Slotting allowance: an overlooked angle in grocery retailing

Consumers are confronted by more product categories and increasing number of brands per category today compared to ten years ago. A quick glance at a store’s shelf would find at least 13 brands of sardines, 8 brands of milk, and 5 brands of detergent soap, all vying for consumer attention and patronage. How these goods reach the household shelves largely depends on how the supermarket retailer positions them in its shelf space. This retailing practice implicitly invokes competition among the manufacturers for the limited amount of store space. Evidence of this kind of competition is inferred from the growing, albeit overlooked, practice of slotting allowances or shelf space rental fees. The rapid product proliferation, combined with limited shelf space, can significantly shift the balance of power away from the manufacturers and transfer it to the retailers. Slotting allowances are payments made by manufacturers to retailers in order to have their products displayed on the store shelves. The fees include shelf-space fees, display fees, payto-stay fees, failure fees, and others. These are often referred as lump-sum, up-front fees paid for stocking the products, especially the new ones. Pay-to-stay fees are also collected for matured products to sustain customer patronage and increase market share. This unregulated business practice emerged in the European and American markets with the rise of the large chain stores in the 1980s, starting with department supermarkets and spreading to other stores that sell electronics, books, medicines, and computer software. Prices are negotiated in secrecy appearing in different names and forms (Schaffer 1991).