The grocery shelf space war and slotting fees
In my career in the beverage industry, I have been involved in developing new products and extending their reach. I have personally seen the influence of “slotting fees” on what products find their way into certain spots on the supermarket shelf space.
If you think that candy bar lands up next to the counter by accident, think again. The manufacturer has paid the retailer plenty of money for it to be in exactly that spot.
In the 1980s manufacturers were making so many new products and retailers had limited shelving space for these products. Unfortunately, they had no guarantee that the products they chose to fill their shelves would be successful.
Many of these new products were failures and they would have to carry the costs. A way to solve this problem was to introduce “slotting fees”. This would mean that manufacturers and retailers shared the costs of introducing new products.
I don’t believe that these slotting fees should be charged anymore, at least not in the same way they have been in the past. Retailers have been in a power position where they have been able to charge a premium for scarce shelf space.
A Hefty Price
Manufacturers are fighting for that shelf space and the larger ones have established brand power and the money to pay for what they want. The scarcer the space, the more they will pay for it.
This war for shelf space has left smaller businesses and startups at a great disadvantage. They simply do not have the bargaining power to be competitive against the giants.
This tends to discourage innovation as the decks are unfairly stacked. Before they even consider producing a new product, smaller manufacturers know they have little to no chance of getting it displayed on supermarket shelves. Unless they are able to fork out a huge sum of money.
Behind the Scene Deals
Customers are deprived of options they might have had as they make their choices between products offered by big brands. It’s quite frightening to think that when we walk into a supermarket, our choices are largely determined by deals that have taken place behind the scenes. In the process, fair competition is reduced and industry innovations are hampered.
Customers are beginning to do more and more shopping online due to the fact that this offers convenience, and saves them time and money. Retailers are likely to lose market share and will have to re-examine the nature of their stores, their selections and how they operate.
I believe that within the next 20 years, our supermarkets will look very different and we will see the comeback of smaller stores offering products like meat, fruit and vegetables that consumers may not want to buy online.