You have been hired by a regional supermarket chain as the candy and snack buyer

Question

You have been hired by a regional supermarket chain as the candy and snack buyer. Your shelves are dominated with products by national firms, like Wrigley’s and Nabisco. The supermarket chain imposes a substantial slotting fee to allow new items to be added to their stock selection. Management reasons that it costs a lot to add and delete items, and besides, these slotting fees are a good source of revenue. A small, minority-operated, local firm produces several potentially interesting snack crackers and a line of gummy candy, all with natural ingredients, vitamins, reduced sugar, and a competitive price – and they also happen to taste great. You’d love to give the firm a chance, but the local firm's managers claim that your slotting fee is too high. Should your firm charge slotting fees? Are slotting fees fair to the relevant shareholders – customers, stockholders and vendors?

Explanation / Answer

Slotting fees or slotting allowance is a one time lumpsum amount paid by the vendor to the retailer, to secure shelf space at the retailer's outlet for his products.

The firm in case of local vendor, should charge the slotting fee, but reduce the amount to a negotiated value, so that the retailer maintains having the same policy regarding new vendors in his firm. The retailer should reduce the slotting fees because, the bigger brands have that volume of money to pay for huge sums of slotting fee, but this can deplete the competitive advantage from the small local firms, who lose the chance to increase their distribution, because they fail to pay those huge amounts of slotting fees, hence to give local vendors a fair chance to competition, the retailer should reduce the slotting fees for the local vendor.

Ethicaly, slotting fees is not fair to the relevant shareholders – customers, stockholders and vendors, because this takes away the chance of having a competitive advantage by smaller firms, and they get shandowed by the larger firms, that may have money to pay fo rthe slotting fees, but might not have the competitive advantage as the smaller firm. It is unfair to customers also, as the customers are forced to chose and purchase from those brands only, and they dont get a chance to try smaller brand's competitivly priced or differentiated products. It is unfair to stockholders also, as the stocking fees is an expense in there financil statements, but originally it can be seen as an asset, who's value can be capitalized throughout the tennure the vendor displays the products in the retail outlet.

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