slotting allowances

How about slotting allowances, the payments most food companies make to grocery stores to get shelf space for a new product?

While there are no data on whether the slotting allowances add to what the consumer pays for food, one consequence may be diminished choices.

For marketers, it means not having to pay slotting allowances and other fees to store owners to get their products stocked.

Some of the more powerful wholesalers boast that they won't even consider paying slotting allowances.

Vitari considered putting the dessert in store freezer cases, but could not afford the slotting allowances.

The shelves of those stores are considered such desirable promotional space that food manufacturers pay cash (called "slotting allowances") to retailers to introduce their products.

Many Fees Among the fees collected by grocers are slotting allowances for stocking a company's products.

But with the robust consumer demand for natural foods, some supermarkets are reducing or waiving slotting allowances to get these products onto their shelves.

Larry's Markets, the supermarket chain in Seattle, is one of several groceries that consider slotting allowances a very negotiable point.

They don't charge vendors "slotting allowances" or shelf-space fees, and they negotiate on prices.

Some food companies, like Campbell Soup, pay many kinds of promotional funds to supermarkets, but refuse to pay the slotting allowances.

A New Way to Market Food The Kroger Company said the payments from manufacturers, called slotting allowances, are justified.

He added that although manufacturers are complaining about the slotting allowances, it was manufacturers who started offering them a few years ago when competition among new products began intensifying.

In one indication of the power shift, slotting allowances, which manufacturers pay grocers for the shelf space to introduce new products, have become widespread within the last five years.

In fact, Aldo N. Cunningham, vice president in charge of sales, thinks that is one reason that Goya can refuse to pay slotting allowances.

Although manufacturers give supermarkets various incentives to buy their established products, the slotting allowances are generally paid only when a product is being introduced to a supermarket chain or a region.

Yet, Mr. O'Toole was even more blunt in his criticism of trade promotions like slotting allowances, by which supermarkets charge marketers for adding new products to their shelves.

Because figures on slotting allowances are not made public, even by publicly owned companies, it is impossible to verify assertions by food manufacturers and consultants that the fees exceed the costs.

Retailers with power will, perhaps less commonly, use it to invoke restraints such as slotting allowances for the right of a manufacturer's product to be on the shelves of a supermarket.

Slotting allowances, which typically come out of ad budgets, now take 44 percent of all marketing budgets, up from 34 percent in 1980, according to Donnelley Marketing.

The merged companies will be able to get the shelf space they want, often without paying slotting allowances, payments they often have to make just to get products on the shelf.

"Basically, slotting allowances are a reflection of the rapid proliferation of new products," said Paul Bernish, a spokesman for Kroger, which is the nation's largest supermarket chain and is based in Cincinnati.

Slotting allowances - the practice among retailers of forcing vendors to pay for shelf space - is having a "chilling effect" on product introductions, a recent issue of Gorman's New Product News reported.

Manufacturers gain through having their product demonstrated, or even through having it present in a store (or else they would be unwilling to pay 'slotting allowances' to supermarkets), so that demand is not exogenous to retailing.

A typical store chain now routinely charges wholesalers "slotting allowances" - ranging from $5,000 to $20,000 - to locate one new product in a good facing on a popular shelf in a hip neighborhood at the right height.