RETAILERS PETITIONED TO REFUSE SLOTTING FEES

MINA WILLIAMS

IRVINE, Calif. (FNS) -- Western Growers Association, here, has fired off letters to the top 70 retailer chairmen and presidents in the United States urging them to sign a pledge to forego slotting fees and similar business practices in the fresh produce category.

The letter, written by David Moore, WGA president, stated that grower/shippers have been asked to pay slotting fees, computer/technology related fees, advertising and promotional allowances, interview fees, category management fees, warehouse construction/new store opening fees, indemnification/hold harmless agreements and other off-invoice payments.

"WGA recognizes that slotting fees and other business arrangements may be wholly warranted when new untested products are being introduced into the marketplace," Moore acknowledged in his letter. "Rather, our concern is primarily with the use of potentially anti-competitive activities for many types of fresh produce commodities which cannot, in any way, be considered new."

WGA concluded its letter by urging retailers to reaffirm their company's commitment to maintaining competitive markets in which reductions in prices paid to growers/shippers for healthy, nutritious fresh produce commodities are passed along to consumers. "WGA calls upon you at this time to publicly pledge that your firm will not utilize slotting fees or other potentially anti-competitive business practices for fresh produce commodities."

To date, there has been no response to WGA's appeal, according to produce industry observers. One told SN that the letter did get the attention of top retail brass, however. "Some have had their legal departments review the letter and have taken a new look at the way they do business."

George Green, vice president and general counsel, Food Marketing Institute, Washington, said the retailer-focused organization was surprised to see the letter, and questioned whether the letter enters sensitive legal ground, given WGA's own membership of grower/shippers.

"It delves into matters only discussed by individual trading partners. Allowances and the like are elements of price, and industry discussions about that are not allowed under anti-trust laws," he said. "These are individual company decisions."

Retailers who haven't had a history of charging fees and allowances responded to the letter saying they're interested only in obtaining the lowest possible price for the best quality produce from all suppliers.

"Slotting fees in produce are the wrong thing to do," said Bruce Peterson, vice president of perishables, Wal-Mart, Bentonville, Ark., the only major food retailer to have publicly ignored slotting fees, "We are interested in getting the best possible price to pass that along to our consumers. We are interested in taking cost out of the system."

Peterson added that Wal-Mart adheres to the belief that if suppliers are profitable, stay in business and keep supplying stores, then both sides are in a better position to remove inefficiencies from the system.

"What it all comes down to is establishing good, consistent relationships with suppliers," said Peterson. "It is within the individual grower, shipper and packer's power to do something about slotting fees. They just haven't."

Nevertheless, retailers like Wal-Mart, who have declined thus far to charge such fees, say that should slotting fees become a standard industry practice in produce, they might have to rethink their position.

"We don't require slotting fees," said Jack Brown, president and chief executive officer, Stater Bros. Markets, Colton, Calif. "Our only concern is if slotting fees are given for any product -- including produce -- then we have the right to our fair share. If fees are paid to anybody, they should be paid to everybody."

"If slotting fees become standard industry practice, we will participate," echoed Peterson. "If it's not a standard practice, what goes on between trading partners is not my business."

Growers have argued that these types of retail practices in produce are merely a new revenue source. They say flat growth in the retail sector, coupled with rising costs, is causing retailers to seek alternative sources of income.

"Retailers should make their profitability off buying and selling, not their suppliers," said one industry insider.

"Most retailers want price reductions off the FOB so that they can pass low prices along to their consumers," said Dick Spezzano, a Monrovia-based consultant and former produce retailer. "I would be very surprised if any retailer signed [the pledge]."

Some grower/shippers have already taken the stance and have refused to pay fees. Art LaLonde, vice president of Los Angeles-based Valley Fruit & Produce Co., said a lot of growers/shippers and packers have gotten requests and have faced the tough decision whether to pay

"[Valley has] made the decision to not pay slotting fees," he said. "Nobody forces trading partners to do what they don't want to do. It's a business decision. Some growers have felt intimidated, some growers have said no."

Industry watchers point out that Center Store manufacturers come to market with a two-pronged approach, using both promotional allowances and slotting fees, as well as consumer-focused direct marketing. While this strategy has become the norm on the grocery side, the produce industry has never built such costs into its structure.

"Produce growers, shippers and packers simply do not have the budgets to allow that approach," said Spezzano. "Produce relies on a push-through approach with retail partners, not a pull-through approach."

"Many produce companies are very good at growing fruits and vegetables, but they are unsophisticated as business people," added Peterson. "The produce companies have not ramped up to speed with other food manufacturers."