November 20, 2007
By: Daniel Duffy, Principal Analyst
You asked if any state considered legislation on slotting fees charged by grocery stores.
The term “slotting fee” describes a variety of fees retailers charge their suppliers. Generally, suppliers pay these fees under an agreement that guarantees the supplier shelf space for a particular period of time. Some fees are charged for the introduction of new products, some to maintain existing shelf space, and some to exclude a rival's products. The term is associated with fees paid to grocery stores, but slotting fees may charged by other types of retailers as well.
We identified a bill considered by California in 2005 and another currently pending in Massachusetts.
California's Senate Office of Research prepared a slotting fee background paper in January 2005. It describes how the fees are imposed, summarizes some Federal Trade Commission (FTC) work on the issue, and reviews the positions taken by supporters and critics of the fees.
California considered, but did not adopt, a bill on slotting fees in 2005 (SB 582). The bill was significantly revised before it died.
In its first version, the bill prohibited any retailer from imposing a slotting allowance or a pay-to-stay fee on a supplier without disclosing, clearly and unequivocally, the amount of the charge the retailer imposes on other suppliers for the placement of similar products (SB 582). It defined “slotting allowance” as a lump-sum payment for the placement of a product on a shelf and “pay-to-stay fee” as a fee for continued placement on a shelf.
In its second version, the bill required retailers, on request from a qualified supplier, to disclose (1) placement fees or arrangements charged for the placement of similar products and (2) all trade information for the placement of a similar product if (a) information about a specified product has been shared by the retailer with a manufacturer or supplier that neither supplies nor manufactures the product or (b) information about a product has been shared with the retailer by a supplier that neither supplies nor manufactures the product.
The bill defines (1) “placement fees or arrangements” as a promise of shelf space, specific shelf placement, guaranteed advertising, payment to keep a product on a shelf, slotting fees, or any other benefit; (2) “qualified supplier” as one who can supply the retailer with a product similar in character; (3) “shelf” as a specific location in a retail store where the product is offered for sale for more than five days; (4) “slotting fee” as a lump-sum fee for product placement on a shelf; and (5) “trade information” as all retail pricing, sales volume, and promotional information for all similar products within specific stores or a grouping of stores.
The 2007 Massachusetts bill, in the form of a proposed bill, prohibits slotting allowances from being charged by grocery stores (AB 324). It defines “slotting allowance” as an exchange of anything of substantial value in return for desirable shelf space. It received a public hearing in June.
CALIFORNIA BACKGROUND PAPER
The California Senate Office of Research prepared a background paper in 2005. It states that “there is no standard definition of the term “slotting fee,” but that it has been used to describe lump-sum fees paid for a new product introduction. It relies on certain FTC reports to state that it is difficult to determine the amount of or frequency with which slotting charges are imposed. The FTC surveyed seven retailers in 2003 and only one reported that it kept historical electronic records of slotting fees. The FTC concluded that even with retailers' cooperation, it is difficult to obtain historical data. As a result, the FTC states that “the frequency and overall amounts of slotting dollars reported by the retailers in this study may be lower than the actual incidence of slotting.”
Relying on a report issued by the Food Marketing Institute, the California report states that slotting fees are charged to (1) cover the costs of introducing a new product, (2) remove the item that previously occupied the shelf, and (3) recover the retailer's investment if the product fails.
Relying on another FTC report, the report states that slotting fees have been criticized for (1) increasing the cost of introducing new products, (2) adversely affecting smaller suppliers more than larger ones because larger suppliers are more likely to be able to afford paying them, (3) adversely affecting smaller retailers in favor of larger ones because smaller retailers cannot extract slotting fees from suppliers, and (4) reducing competition by stifling innovation and product variety.