BrainTrust Query: What if we found a better alternative to slotting fees?
By Dan Nelson, Sr VP / Chief Operating Officer, GMDC
In continuing our efforts to employ RetailWire as a think tank and feedback mechanism for new ideas, we present “BrainTrust Queries”: a series of proposals,
hypotheses and intellectual investigations from our BrainTrust panel of retail industry experts.
New item slotting fees have been described as a “crutch” and a “necessary evil” for product suppliers. In a 2003 report on “Slotting Allowances in the Retail Grocery Industry,” the FTC estimated that manufacturers spend in the neighborhood of $1 million to $2 million, depending on the product category, to introduce a product to 85 percent of U.S. supermarkets.
And yet, few believe all that money is being applied effectively. The FTC’s study, done in five different categories, showed that the success of giving allowances to achieve
market penetration is highly variable.
“In some cases, the total dollar amount of slotting allowances reported for a particular product category in a particular metropolitan area was more
than the category’s new product revenue in the first year. In other cases, [it] represented less than 5 percent.”
Clearly, both manufacturers and their retail trading partners would benefit if promotional monies could be performance-based, rather than relying on a system that blindly “throws money at a new product.”
My proposal…What if retailers eliminated new item slotting fees and replaced them with retail sales and profit goals per inch of space on the shelf?
The supplier introducing the new item would have to meet the average sales and profit per linear inch of shelf used to introduce their new item. The measurement period would
span 16 weeks. At the end of that timeframe, the supplier of the item either meets the hurdle rates or pays the retailer the difference for any sales and profit shortfalls.
The result…The retailer’s sales and profits in the category increase, since the measurement used is the average for the category, while the lowest selling items are deleted
to make room for the new, more profitable items being introduced. The supplier is now more focused than ever on investing in the item’s sell through, vs. investing in the
sell in via the slotting dollars historically paid.
Moderator’s Question: What do you think of the plan to tie promotional allowances to performance? Is this a better partnership than the method of charging
slotting fees, and what are the inhibitors that could derail this effort? –
Dan Nelson – Moderator
- Slotting Allowances in the Retail Grocery Industry: Selected Case Studies in Five
Product Categories – Federal Trade Commission, November 2003