WASHINGTON -- Slotting fees may have taken root in the fresh-cut produce category, but there is no evidence to date that they've spread to many commodity items, concludes the second report in a three-part series examining retail trade practices in the fresh produce industry.
The report, "U.S. Fresh Fruit and Vegetable Marketing: Emerging Trade Practices, Trends, and Issues," was compiled by the Economic Research Service of the U.S. Department of Agriculture. It tracks the activities surrounding seven stockkeeping units over the past five years: California grapes, oranges and tomatoes; Florida grapefruit and tomatoes; and California/Arizona lettuce and fresh-cut salads.
"The emergence of slotting fees in fresh-cut produce has led to shipper concern that they will soon become standard for commodities as well," the authors wrote. "A key finding of this study is that this does not appear to be the case, as least so far."
However, officials noted that the study should be interpreted "with caution" due to the small sample: A total of 74 grower/shippers, retailers and wholesalers were interviewed, and "we did not directly review firms' records to confirm the information provided."
What's more, slotting fees -- along with volume incentives, promotional allowances, free product discounts and failure fees -- are only one of many factors redefining the supplier-retailer relationship. Consolidation, consumer demand, technology and procurement strategies are also playing a role in the way the industry operates, the study said.
Indeed, slotting fees (including pay-to-stay fees) have become common for bagged salads and related fresh-cut SKUs. The study noted that "most" lettuce/bagged salad shippers said it was suppliers themselves who initiated the stipend in the mid-1990s to drum up retail business.
When asked the same question, though, only half of the retailer respondents attributed fee arrangements to suppliers.
As for actual figures, fresh-cut grower/shippers declined to reveal the exact amount paid to retailers, but said they ranged from 1% to 8% of sales; or $10,000 to $20,000 for small retail accounts to $2 million for complete penetration of a large national chain.
What their money actually bought was something of a mystery to the grower/shippers interviewed by ERS researchers. The authors stated that "firms were not clear [as to] what rights they obtained from paying fees." No suppliers stated the fees were considered a guarantee of reserved display space.
The costs themselves were typically built into annual retail contracts as a package of fees and services that included slotting fees, volume incentives and promotional allowances, according to the study.
An average of 58% of shippers surveyed agreed to honor fee requests. The report noted, however, that in 41% of the requests, shippers did not comply and lost business for at least one account, depending on the item. Or, if they didn't lose a retail customer, suppliers "often noted a decline in purchases from the firm in question."
Other fees were discussed in turn by ERS researchers:
Volume incentives were found to be most common, as well as the oldest of the fees, with 73% of suppliers reporting a request. ERS noted a number of grower/shipper respondents reported that retailers take discounts regardless of agreed-upon volume goals, and in general, "more shippers consider volume discounts as harmful or neutral rather than beneficial." Some suppliers considered the discounts beneficial to their business, in part because it helped promote longer-term, more stable relations with the retailer customer.
Promotional fees/cooperative advertisements were the second-most requested fee, with 62% of suppliers interviewed stating they'd received a request, or made offers. Here, ERS researchers found suppliers questioned whether the money allocated to retailers was indeed being spent on the product.
"Other" rebates were translated as simple price reductions, with no connection to performance or volume. Researchers pointed out a possible correlation between a relatively high compliance rate of 61%, and the rate of lost accounts reported for non-compliance, 64% -- the highest in the entire survey.
Free-product discounts were generally viewed as "reasonable," according to researchers, since most shippers polled said they were long-familiar with the incentive. As a result, this fee had the highest compliance rate of all, 78%.
E-commerce fees were one of the newest costs reported incurred by grower/shippers (92%), and most complied (62%). ERS stated, however, that "many shippers are concerned about paying any new fee connected with marketing to existing customers." Similarly, the authors noted that in response to this, e-commerce providers seem to be moving away from fees based on percentage-of-invoice, and toward a flat monthly fee.
Capital Improvement fees were described as "most onerous by shippers," relating to a retailer's request for contributions to construction of new distribution centers or installation of new store equipment. Some 40% of grower/shippers said they had been solicited for such an incentive, although compliance was the lowest recorded in the survey (27%). Some suppliers told ERS that, though they declined to contribute, deductions were still made by the retailer involved.
The entire 44-page report includes graphics, and is available on the USDA's Web site, at www.ers.usda.gov, under the section headlined "Latest ERS Products."