Grocery shelf space worth millions - East Valley Tribune: Business

Grocery shelf space worth millions

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Posted: Sunday, January 11, 2004 3:09 am | Updated: 4:30 pm, Thu Oct 6, 2011.

Bags of Taqueria tortilla chips sit at eye level. Brightly packaged boxes of Gerber baby food and Atkins lowcarbohydrate cake mixes are placed neatly on a shelf just below in an attractive, end-ofaisle, new-products display at the local Jewel Foods store.

Many of the products in this display have been rolled out nationally in recent weeks, their easily identifiable packages found in similar spots in almost any supermarket across the country.

Is it just coincidence that such products appear so wellplaced in the majority of the nation’s 33,000 grocery stores?

Hardly.

Food industry giants, such as Northfield, Ill.-based Kraft Foods, Chicago’s Sara Lee Corp. and cereal-makers Kellogg Co. and General Mills pay hundreds of millions of dollars each year to secure the best slots for many of their new products.

A national rollout of a new snack, bread or refrigerated pasta meal can cost as much as $2 million per item, according to the U.S. Federal Trade Commission, which recently completed the first major study of the growing, controversial industry practice.

The FTC estimates that, as thousands of new products launch annually, more than $9 billion changes hands in ‘‘slotting fees,’’ the term for payments by food makers to retailers for the right to place their products in the best, most customer-friendly spots on shelves.

Even though a typical store can stock several thousand products, critics say that slotting fees inflate prices and limit competition and consumer food choices. With the increasing concentration of the grocery business, where five major chains control almost half of all supermarket sales, the possibility for abuse of such a system is significant, industry insiders say.

‘‘Slotting fees are just another form of payola, commercial bribery,’’ said Nicholas Pyle, president of the Independent Bakers Association, who is fighting the fees on behalf of the group’s small bakery members. ‘‘Consumers suffer because the chains are limiting choice and artificially pushing up the price of goods.’’

Few consumers know about the fees, which help place brand-name goods in just the right spot to be noticed, yet the income they generate can account for as much as half the revenue of a regional supermarket chain.

Exactly how slotting deals are struck also remains a closely guarded secret, but stories of cash payments and favorable treatment abound. Even those responsible for placing the goods on display don’t know how deals are arranged and why certain products always seem to end up in the best spots.

‘‘Those kind of decisions are made at a corporate level,’’ said Annette Jones, assistant store manager for Jewel’s supermarket at the corner of State and Ohio Streets in downtown Chicago. ‘‘We don’t have anything to do with that at store level. I know companies pay fees, but we don’t know how much.’’

The controversy over such fees has raged for years, mostly in the courts where leading companies such as Frito-Lay, Kellogg Co., Unilever and Dr. Pepper/Seven-Up have been sued. But plaintiffs, as well as various government agencies that have looked into the practice, have all found it tough to prove that big business is using its marketing programs to keep smaller competitors off shelves.

Major food companies themselves remain ultrasensitive about the topic and say little or nothing publicly about their practices.

The U.S. General Accounting Office tried to probe the sector several years ago but came up empty-handed. The industry refused to cooperate, saying the data were proprietary and confidential.

And when some key witnesses were called before the U.S. Senate Small Business Committee in September 1999 to discuss the growing challenges faced by small food manufacturers, they would only give evidence if their voices were altered, appearance concealed and identity kept secret.

Food manufacturers argue that the fees are normal business expenses, all part of the cost of launching a new product — about 75 percent of which fail each year.

The FTC, responsible for combating anti-competitive practices, has always maintained that there is no evidence that the fees harm consumers.

Investigators need aggrieved parties to come forward with more solid complaints to take the issue further, said Patricia Schultheiss, an attorney handling the issue for the agency’s Bureau of Competition.

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