Square peg in a round slot.

• Author: Petersen, Eric
• Position: Effect of slotting fees on small manufacturers - Industry Overview

How slotting fees keep Colorado's small manufacturers off retail shelves

Imagine a real estate market so tight that its inhabitants pay landowners thousands of dollars just to reserve a spot no more than a foot square. But the fee would not guarantee the tiny space would be theirs even a month down the road.

This spectacularly expensive real estate market won't be found in Manhattan or Tokyo: It's on the shelves of your local supermarket.

We're talking about "slotting fees." These are introductory fees, ranging from $1,000 to $20,000, depending on whom you ask, charged by supermarkets and other big retailers to manufacturers wanting to stock new products on their shelves.

Small businesses say that slotting fees conspire to keep their products off the shelf and away from consumers. Retailers reply that the introduction of a new product is a risky business and requires investment to succeed. Many observers point to slotting fees as a symptom of a larger problem - mass retail methods that dampen the development of small regional manufacturers.

Supermarkets and mass merchandisers, such as Target and Wal-Mart, have become one-stop centers brimming with modern conveniences, cramming food and household goods, banks, shoeshine parlors, and tax help centers under one roof. That makes retail space an increasingly valuable commodity, said John Dunbar, marketing manager for Longmont-based Madhava Honey Ltd.

"You have to know what type of investment you're willing to make in your product," said Dunbar, who worked in category space management for Safeway earlier in his career.

Slotting allowances make manufacturers and distributors share the retailers' escalating warehousing costs, he said.

"Small manufacturers often assume that chains will find a home for their regional items," Dunbar noted, but "performance is the No. 1 issue," regardless of the manufacturer's size or location.

Slotting fees "definitely keep some quality products out of the marketplace," said Rosemary Biggins, Colorado Department of Agriculture business development specialist. "It comes down to capital. A small business has limited capital."

The combined costs of slotting fees, product demonstrations, couponing and marketing often prove prohibitive to the smaller manufacturer, Biggins noted.

Meanwhile, "Grocery stores are in the business to make money," she said. "If they have a new way to make money, they'll do it."

But Chuck Riggin, director of grocery at King Soopers, said the fees...