Slotting Fees

Lately, I have been concerned by the thinking patterns of the local general couponing population. With the recent possible change in the competitor coupon policy I have been reading several blogs around town and have become distressed by the comments that people are leaving that display a lack of understanding regarding how the retail markets work. People have made the following remarks:

"Well we knew it (meaning the use of compeitor coupons) couldn’t last!"

"Publix is losing too much money on the use of these coupons."

"I am even more aggravated at the lady or ladies, who shall from here on out be referred to as "the trail mix hussies" (in reference to the fact that someone used too many competitor coupons in their opinion), because you my dears have made me one grouchy couponer today :-( "

I thought I would take some time to explain how things actually work at the national retail supermarket level. Before I get started let me just run-off some figures for you. Publix’s sales for the second quarter of 2009 were $6 billion, a 2.7 percent increase from last year’s $5.9 billion. Publix’s net earnings were $300.8 million dollars last quarter (up 1.7% from last year). Their stock earnings per share increased to $0.79 for the first half of 2009, up from $0.77 per share in 2008. Publix’s stock price increased from $15.55 per share to $16.05 per share.

Publix is doing just fine. Really.

I often talk to the employees and congratulate them on their earnings for the quarter; I like to tell them that I think that they are doing well in this economy because of couponers like me. Well, I really do think that this is true (even with our constant use of competitor, manufacturer and Publix Q’s).

Why do I think this way? Well, I’ll give you a view into what I have long suspected…….that the stores do not work the way that we think they work. I have had this nagging feeling that we really don’t understand the way everything works. Well, so far I have uncovered one segment of the puzzle that I think is worth mentioning.

This piece is called slotting.

- Slotting is a practice that dates back to the 1970’s.
- Slotting is very profitable for the grocery stores.
- Slotting obliterates any bad feeling that you might have had about your coupon usage and it’s affect on Publix.

So, what is slotting?

A slotting fee is a fee charged to manufacturers by supermarket distributors (retailers) in order to have their product placed on their shelves. The fee varies greatly depending on the product, manufacturer, and market conditions. For a new product, the initial slotting fee may be approximately $25,000 per item in a regional cluster of stores, but may be as high as $250,000 in high-demand markets.

That's right....I said $250,000

In addition to slotting fees, retailers may also charge promotional, advertising and stocking fees. According to an FTC study, the practice is "widespread" in the supermarket industry. Many grocers earn more profit from agreeing to carry a manufacturer's product than they do from actually selling the product to retail consumers. According to retailers, fees serve to efficiently allocate scarce retail shelf space, help balance the risk of new product failure between manufacturers and retailers, help manufacturers signal private information about potential success of new products, and serve to widen retail distribution for manufacturers by mitigating retail competition. Vendors charge that slotting fees are a move by the grocery industry to profit at their suppliers' expense.

Food historians believe that slotting fees have dramatically changed the American supermarket landscape by reducing the diversity of products available to consumers. The American food market is heavily dominated by a small group of major players which can afford slotting fees and complex distribution systems, leaving smaller companies out in the cold.

Hmmmm, very interesting right?

Well, I won’t reinvent the wheel so if you’d like to read more about this practice feel free to peruse this document entitled, "STATEMENT BEFORE THE FEDERAL TRADE COMMISSION: SLOTTING FEES HEARING." It explains slotting in more detail.

Another interesting article from the Oligopoly Watch can be found here.