product to sell it off.
In terms of risk, the study cited sources estimating the failure rate of new products at roughly 70%. The report said, "Other things equal, slotting allowances reduce potential retailer losses on new products."
The study focuses almost exclusively on fees paid for new products, as it found that pay-to-stay fees were rare in the product categories studied.