This is the grocery ice cream aisle. And this is a witness hiding behind a screen
to protect their identity and their business. The two are connected. This is a frost-covered door to a world of
delicious treats, and this is John Kerry in September 1999,
listening to a witness whose voice is scrambled to preserve their anonymity. “It’s not about the product.” Really weird voice-scrambling here, by the
way. There is a war going on in the aisles of grocery
stores. A lot of grocery shelf space is bought by
companies selling you stuff, long before you see it while you’re shopping. It can cost as much as $5 million dollars
to get your candy bar near the checkout in a bunch of grocery stores. And even if you know about these so-called
slotting fees, the arguments for and against them might surprise you. Slotting fees say something about the hidden
transactions that let buyers and sellers work together — and occasionally fear each other,
too. Imagine you’re a new ice cream maker and
you want to sell delicious Generic Ice Cream, the ice cream with delicious generic bits. You can’t just start selling your ice cream. If you want to be in a major grocer, you have
to pay. Journalist Gary Rivlin recently wrote about
the slotting fee economy in a report for the Center for Science in the Public Interest. His story of a real ice cream brand called
“Clemmys” is a guide to what might happen to your Generic Ice Cream brand. To get Generic Ice Cream inside a freezer
door, you’d have to pay $30,000 to get in 350 stores — and that’s at a discount. Once you got in, sometimes you’d have to
pay up to stay on the shelf. And you’re competing against giants like
Nestlé and Unilever. Rivlin reports they control basically 90 percent
of the freezer doors because they’d already paid up. For giants like them, a $30,000 fee isn’t
a lot — for you, however, it might be a major cost. Even then, paying for your Generic Ice Cream
to get on the shelves wouldn’t necessarily give you control — instead, category captains,
the big guys who pay the most, draft where every item goes, which can determine how well
things sell. Drawings like these, called planograms, help
stores keep things organized. See, Generic Soda goes here, Generic Energy
here. But they also help retailers sell space. Each spot comes at a cost. The same is true of most of what you see in
the candy, cookie, chip, and soda aisles. To writers like Rivlin, it’s no better than
a bribe. Soda and candy pays up, and consumers have
limited choice. Your delicious Generic Ice Cream never hits
the shelves. The Bureau of Alcohol, Tobacco, and Firearms
banned stuff like this for alcohol in 1995. And if you’re a regular reader of Frozen
& Refrigerated Buyer, you’ll know vendors are constantly fighting against these slotting
fees. So why are vendors resigned that slotting
fees are here to stay? Imagine you’re the grocery selling that
Generic Ice Cream. There are a lot of reasons for slotting fees. There’s have so much shelf space to sell
from, and food makers — like Generic — throw too many products at them. Slotting fees help the store prioritize. Mary Sullivan wrote early studies defending
slotting fees. See this chart? It shows how many new products that manufacturers
came up with in the 80s, thanks to technological advances like scanners that made it easier
to spin off products. Retailers needed to cut through the glut. Some argue that slotting fees hel the store
prioritize. And as this chart from the Federal Trade Commission
shows, slotting fees are typically higher where space is scarcer, like the ice cream
aisle or the candy bar aisle near the checkout. The purple ice cream here in this chart is
clustered at the higher end of the slotting fee scale. The FTC and other academics have found that
for retailers, slotting fees don’t just cull the offerings, but they also help them
see that a manufacturer is willing to put their money where their mouth is. If you threw $30,000 into a slotting fee for
Generic Cookies and Cream, it might signal to the retailer that you’re able to guess,
thanks to market research and other testing, that the product will succeed. The retailer might then decide it’s worth
a try, which is important, since 80% of new products fail. The argument’s that slotting fees don’t
just offset the costs of adding new products to the system, but they also show if a manufacturer
thinks a product is a winner. It's a conundrum – the closer you look,
the more supermarkets seem rigged, but at the same time, the more the rigging makes
sense. The only thing that’s certain is that behind
those freezer doors, and behind that screen, there is a war going on. The Food Marketing Institute, which represents
