Slotting Fees Increase Duplication

Aug 19, 2003

Commentary by Mark
Boyer – BrainTrust

A lot of new items are making it onto the grocery shelves. Many shouldn’t be there.

We are seeing an alarming rise in authorizations of new brands and/or items that have no discernible reason for being on the shelf. The category business plans don’t recommend this course of action. So why is it happening?

New items are being authorized to shore up short-term financial needs by generating slotting fees, free goods and promotion spending. The focus is on buying, not selling.

These short-term actions create long-term headaches. Too often the retailer doesn’t reduce SKUs to make room for the new entries. The item gets “cut in.”

Even though many perishables departments provide the opportunity for dynamic sets, the mentality is flawed. The procedure should be “an item in, an item out.” Or the need to expand overall category space should be addressed.

If not carefully planned, many of these new items will degrade overall category performance. Out-of-stock rates on the best selling items go up because a) there is less shelf space, and b) there are more SKUs to manage/replenish.

Many new items don’t represent a price position consistent with the needs of the category. The category sales and gross profit dollars don’t expand unless the item brings a new user to the category, or trades the consumer up to a more profitable item.

A new item might cause the consumer to switch purchases from another item already in the category, but often at a lower or equal margin. If all an item does is match an existing item, you’ll have the same amount of sales, but have used twice as much space.

A new item offering no valuable point-of-difference often has poor turns. In perishables, shrink becomes an issue. The items only sell any significant volume when on promotion. And when the item goes on promotion the category ends up trading down to a less valuable option.

When does a new item make sense?

When it brings in new consumers or encourages those already purchasing from
the category to trade-up or increase consumption.

The job of the category manager should include making the shopping experience
more enjoyable. Being in stock with the right assortment and pricing is fundamental
to creating a positive shopping experience for consumers.

Moderator’s Comment: How big an issue is product
duplication? Is it possible for category managers to achieve the right balance
of products if slotting allowances are part of the equation?

As the expression goes, “a bird in hand is worth two in
the bush.” Retailers in the present purchasing environment are almost always
going to take the guaranteed cash up front rather than waiting to see if they
can sell more product later.
Anderson – Moderator

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