This News Release is brought to you by William Sipper via USA Herald.
When looking at products on a supermarket shelf, most of us do not think about how they got there. We know nothing about the war for grocery shelf space that goes on behind the scenes. But William Sipper, Managing Partner at Cascadia Managing Brands, warns “We do not realize that long before we make our decisions about what to buy, slotting fees paid by manufacturers have influenced our selection.”
Why “slotting fees” were introduced
In the 1980s manufacturer excess was a problem. The food industry was exploding as manufacturers began offering many new products to retailers thanks to technological advances. Too many manufacturers gave little thought to the expense of retailers when new products failed. Shelving space was limited and retailers needed a way to handle the glut. It seemed that the best way to solve the problem was to introduce slotting fees. so that manufacturers and retailers would share the expense that came with introducing new products and extensions to existing product lines.
The arguments for and against
Retailers have benefited from the competition between manufacturers and slotting fees are now running at about $1 billion a year. Manufacturers also have to shell out to retailers for products to be promoted and discounted. It can cost as much as five million dollars to get a candy bar near the checkout in different grocery stores.
William Sipper explains that this means a store stocks products because of the money a company must pay to get the product on the shelf, rather than what it offers the consumer. Big brand-name manufacturers have leverage in negotiations because their brands are established and the stores can’t do without them. Great new products may never get near the shelves because the manufacturers of these products just can’t pay the fees. The big conglomerates are happy about the fees because they can easily afford to pay them and it keeps new, innovative products off the shelves leaving more room for their products.
Retailers, who usually operate with large volumes and small margins, feel justified in using slotting fees to reduce their risks and recoup their costs. They argue that the fees do not necessarily raise the cost of experimenting with new products – they just place some of it back on the manufacturer so they don’t have to sit with all the risks. Many new products still fail and the fees cover costs.
The dark side of the process
Who knows what exorbitant fees may be paid to keep competitors off shelves. When there are hidden transactions between buyers and sellers, this creates a breeding ground for questionable transactions. Retailers have the power to reduce competition and make it harder for small businesses to compete.
Each spot on a shelf comes at a cost. Large companies can buy up enough shelf space to influence consumer selection – and if it’s a junk food company, it can even influence the health of consumers by getting them to choose less healthy foods. Some healthy, delicious new products may never find their way onto the shelves.
One example is in the field of carbonated soft drink sales that have been declining approximately 1% for each of the past 15 years. This has not led to retailers cutting back on the amount of space given to them because the large beverage companies give retailers rebates for selling more of their products. It is more profitable for retailers to take these rebates and ultimately the consumer has less selection at higher prices.
The changes online grocery shopping will bring
Today more and more consumers are beginning to buy their groceries online because this offers them more selection, convenience, saves time and give them the ability to compare prices easily. They do not need to leave their homes or stand in checkout lines to buy their groceries and they are delivered free of charge. It is easy to re-order items too as records are kept of items ordered. Amazon.com has changed the way we do our shopping and this has had a negative impact on the retail malls.
Retailers will be forced to start rethinking their strategies as they are likely to start losing market share. William Sipper predicts this will begin with the size of stores which may have to become much smaller. They will need to offer products and services that consumers don’t want to buy online. I believe we will see a very different type of supermarket emerging within the next 20 years.