i have heard several times that the profit margin in supermarkets is razor-thin. consequently, the stores don’t really make money off the individual sale of its products, but rather from a something called ‘slotting fees’ can any of u fellow dopers tell me if this is correct, and how this whole slotting thing works. from what i understand, the food manufacturer is basically buying shelf space.
Here’s an interesting lowdown courtesy of the US Gov:
Oops - I hit “submit” before I offered up a snippet:
A New England supermarket chain was purchased approximately five years ago by an individual who used the proceeds of slotting fees to cover a portion of the equity for the purchase. A “pay or stay” slotting fee was required for each item in the supermarket.
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A New York area supermarket chain regularly charges $20,000.00 for each new item introduced by a food manufacturer, as well as “requesting” annual contributions to the purchasing manager’s Christmas party.
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A West Coast supermarket chain was solicited and paid a one million dollar fee to change from one food manufacturer’s products to another’s. The justification was cost of computer reprogramming.
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A national supermarket chain recently quoted a six figure amount to a specialty baker to carry its items for a single period with no assurance of retention.
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When opening new stores, one Eastern supermarket chain takes a six-month grace period before paying its first invoice. This “extended fill” gives the new store time to generate cash-flow, while the baker waits for payment.
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It is not out of the ordinary to have requests of $200,000.00 and above for slotting from larger chain stores. If an independent baker cannot afford the fee, they lose out.
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The issue is growing beyond direct payments for carrying a product. For example, many food manufacturers are regularly forced to purchase space in a home shopping food catalog and send representatives to a variety of food shows and events.
GOYA, a huge commodity in the Latino market, pays NO slotting fees. It is the only manufacturer that enjoys this ‘perk’. Slotting fees cost more, or less, according to ‘eye space’. That is, if it’s eye level on a shelf, you pay more. Goya is always dead center eye space. The market for Goya products is so lucritive, they bail out of a store requesting a fee. The prudent store owner (or corporation) doesn’t want the loss of a large Latino customer base, so Goya stays for free.
Almost any high profile product could do this. Would you keep going to a store that didn’t carry ANY product you commonly purchased. Some abuses are likely just from the raw scale of food distribution in the US. I would seriously question that $100,000+ “slotting fees” are common in anything less than HUGE chain supermarkets in choice endcap locations. If this was common practice food costs would spiral out of control as grocers charged $100K to put in a line of canned mushrooms that sell for 50 cents into 10 stores. Just to break even the canner would be up to several dollars a can just to cover “placement cost” in addition to production costs.
The vast majority of the stores will be charging “reasonable” fees or else the food manufacturers will take their product where they can sell it for a profit. Its not like one grocery store chain owns every store in the country, they, like other businesses, compete with each other on a variety of levels. Profit driven checks and balances exist all over the place.
Size does matter in this case. Some of the economics are driven by scale of production. That gorilla in Arkansas can demand things and get them due to the pure volume they sell. Sounds like graft to me, but I’m not in sales.