FTC HEARING, TELEVISION PROGRAM CAST FOCUS ON SLOTTING ALLOWANCES

RUSSELL REDMAN

NEW YORK -- A television news broadcast and a governmental hearing have turned a spotlight on supermarket slotting allowances.

The program, a "20/20" episode on ABC, and a Federal Trade Commission hearing in Washington raised the issue of whether slotting fees inflate retail prices and keep some products off shelves.

In the "20/20" piece, entrepreneurs with promising products explained their battles to get and retain space in supermarkets.

Richard Worth, chairman of Des Plaines, Ill.-based Delicious/ R.W. Frookies, which makes Frookies health snacks, said in the program that he can't get his products into two-thirds of supermarkets nationwide. Without slotting fees, he said, Frookies would cost 50 cents less a package. Many of the interviews with Worth were conducted at the Food Marketing Institute's annual convention in Chicago last May.

Using a hidden camera, "20/ 20" also went undercover with entrepreneur Scott Gault, who has been trying to get his Georgia's Gourmet Barbecue Sauce in supermarkets, as he solicited Grand Union Co. and Waldbaum's for space.

In that portion of the program, Gault spoke with what appeared to be buyers for the New York-New Jersey area chains. The unidentified buyers stressed that fees were more important than a product presentation in gaining entry into stores. The Grand Union buyer said it typically costs $5,000 per item. The Waldbaum's

buyer said it cost $8,000 to $10,000 an item, adding that Procter & Gamble is the only manufacturer that doesn't pay for space.

When SN called Wayne, N.J.-based Grand Union for comment on the "20/20" program, corporate vice president of communications Don Vaillancourt said, "I'm not going to discuss that program, which did an injustice to the industry."

Michael Rourke, senior vice president of corporate communications for A&P, Montvale, N.J., which owns Central Islip, N.Y.-based Waldbaum's, said, "I was disappointed that ["20/20"] didn't tell the whole story, but I don't have anything further to add." "20/20" also showed "confidential" documents listing slotting fees sought by some chains, citing that Pathmark Stores and Vons Cos. may charge up to $20,000 for an item. Leading chains, including Kroger Co., Winn-Dixie, Publix, Safeway, A&P, Albertson's, Vons, Pathmark and Lucky, declined to comment on slotting fees for the broadcast, "20/20" reported.

The program, aired Nov. 10, mentioned the FTC hearing on slotting fees, held Nov. 8. An FTC spokeswoman said the hearing was part of a larger effort by the commission to determine if antitrust and consumer protection regulations need updating.

According to a hearing transcript obtained by Fairchild News Service for SN, University of Michigan economist Greg Shaffer said slotting allowances -- estimated at $6 billion to $18 billion a year -- can promote and stifle competition. Though unaffordable or daunting for small manufacturers, shelf entry fees often encourage retailers to carry unproven but desirable products, he said. Fee levels also can be a risk barometer, reflecting how much a manufacturer is willing to invest in a product, he added.

However, Shaffer stated, retailers often allocate shelf space to the highest bidder and charge manufacturers "pay-to-stay" fees to remain on the shelf, "facing allowances" to get prime shelf positioning, "street money" for endcap displays and "market development funds" for advertising and promotion -- all of which may squeeze competition.

Slotting fees hike grocery prices, Shaffer claimed, because many retailers prefer up-front money over lower wholesale costs, meaning that fewer price promotions might be offered to consumers.

Nicholas Pyle, vice president of legislative and environmental affairs for the Independent Bakers Association, Washington, voiced concern that slotting fees have become "out of control," according to the FTC transcripts. He said charges have proliferated and aren't always used to cut retail costs and prices. "The [industry's] chief concern lies with supermarkets that use the highly negotiable and competitive store-admission process as a profit center," he stated in the transcript.

Slotting fees' legality can be challenged on some grounds, Robert Skitol of the Washington firm Drinker, Biddle & Reath said in the hearing transcript. Those grounds include when competing manufacturers aren't charged similar fees, when retailer favoritism to dominant suppliers chokes rivals and when entry fees aren't applied to their purported uses.

Skitol urged the FTC to study slotting fees further to determine if a public report and/or regulatory curbs are warranted. The FTC spokeswoman said the commission still is evaluating information from the hearing but eventually plans to present a report to the public and Congress.

New York-based Fairchild Publications, which publishes SN, is a subsidiary of Capital Cities/ ABC Inc., New York.