SN'S SURVEY SHOWS SLOTTING FEES' COSTS AREN'T FADING

David Merrefield

One of the longest-running controversies in the food-distribution business has to do with slotting fees and whether they constitute a fair business practice. This is one of those rare issues that can be defended or attacked with equal validity, depending upon where you sit.

Here's how a retailer or wholesaler would frame the argument: "Manufacturers constantly heap new products on us, then launch promotional campaigns that compel consumers to look for them in our stores. But many of these products haven't really been test-marketed and are destined for failure. Meanwhile, we must receive these products, slot them into our depot, transport them to stores and make room for them there. Slotting fees are required to offset costs."

Here's how manufacturers see it: "Slotting fees are little short of theft since they have grown well beyond the point of defraying new-product costs -- even if that were ever legitimate -- and are now attached to well-established products. Fees have become a critical profit center for retailers. Let retailers earn their money by selling, not buying, and let new products flow freely to consumers."

For a number of years, slotting fees have attracted the attention of the Federal Trade Commission, which has seated numerous hearings on the matter. As was reported earlier, the FTC has decided to issue no guidelines on the fees.

That doesn't mean the controversy about slotting fees has faded, though. As you'll see on Page 1, SN found that out by means of a month-long, Web-based survey on the fees. Survey results indicate at least two directions very clearly: First, the fact that more than 700 manufacturers, retailers and wholesalers responded shows that the issue is very much alive and, second, there remans a great gulf dividing retailers and manufacturers on the issue.

Consider the response to this question: "Are slotting fees acceptable as they are?" Retailers said they are completely acceptable to a factor of 24%, manufacturers, 1%.

Or consider this question: "Do slotting fees keep some products out of distribution?" Some 66% of retailers said that happens, against a huge 92% of manufacturers that said they do.

As for other responses, there was a sort of perverse agreement that slotting fees will increase in the future for each of several categories, particularly packaged goods.

General conclusions to be drawn from SN's survey include that slotting fees will continue, that they will continue to increase and that they will continue to block some products from reaching market.

This isn't particularly good news, especially since new entrants into food distribution will continue to leverage advantage from the traditional industry's continuing use of slotting fees and other practices that add costs to the entire manufacturing-distribution system. Now a word about the survey: The survey was conducted on SN's Web site and generated a far larger response than would have been obtained using traditional methods, such as a mail-back or fax-back survey. It should be acknowledged that such a survey can be loaded by opposing parties, but the large number of responses tends to mitigate that effect.