Slotting fees gain new federal attention

by By Jerry Guidera

WASHINGTON (Dow Jones) —Lawmakers and competition regulators have taken a renewed interest in the growing number of slotting fees dominant grocers charge food manufacturers to carry their products, as supermarkets have begun to levy such charges on everything from processed foods to produce.p. On Thursday, the Senate Small Business Committee is expected to hear from produce growers and agriculture experts about the competitive effect of such fees on small farmers and consumers. The Federal Trade Commission has an ongoing investigation into slotting fees and held a workshop on the matter earlier this year.p. “This issue needs a thorough disinfectant dose of sunshine,” said Sen. Kit Bond, R-Mo., the chairman of the committee and a former antitrust lawyer, in an interview.p. The lawmaker said he has been encouraging the antitrust authorities, including the Department of Justice’s competition branch, to look into allegations that the fees charged by grocers, which account for much of the retailer’s revenue, are eventually costing consumers.p. “There’s a fear that large dominant retailers and large dominant manufacturers might be using the fees to hurt competition and hurt consumers,” saidProf. Gregory Gundlach, a marketing expert at theUniversity of Notre Damein Indiana.p. The fees originally evolved as a way to shift some of the risk burden of stocking new product lines away from the retailers and to the manufacturers of the goods, since most new products fail, according to John Stanton, a professor of food marketing at St. Joseph’s University in Philadelphia. He estimates that large supermarket chains bring in between 50% and 75% of their revenue from manufacturers’ placement fees, giving them greater incentive to maintain the relationship. Manufacturers don’t challenge the demands because supermarket chains are their principle customers, reasons the professor.p. The legal questions surrounding the use of slotting fees cause angst for competition regulators. Antitrust authorities hesitate to challenge slotting arrangements because proponents of the practice argue they promote efficiencies. Retailers see slotting fees as a form of insurance against wasted shelf space if a product doesn’t sell.p. “The antitrust laws have always struggled with this and so have the antitrust agencies,” said David Balto, a lawyer at the FTC who is heading the agency’s efforts on the matter.p. But the relatively recent evolution of slotting fees for fruits and vegetables has piqued the interest of antitrust authorities, as farmers, dairy producers and cattlemen have begun to complain that consumers are paying more for their products even as they receive less money from the retailers.p. “There’s an increasing number of slotting fees in the produce aisle, and that just doesn’t make sense,” said the FTC’s Balto. The “insurance” argument retailers use doesn’t seem to apply as simply to produce, food growers say. “An onion is an onion,” Balto said, “There’s nothing new about that.”p. Any harm to consumers, experts say, comes in the form of potentially higher prices and diminishing choice as retailers favor only the dominant food manufacturers.p. “Some retailers view the fees as profit centers, and therein lies the problem,” said Prof. Gundlach, "If the retailer uses an exorbitant fee, but then doesn’t use the fee revenue to benefit consumers, then what you have is consumers paying higher prices for no benefit.p. Wednesday, September 13, 2000

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