WASHINGTON IS STILL PLUGGING AT SLOTTING FEES

JOANNA RAMEY

WASHINGTON (FNS) -- Slotting fees and whether they should be regulated by existing or new antitrust laws are a topic with staying power in Washington.

The dispute has divided the principal food-industry associations.

The Food Marketing Institute here (representing retailers) and Food Distributors International, Falls Church, Va. (representing wholesalers) have lined up on the pro-fee, anti-regulation side.

The United Fresh Fruit and Vegetable Association, Alexandria, Va., and the Independent Bakers Association, here, have voiced opposition to the fees as financially burdensome and often arbitrary.

Both sides had the opportunity to air their views at a recent House Judiciary Committee hearing. The meeting followed a September hearing on slotting fees by the Senate Small Business Committee, which is still investigating the issue. The Federal Trade Commission and the U.S. Department of Agriculture are also each in the midst of their own inquiries.

No legislation has been announced to address slotting fees, but interest from the administration and on Capitol Hill in the issue remains keen.

Slotting fees are charged suppliers by many supermarkets and wholesalers as a means to offset the cost and risk of carrying products. The fees, however, vary from company to company, ranging from new product-entry fees to annual maintenance fees for longterm products. The size of the fee also often dictates how much shelf space a product receives and where on a shelf it is placed.

The many kinds of charges levied suppliers are of concern to FTC investigators, testified William K. Tom, the FTC's deputy director of the Bureau of Competition. Tom characterized the term slotting fee as covering "an extremely broad range of conduct, some of it clearly unlawful, some clearly lawful."

The illegal realm would involve under-the-table payments to a retail purchasing agent from a supplier, which would amount to commercial bribery, Tom said. Slotting fees charged a supplier by a retailer for carrying a product would fall under a legal contract, Tom said.

However, Tom cited some legal "gray areas" being weighed by agency officials in their slotting-fee investigation. "For example...strong buyers, such as supermarket chains, are demanding large up-front payments not tied to volume.

Nicholas A. Pyle, vice president of legislative affairs at the IBA, testified before the committee that bakers don't oppose paying for in-store promotions, such as when a product is featured on the end of a shelf. "These charges provide the product manufacturer with some value beyond shelf space," Pyle said. However, he labeled as "payola, commercial bribery, extortion and simply a shakedown" fees charged for simply carrying products, as in the example cited by the FTC's Tom.

Tim Hammonds, the FMI's president and chief executive officer, reiterated retailers' defense for slotting fees. "Slotting is a rational and natural marketplace response to the scarcity of shelf space and the proliferation of new products with very high failure rates," he testified.

In his testimony, Hammond also quoted from a recent SN article about the intense competition among suppliers for shelf space. "Quite simply, the roster of products vying for a spot in the produce section is growing faster than the amount of store real estate allocated to produce," the article said. "It also makes the retail produce executive's job one of the more challenging -- and at times frustrating -- in the store."

John Gray, FDI's executive vice president and general counsel, said the cost to wholesalers handling a myriad of products for different retailers is even more a reason for charging slotting fees.

"Slotting allowances in today's marketplace exist as a form of insurance paid by manufacturers to accommodate their desire to keep new and innovative items flowing into the supply chain while compensating wholesalers for handling these items and bearing the ultimate risk of their appeal to consumers," Gray said.