FTC Releases Grocery Industry Slotting Allowance Report

The Federal Trade Commission has issued its staff report to Congress providing new information from the staff’s case studies about slotting allowances paid to certain retailers in certain geographic areas for five product categories: fresh bread, hot dogs, ice cream and frozen novelties, shelf-stable pasta, and shelf-stable salad dressing. Slotting allowances are one-time payments a supplier makes to a retailer as a condition for the initial placement of the supplier’s product on the retailer’s store shelves or for initial access to the retailer’s warehouse space.

The report, entitled “Slotting Allowances in the Retail Grocery Industry: Selected Case Studies in Five Product Categories,” is based on a small sample of detailed, anonymous case studies and may not be representative of all retailers in the United States. Key findings for the selected case studies include the following: (1) there is considerable variability across product categories, both in the likelihood of paying fees and in the magnitude of fees paid; (2) slotting fees can make up a large fraction of the revenues earned by some products in their first year; (3) most surveyed retailers reported that slotting allowances help defray costs associated with new product introductions; and (4) slotting allowances were less frequent and in lower amounts for products that did not go through retailers’ warehouses because suppliers delivered them directly to retailers’ stores.

At a September 2000 Congressional hearing, Christopher Bond, Chairman of the U.S. Senate Committee on Small Business and Entrepreneurship, and Ranking Member John Kerry requested the FTC to conduct a study of slotting allowances in the grocery industry to ensure fair competition in the retail grocery industry. To respond to this request, the FTC staff designed a limited, focused study to gather quantitative and qualitative information about slotting allowances and pay-to-stay fees from selected retailers’ data, documents, and interrogatory responses for five product categories in certain geographic areas over a limited time frame. Slotting allowances are only one component of complex and multi-faceted negotiations that take place when a supplier proposes a new product to a retailer; the discussions also typically address marketing research, the supplier’s promotional plans for the product, and advertising and promotional allowances and introductory discounts that suppliers may be willing to provide to persuade a retailer to carry the new product.

The study provides a brief overview of the prior research examining slotting allowances; sets forth the purposes and methodology of the FTC staff’s current study; discusses the qualitative information obtained, including anonymous details from the surveyed retailers’ documents, interviews, and written responses to interrogatories; and presents the surveyed retailers’ slotting data in tables and figures, describing in detail the study design and data collection and interpretation issues. The staff also analyzes areas where the information suggests consistencies and inconsistencies within or among retailers and between retailers and suppliers, and discusses its conclusions.

The Commission vote to issue the staff report was 5-0.

Copies of the report entitled “Slotting Allowances in the Retail Grocery Industry: Selected Case Studies of Slotting Allowances in Five Product Categories” are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave., N.W., Washington, D.C. 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws, which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.

(FTC Matter No. P001201)