Slotting Fees: 3 Ways to Get Your Product on The Shelf For Less

Retail shelf space is a hot commodity that thousands of manufacturers want a piece of. In an environment with razor-thin margins, retailers are highly selective about which new products they’re willing to carry at their stores.

Regardless of their company size, suppliers in many food and beverage categories are required to pay a hefty slotting fee in order to get their products stocked on shelves. Developing a strategy for how you’ll approach negotiations with retail buyer is paramount to slotting success.

In This Blog:

What Are Slotting Fees?

Who Pays a Slotting Fee?

3 Price Negotiation Tips to Earn Retail Shelf Real Estate

Recognize The Role of Logistics

Drive Growth Through Sales & Marketing

Prove a Demand For Your Brand

What Are Slotting Fees?

A slotting fee can be defined as a lump sum paid to a retailer by food and beverage suppliers to have their products featured on its store shelves and stored in its warehouse. This fee also covers the cost to enter product data in the retailer’s inventory system and to program its computers to recognize the product’s unique barcode. The term is synonymous with “slotting allowance”.

Slotting fees are not the same as pay-to-stay, promotional, stocking, and failure fees. Each of these are separate costs that can be incurred by a supplier as a result of being granted retail shelf space.

"Up to 90% of new product introductions fail." 

There is a controversial debate about the advantages and disadvantages of slotting fees and whether or not they are ethical. On the one hand, retailers do need a buffer to account for the fact that up to 90% of new product introductions fail. On the other hand, slotting fees can reduce the ability of small businesses to introduce new products because of the unattainable costs (i.e. tens of thousands to millions of dollars per product).

Little data exists on the accurate amounts of contemporary slotting allowances. Retailers are unwilling to divulge them because they don’t want suppliers knowing how much others are being charged, whereas the manufacturers are hesitant to reveal this sensitive information out of fear of hurting the relationship they worked so hard to establish.

Who Pays a Slotting Fee?

While some big retailers have done away with slotting fees altogether, many of the nation’s grocery giants, big box stores, and convenience stores still require them. However, certain product types have traditionally been exempt from paying.

Below is a list of the food and beverage categories where suppliers are likely to pay for slotting. It should be noted that individual retailers have the power to choose which suppliers pay a slotting fee, and hence this list serves only as a general guide. Those labeled as “not classified” may or may not be charged a fee, but it remains uncertain due to insufficient data.

Source: NAICS Industry codes from 2003 Annual Survey of Manufactures

3 Price Negotiation Tips to Earn Retail Shelf Real Estate

If your company is in a position where it’s forced to pay a slotting fee in order to enter a large chain, you’ll need a strategy for negotiating with the retail buyer. No matter the size and scope of the retailer, suppliers have some influence over how much they’ll ultimately pay in slotting fees. During the pitch, suppliers will want to address logistical concerns, their sales and marketing tactics, and brand clout.

1. Recognize The Role of Logistics

Understand how product arrangement in supermarkets and supply chain management factor into the price of a slotting fee. The more you can reduce the costs associated with stocking your product, the more likely you are to receive shelf placement and have leverage over how much you pay to play.

• Detail how your company is able to prevent out-of-stocks through calculated inventory planning and fill replenishment orders successfully during times of  high-demand.
• Show willingness to supply product families instead of single products in order to have a better chance of survival on a shelf next to other product families.
• Offer to distribute to warehouses without using a middleman. Bypassing a distributor equates to a lower markup on the wholesale cost, and thus a lower cost to consumers, making your brand more attractive.
• Be open to compromise. For example, consider agreeing to a higher slotting fee if it means the opportunity to sell at a higher volume.
• Opt for starting out by supplying only to local branches of a large chain. Many retailers are keen on stocking “locally-sourced” products, plus you’ll have the chance to prove yourself on a smaller scale before graduating to the national stage.
• Be aware of geography’s role. Selling in urban hubs will be more expensive than in suburban areas.
• The in-store location of your product directly impacts the cost of slotting fees.  Products that require refrigeration or freezing incur higher fees because of the overhead energy costs of keeping them cooled.

"The in-store location of your product directly impacts the cost of slotting fees." 

2. Drive Growth Through Sales And Marketing

Retailers need proof that your brand will sell should they decide to carry it. This can be accomplished with documentation of historical performance and a solid plan for how to move product in stores.

• Provide coupons, discounts, and rebates to promote sales. Keep in mind that  some retailers will demand a cut of the increase in sales resulting from special promotions.
• Demonstrate a capacity to execute field marketing programs, such as in-store samplings, without retailer assistance.
• Propose to train store salespeople on how to sell your brand.
• Research the marketing programs of your competitors who are already present at the retailer you’re interested in. Show how you can drive sales by filling in their gaps.
• Suggest product pairings that can lead to impulse buys of your products, such as wine and cheese or crackers and gourmet spreads.
• Confirm your track record for success at those smaller retailers, restaurants, and marketplaces where your brand is already being sold by compiling past sales reports and balance sheets.

Active field marketing programs can convince retailers your brand is committed to increasing velocity off the shelf. 

3. Prove Demand For Your Brand

What makes your brand stand out? What can your company offer the retailer that others can’t? Show buyers why passing up on your product is a mistake.

• Explain how your brand satisfies a demand in the market with its niche offering that the retailer isn’t currently capitalizing on.
• Mention if your brand is carried at competing retail outlets.
• Exhibit your thorough market research and evidence of multiple product iterations that were based on customer feedback as grounds for delivering a superior, less risky product.
• Showcase any awards your brand has won (even if seemingly insignificant, such as for its packaging) to validate its traction.

Slotting fees are often an inevitable component of doing business with big retailers. However, suppliers have some control over how much they pay for slotting on the retail shelf. Tackle these negotiations early on during meetings with retailers. Come prepared with data and let buyers see just how awesome your brand is.

Vox recently put together a fast-paced video delving into the drama between national retailers and major brands. Check it out below!