grocers, told me that Rivlin’s article “seriously mischaracterized the legitimate food industry
practice of slotting fees.” Meanwhile, Rivlin and advocates like him want
the FTC to look at slotting fees again. Each retailer has their own strategy — A
Walmart spokesperson told me they don’t charge slotting fees because they believe
it raises prices. Whole Foods reportedly has a similar stance,
preferring free trials of goods to cash. Both sides have solutions: sellers would rather
retailers opt for more test stores to give products a chance, instead of demanding high
slotting fees . And grocers, well, they say slotting fees
are necessary to “recoup the labor, spacing and shelving costs entailed in marketing new
product lines.” They also push in store brands to take more
control — think Trader Joe’s or your grocery’s branded soda — and that makes space scarcer
for manufacturers. Only a few things are certain - your grocery
aisle, where you see happy cereal boxes and yummy ice cream — is oddly tense. Hide behind a screen tense, because large
groceries have the ability to keep your product off the shelves with just a snap of their
fingers. Selling your Generic Ice Cream is a lot more
complicated — and controversial — than you might have realized. And maybe, now, buying it is too. Slotting fees are ultimately a form of negotiation,
and even if you don’t pay them, you still might be making compromises. You could sell your Generic Ice Cream in Trader
Joe’s, but if you do, you might have to sign a strict non-disclosure agreement, promising
not to reveal that it’s your ice cream Trader Joe’s is selling under their own brand.
Would it scare anyone to know that pharmacies do the same thing with medications?
Is it too much to ask for cheaper ice cream?
I don't work in the food industry, but for a toy company. Slotting fees are really just capitalism at work, and while it can look nefarious when 90% of our prepackaged food comes from like 3 companies it's just the way business works. The video itself explains it, even if it's not the narrative they're trying to portray.
80%+ of new products fail, unsurprisingly retailers have lots of costs, especially with food, and only limited shelf space. If it costs next to nothing to put a product on the shelf they're gonna have a ton more failures. Basically the retailer doesn't want to be where the trial and error process happens and so they shift that burden back on manufacturers to determine which products are their best, that they're most willing to invest in, and will ultimately have the best chance to sell well.
The company I work for pays minimal fees for shelf space because the products we make have had a very steady ROI over the last decade, and they're easily recognized by consumers. For some of our 'big box' partners, we don't pay any fees because we're going into so many stores it doesn't make much difference. 30k is really a pretty small cost in the grand scheme of the manufacturing process and would probably add less than a tenth of a cent to our total cost for any product.
So while pricing out small enterprises is an unfortunate side effect of the practice, it's really in place to ensure that retailers are able to consistently offer products at an affordable price and keep a healthy supply chain.
I work in this space. Icecream is a horrible example since it has a large footprint and requires refrigeration from the distribution center to the store inventory to the point of sale.
Walmart is the end game for most companies. For example, I have products in walmart. Several sell less than 5 per store, per week. If you have full distribution (5,300 stores) in all stores that still comes out to >105,000 units a month, or 1.4million a year.
Also, if you are able to give most stores 70-100% margin on the product you do not need to pay to be in the planogram.
Fun experiment: Watch this video at 1.25X and it basically sounds normal. You won't be able to bear the slowness once you go back to 'normal' speed.
One big correction is the the category captain is not who paid the most but usually the largest market share is the category. You don't pay to be the category captain at least not at Walmart.
To be fair that ice cream had terrible branding. I'm not surprised it failed
I couldn't watch much beyond the planogram. Seeing that grid gave me PTSD of when I used to work retail.
What... So retailers should be forced to carry everyone's product? I should be able to make my own ice cream then force the local target to carry it on their shelves?
Obviously shops should be free to choose what products they want to sell and how much profit they want to make from selling the product. I don't see what difference it makes if they take a cut of the retail price or if they charge an up front fee.