SLOTTING FEES CALLED UNFAIR IN CALIFORNIA SARA LEE SUIT

ELLIOT ZWIEBACH

LOS ANGELES -- The fairness of slotting fees may be determined in court here following the filing of a complaint that accuses Sara Lee and a wholly owned subsidiary of unfair competition.

The complaint says slotting fees deprive consumers of potential variety, exposure to certain brands and possible product innovations by giving larger manufacturers an edge over smaller companies.

The complaint, filed in California Superior Court here, accuses Sara Lee, Chicago, and International Baking Corp. here of violating the California Business and Professions Code, which prohibits "secret . . . rebates, refunds, commissions or unearned discounts, whether in the form of money or otherwise."

According to general industry usage, slotting fees are paid by manufacturers to purchase shelf space at the retail level. Although the complaint does not mention slotting fees at all, Jonathan Weiss, the attorney who filed the complaint, told SN he equates slotting fees with unearned discounts, which are specifically prohibited by the code. A spokesman for IBC, which supplies bagels, cakes, English muffins and pita bread to supermarkets, said his company does not comment on pending litigation. An attorney for Sara Lee did not respond to SN's phone calls last week. According to Weiss, with direct-store delivery vendors like Sara Lee and IBC, the retailer has less exposure to loss and therefore should not impose slotting fees. Weiss said the case will be heard by a judge, not a jury. Once Sara Lee and IBC have filed a response to the complaint, it could take a year or more until a trial begins, he said. Weiss said the lawsuit is being filed "in the public interest" and said he is interested in hearing from other baked goods manufacturers who have had problems getting items into food stores. Weiss said he filed the complaint on behalf of Linda Halabe, who he said has no connection with the retail food industry or the baking industry. He selected her as the plaintiff, with her consent, "to keep the case focused on the issues and not on the party filing the suit." The complaint says Halabe "believes that defendants' competitive advantage is disastrous for smaller competitors and is not in the public interest, and that consumers may, for example, be deprived of product innovations, resulting in a restricted variety of product." It also says secret payments and unearned discounts "are likely to mislead the general public into believing that there are no other quality brands and products being presented within the marketplace." The complaint asks the court to issue "an immediate judicial declaration that defendants' secret payments, rebates, allowances, unearned discounts, special services and/or privileges are unlawful, unfair and/or misleading . . . so that market abuses may be halted." Weiss said he chose Sara Lee and IBC as defendants because he had obtained declarations in another case from two IBC executives that he said support his contention that slotting fees are a form of secret payment to grocery stores. Weiss said he agrees with the original reason for the creation of slotting fees -- to open up space for new items -- "because with 100,000 products in circulation and room for only 40,000 in a store, and new products coming out all the time, a retailer shouldn't be stuck with the cost of goods that's he's stocked and promoted when a manufacturer changes products. "But with a direct-store vendor like IBC, the distributor himself is warehousing the item, and if it doesn't sell at retail, the retailer has less exposure to loss." According to Weiss, the section of the California Business and Professions Code under which he is suing is designed to prevent distributors from discriminating between purchasers; however, a purchaser who accepts a prohibited rebate or discount, as well as the distributor who offers it, is deemed to violate the law, Weiss explained.