Slotting Allowances

Slotting Allowances: Bribery or Promotion?

A slotting allowance, also known as a stocking allowance, introductory allowance, or street money, is a fee that retailers charge for providing a slot or position on its shelves to accommodate a company's new product. In many studies and reports, the term refers to the up-front sum of money that food manufacturers pay grocery stores or supermarkets to stock their food items. Some marketers think that slotting allowances are forms of bribery, which inhibits the introduction of new products, especially from small businesses. However, retailers argue that these fees are necessary compensation for taking on the risk of introducing new products that require valuable shelving, employee training, and other resources, even though the product may live a short life in the market.

The cost of slotting allowances varies dramatically, ranging from a couple hundred dollars in one retailer's location to over $50,000 in a chain of retail stores. Even though retailers defend the charges as a necessary cost, some businesses believe that the fees are going directly into the retail companies' net profit. The Federal Trade Commission has brought the subject to the attention of Congress in an attempt to reduce the level of conflict and disagreement regarding the controversial slotting fees.

Many companies, especially smaller ones, argue that slotting allowances are preventing them from introducing new products and competing equally with other brands in the marketplace. Slotting allowances, according to a study conducted by the Federal Trade Commission, are distributed differently among retailers, depending on the geographic location, and depending on product types, such as ice cream or salad dressings. Large manufacturers do not necessarily enjoy paying the allowances but they realize that it keeps smaller businesses from introducing new competing products to the market.

Retailers, on the other hand, prefer to charge slotting allowances because they find it a necessary procedure to protect themselves from possibly faulty and unsuccessful new products. When retailers accept the risk of stocking new products, they might be putting themselves