News and Views

- July 5, 2007 -


From RetailWire: Slotting Allowances Lead to Dumbed-Down Retailing


Do Consumer Goods Manufacturers Really Have the Power In the Grocery Supply Chain?



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Each business morning on, retailing execs get plugged in to the latest industry news and issues with key insights from a "BrainTrust" of retail industry experts. Here are excerpts from one of these unique RetailWire online Discussions, along with results from's Instant Polls.


By George Anderson, Editor-in-Chief, RetailWire

A recent article in The Financial Times, America's Time-Warp Supermarkets, has a number of critical observations to make of the U.S. grocery business. Among the most biting is the author's contention that slotting fees and other monies have led to a sense of sameness across stores with the same items prominently featured on end-caps for, yawn, purchase.

While being able to command a price for shelf-space gives the impression that retailers hold the cards, the article suggests that retailers in the U.S. are weaker as a result of the practice.Neil Currie, an analyst at UBS, compared slotting fees to a drug that some chains are addicted to.Thierry Chassaing, a senior partner at the Boston Consulting Group, said, "U.S. supermarket chains have a tenth of the power of those in Europe. A Giant or a Star Market in Boston can do little against food companies."

The strongest of chains in the U.S. are those that do not rely on manufacturer funds, according to the article's author, John Gapper. "It is only since national chains such as Whole Foods and Wal-Mart emerged, with the purchasing and marketing clout to stand up to suppliers, or circumvent them altogether, that supermarkets have sharpened up their act," he wrote.

Discussion Question for the BrainTrust panel: Do you agree that slotting allowances are causing a general 'sameness' on supermarket shelves? Have the last 5 years seen any significant changes in the way most U.S. grocers decide what goes on their shelves?


RetailWire Instant Poll Results:

RetailWire BrainTrust Comments:

Stiff slotting allowances are economically feasible in the business models of the same usual suspects, the brands that "everyone else" carries. The industry has inadvertently shut out the most innovative new ideas, most exciting new brands, and most appealing niches, in favor of the boring defensive approach of making sure it earns its small profit from "buying" rather than "selling." The largest branded companies that can afford the slotting allowances tend to be the least innovative and those are the brands that dominate the shelves in every "sameness" retail chain with the same assortment. And so what is the result? The only differences between one chain to the next is what items are being discounted, who has the deepest TPR, and who is doubling coupons, etc. Big yawn!

- David Biernbaum, Senior Marketing and Business Development Consultant, David Biernbaum Associates

BWH Consulting President Bill Bittner Says :
If we really want to increase the number of manufacturers, we have to choose a new way to handle risk.

What do you say? Send us your comments here

I agree [slotting fees] distort the market and lead to large manufacturers dominating the supplier channels. Innovative small companies don’t have the cash to finance the purchase of shelf space in the supermarket. This does not mean assortment must suffer but it does mean the number of manufacturers must decline. The remaining manufacturers increase their revenue by offering new varieties either at new price points as additional brands or with new products in existing brands. If we really want to increase the number of manufacturers, we have to choose a new way to handle risk.

Slotting allowances made sense in the beginning because they offered the retailer protection against product failures. Rather than get stuck with a new product that did not sell, the retailer could justify experimenting with new products by the “insurance” that the slotting fee provided. Maybe there is an opportunity here for a third party to take on the risk of a new product offering. Just like other businesses offload risk onto third parties willing to take the chance, suppliers and retailers could use “New Product Insurance” to syndicate the risks associated with taking on a new product. Innovative startups could offer their products without a large upfront cost and risk adverse retailers could recover the cost of failed products. This would remove the distorting effect of upfront payments and help both sides provide greater assortment.

- Bill Bittner, President, BWH Consulting

SAs are like a drug, a habit that's hard to kick particularly when you are weak in other areas. The short term cash flow benefits of these allowances propped up more than a few players five years ago, but the result is inefficient assortment variety levels, and unproductive space allocation. Hard to look back and say it wasn't the right thing though, since the bulk of the merchandising talent seemed to lay on the supply side for years. Seems this dynamic has changed, and grocers are growing more confident, and independent, which should lead to much better grocery experiences for all of us.

- Todd Belveal, Vice President, Strategy & Research, Design Forum


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