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A slotting fee is a fee which a supermarket or chain store charges manufacturers for carrying their products. You may be surprised to learn about slotting fees, as it seems a bit odd to pay for the privilege of having your product appear on supermarket stores, but they are in fact a large source of revenue for many supermarkets and chains, despite attempts at regulation in many parts of the world.
This practice emerged in the United States in the late 1970s, and while it is not industry standard, it is very widespread, especially among very large chains. Essentially, these stores charge a fee for carrying new products; products which are already on the shelf may also have slotting fees assessed. The slotting fee for a brand new product is sometimes called a “product introduction fee.” Stores may also institute a “pay and stay” policy when they change hands, meaning that manufacturers will be required to pay a slotting fee if they want their products to remain on the shelf.
From the point of the view of the grocery industry, slotting fees are extremely convenient. They act as insurance against new products which fail, ensuring that the stores make a reasonable profit on them and justifying the allocation of warehouse space. Slotting fees also help stores expand, and they can assist with decisions about what kinds of products to carry, and where. For plum spots like endcaps by the registers, companies may pay extremely high slotting fees; in some cases, stores actually make more from the slotting fee than they do from sales of the product.
Manufacturers, of course, feel very differently about slotting fees. Small companies typically cannot afford to pay slotting fees, making it difficult for them to get product exposure, as they can only supply stock to smaller chains or individually owned stores which do not charge slotting fees. Some manufacturers have banded together to lobby against such fees to stock products, arguing that they are unfair to small companies.
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. Some food activists have also spoken out against the slotting fee concept, arguing that it hurts consumers as well as manufacturers by restricting consumer freedom of choice.
Slotting fees are terrible for small vendors! What’s even worse is that some retailers even charge advertising and stocking fees! I’m starting to think that that’s how some stores can have such low prices while other stores are far more expensive.
I work for a grocery store which has an entire section set aside for local cookies, chips, and other foods. Our prices are really high compared to other stores in the area. I always wondered why, but now I see it must be because the store I work at doesn’t charge slotting fees.
There’s another grocery store down the road which has far cheaper prices and half the business of the one I work at. I’ve noticed that they don’t have a section for local products.
Well, no wonder they’re prices are so low! They don’t have to worry much about making actual sales if they’re collecting huge slotting fees, do they?
@Frances2 – My sister has successfully avoided slotting fees at a regional chain of stores down south. Her method might work for you.
First, ask for another meeting with the buyer. At the meeting, show him how similar your target markets are. Remind him how much he loves your cookies. Show him your online sales (if they’re impressive), and your in-store sales estimates.
Once his interest is piqued, propose that you’ll pay the slotting fee in payments over the course of three, six, or twelve months. Have a marketing plan laid out that will show him how you’ll get people into his store to buy your cookies.
If that still doesn’t convince him, tell him you’ll let them
carry your cookies free of charge (meaning the store doesn’t have to buy them from you), and the store can keep all profits from your cookie sales until the slotting fee is paid.
If that works, make sure you get his consent in writing.
My family sells handmade cookies online, and we want to start selling them in a regional grocery store chain. The grocery chain’s merchandise buyer said he loves our cookies, but the store requires a slotting fee. We don’t have the money for one. Is there a way to get around it? The grocery chain’s customers are the perfect target market for our cookies, so we really want to partner with them.
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