CONSULTANT: FRESH-FOOD SUPPLIERS FACE GROWING TRADE FEES

JENNIFER OWENS

WASHINGTON (FNS) -- Fresh-food suppliers are rushing down a $30 billion aisle of trade fees that producers of packaged food already know all too well -- and it's time to decide what to pay for and what to reject, says a veteran Center Store consultant.

"If you're willing to pay it, they're willing to take it. That's the history of packaged goods," said Christopher W. Hoyt, founder and president of Hoyt & Co., a Stamford, Conn.-based packaged-food consulting firm. Packaged food "is a community that has been dealing with this issue for 30 years and they haven't figured out how to solve it."

Called trade allowances, these slotting fees, advertising and display allowances and temporary price reductions are a well-known way for supermarket retailers to increase revenues in an era of flat sales and even flatter prices.

Speaking to members of the Alexandria, Va.-based United Fresh Fruit & Vegetable Association at their Washington Public Policy Conference here, Hoyt said trade allowances already cost packaged suppliers $30 billion annually. But, he said, that figure should only increase as supermarket chains both begin to consolidate and to turn their revenue attention to fresh foods.

Supermarkets "are definitely moving packaged goods people over to produce," said Hoyt. And with those people are coming a decades-rich tradition of charging thousands of dollars for shelf space and advertising, he said.

Calling such fees "a Roach Motel system," Hoyt cautioned fresh-food producers to decide now how to handle trade allowances before supermarkets begin pushing for them. Because, said Hoyt, "once you get in, you can't get out."

And produce is ripe for the picking: Perishables make up almost 50% of total supermarket sales and 57% of the profit, Hoyt said. That's why some supermarkets are now baiting fresh-food suppliers to enter the world of trade allowances.

According to Hoyt, some stores have already begun using category management techniques in their produce departments. It's an approach that he said often intensifies competition among suppliers and usually favors big business; charging slotting allowances on packaged salads and other produce items with Universal Price Codes and urging produce suppliers to replace price look-up codes with UPC labels on everything else.

With UPC labels, scanners can track sales by individual suppliers: "Now you're on the defensive because the retailer has more information about your business than you do."; playing one supplier off another to cover "merchandising" costs.

Such pressures should only increase as supermarket chains merge to shrink overhead costs and strengthen buying power. According to Hoyt, there's ample room for consolidation: Currently the Top 10 supermarket chains control only 30% of the total market, and the Top 50 control only half.

In the meantime, slotting fees, which are unregulated, are rising. For example, according to Hoyt's annual survey of metro New York supermarkets, the slotting fee to get one packaged stockkeeping unit into 2,430 supermarkets rose $50,000 in one year, to about $167,000 in 1996.

Hoyt questions how much of the fees go straight into retailers' pockets."I'm not against slotting fees -- but only if they reflect the retailer's actual cost of business," he said. "We are dealing here with a bottomless pit. No amount is going to satisfy it."

Hoyt said fresh-food producers should consider following package foods' defensive lead. For example, some large vendors have used their strength to change their promotion contracts to include "pay for performance only" requirements. Others have developed joint marketing plans with their supermarket distributors to ensure how promotional dollars are spent.

Finally, some have begun to build business relationships with cheaper nonfood channels, such as supercenters and direct-to-home sales.

In addition, Hoyt said all suppliers should consider filing formal complaints to urge the Federal Trade Commission to investigate the issue. Also, a restraint of trade lawsuit backed by an association or cooperative should be considered if a small producer's new product is turned down because a supplier could not meet certain slotting fee demands.

And in a tough move, suppliers should all refuse to deal with supermarkets charging exorbitant fees. As a last resort, Hoyt said producers should consider calling for congressional hearings on supermarket trade promotions. "It's a huge problem that no one is looking at," he said. "The supermarket business is out of control."