For many CPG manufacturers, getting onto the shelves of a major retailer is a dream come true. Sadly, this benchmark introduces many new costs — the most significant of which are slotting fees. These payments can be incredibly disruptive to emerging CPG brands, encouraging small businesses to avoid certain retailers entirely.
So what goes into these fees, and why are they so common within the CPG industry?
A slotting fee — sometimes referred to as a shelving fee, or slotting allowance — is a cost that manufacturers pay to place their products on retail shelves. It is a one-time charge that ensures brands will be able to stock a new product until its sales performance can be established, usually within four to six months. These types of charges are particularly common for emerging brands that have yet to prove themselves in CPG markets.
Prices can vary wildly based on the product, CPG category, or how many locations will shelve a product, with fees typically ranging from $250 to $1000 per item per store. When launching a product at multiple storefronts, total slotting fees might range anywhere from $25,000, for a cluster of regional locations, to $250,000 in high-demand stores.
These fees are not necessarily the only retail costs manufacturers will need to pay. Some companies may also need to address promotional, restocking, or advertising fees related to their products. Nonetheless, stocking fees alone are a major expense for CPG startups — a potentially fatal one if they are unprepared for them.
As you might imagine, this is a controversial CPG retail practice. Outspoken manufacturers have long opposed the practice, claiming it reduces competition and makes it difficult for emerging brands to establish themselves. It certainly doesn’t help that retailers sometimes earn more profit from slotting fees than actual sales of untested products.
That’s not to say these types of charges are unnecessary, however. When the FTC studied the subject in 2003, they noted that 80% to 90% of new products fail. Placing an untested product puts retailers at immense financial risk — slotting fees arose to mitigate sales losses. Slotting allowances became common in the 1980s, when new products were proliferating across the marketplace, and have remained a standard practice among retailers.
Today, slotting fees remain a hotly contested issue, but they’re widely accepted as a reality to which manufacturers must learn to adapt.
Manufacturers face a difficult decision when a retailer presents their slotting fee — pay the money or shelve your product somewhere else. The practice is so ubiquitous that many emerging brands will simply absorb the cost. Thankfully, some strategies do exist that can reduce or even negate these charges.
Not all CPG accounts are created by directly pitching to retailers. Sometimes, products can be placed on store shelves through a broker who has a prior relationship with the retailer. In these circumstances, a broker can reduce the slotting fee on their client’s behalf.
According to the aforementioned FTC study, most retailers are willing to negotiate fee prices. This negotiation can take place alongside conversations regarding advertising allowances, demonstration prices, and other special fees.
While slotting fee negotiations will vary by retailer, they do create an opportunity for manufacturers to reduce costs. Any of the following strategies can improve your negotiating position to obtain a better deal.
Not all slotting fees are created equal. In major retailers and high-demand stores, costs will be much more expensive. Meanwhile, regional and low-demand locations can offer reduced stocking fees. This creates an opportunity for vendors to pitch products strategically: By targeting retailers and store clusters with low demand, fees will be reduced until you’re financially prepared for high-demand locations.
Slotting fees are a hotly-debated practice, but one thing is clear — new products are costly for vendors. These fees represent the simplest opportunity for retailers to reduce the risk of an untested brand. By the same token, products with high consumer visibility have reduced risk and reduced fees.
Of all fee reduction tactics, increasing visibility is the most likely to convince retailers to waive slotting fees entirely — but this strategy also requires the greatest effort and attention to detail. There are several ways manufacturers can achieve this. For example, natural products might find a market at low-demand specialty stores, creating a sales story that reduces risk. Some manufacturers can also develop their brand through e-commerce or alternative channels that don’t require slotting fees. If customers reach a critical mass through non-CPG channels, the product will be far more tantalizing to retailers.
For many vendors, slotting fees are just a price of doing business. The good news is that solutions like Bedrock Analytics can help businesses generate the most effective sales stories and reduce these costs. What’s more, our data visualization can optimize sales strategies to help manufacturers target the most cost-effective regions on the market.