When Ben & Jerry's Homemade Inc. wanted to introduce its super-premium ice cream in the West, the small Vermont company had to learn to play by the rules. Before grocers would put a new product on their shelves, they expected the manufacturer to pay an admission charge. ``It became evident to us that we were not going to get any shelf space at all unless we were to help with the start-up costs,'' says Ben & Jerry's spokesman, David Barash.
As manufacturers of grocery products from soda pop to dog food are finding, some of the hottest real estate in the country these days is on retailers' shelves. The number of new products jostling for space in supermarkets and convenience stores has been increasing at a staggering rate. Last year stores carried 10,182 new items - more than double the number five years ago, according to Gorman's New Product News.
Grocery buyers, who may have 200 or more products pitched to their stores in a month, are charging premium prices to stock new items - $15,000 to $40,000 in some regions. It can cost manufacturers $2 million to $3 million in ``slotting'' fees to introduce a product in stores across the nation, says Bob Schmitz, managing director of Summa Group, a consulting subsidiary of A.C. Nielsen Company.
``It's the street side of the capitalistic system,'' says Keith Jones, a vice-president of the Summa Group. ``While these kinds of payments may seem distasteful, they're part of the grease that makes ours the finest distribution system in the world.''
He thinks the fees are unlikely to be challenged in court. ``I'd be hard pressed to say there's anything that violates the Robinson-Patman Act [which regulates trade within the grocery industry] as long as manufacturers offer these types of incentives equally to all retailers with whom they do business.''
Ronald Bloch, an antitrust lawyer with the law firm of McDermott, Will & Emery in Washington, D.C., says a good case can be made for the illegality of slotting allowances. But he, too, doubts they will be tested in court.
``It's too difficult to prove that a manufacturer has been harmed by them,'' he says.
Stores are reluctant to discuss slotting fees. But the Kroger Company admits that its chain supermarkets in some regions of the country do charge them. ``Each area makes its own decisions, and a lot of it depends on the competitiveness of the market,'' says company spokesman Steve Holland. ``Slotting allowances have become commonplace in the supermarket industry. Right now it's just part of the way that business is done.''
The A&P Company says its supermarkets do not ask manufacturers to pay slotting fees, but spokesman William Vitulli adds, ``We warn them that we certainly don't want to hear about them giving [other stores] a better deal than they're giving us.''
Retailers say they need those fees to offset the high failure rate of new products. ``The success rate is maybe 4 out of 10,'' says George Cox, a vice-president of B.Green Inc. in Baltimore, a buying service for independent and small grocery store chains. ``A retailer or wholesaler can't afford to tie up a warehouse slot or shelf space on items just because the manufacturers introduced them to see if they're going to sell or not.''
Manufacturers acknowledge that stores have expenses in taking on new products, and large companies simply add the retailers' fees to their already whopping costs for distribution and promotion. But small manufacturers often find the burden of these added charges too heavy.
Ben & Jerry's delayed the introduction of its ice cream in the West for six months to a year in some places until customer demand was strong enough to encourage retailers to settle for non-cash deals: free refills, in-store demonstrations, and promotions.
``Small independent companies such as Ben & Jerry's simply do not have the resources of large mega-corporations that have tons and tons of money to put into slotting allowances,'' says Mr. Barash, the spokes-man.
Industry observers worry that small manufacturers with innovative products may get squeezed off the shelves by larger competitors, ultimately leaving the consumer with fewer choices. ``Most of the introductions the retailer sees are products that frankly aren't truly new at all. They're a new flavor, new size, or new form of a similar product,'' observes Mr. Schmitz at Summa.
Behind the deluge of new products, Schmitz asserts, is insecurity. ``Companies are introducing more products because there is less likelihood that any one of them will be a success. The idea is to get the funnel very big on the early end, and do a lot of test marketing and evaluation, hoping that the low percentage of success will not work against you.''
Armed with data from electronic scanners, retailers wield much more power to pick and choose than they did a few years ago. Stores that used to base their product choices mainly on consumer demand are now running direct product profit analyses on each item to see what it costs to stock the product for a given share of space and time. Then slotting allowances, price discounts, promotions, and other factors are added into the equation to see how much more attractive it is.
And if sales don't soon sizzle for new cookie or spaghetti sauce, it's quickly swapped for a more lucrative item.
``In a sense, [slotting allowances] are a left-handed subsidy for the retail trade, who have very low profits and probably exist on these kinds of allowances,'' says Martin Friedman, editor of Gorman's New Product News.
But, he adds, ``keep in mind one factor, that all slotting allowances end up as higher prices for the consumer.... Manufacturers are just building these into the price, and instead of paying $1.39 for a new cake mix, the consumer will end up paying $1.49.''