It’s an addiction that can cause long-term harm.
BY JOHNNY HARRIS
I had never even heard of slotting back in 1977 when a broker came in with a new item I didn’t want to put in. But I’d just had the flu and I felt rotten, so when he said he’d pay us $100 to get it on the shelf, I said okay. By the time I retired, I was charging at least $15,000 per item.
At one time, vendors with new products would give you a case per store introductory incentive rather than cash — it was cheaper that way. One case worked its way up to two cases, then three and then four. It was just out of hand. I couldn’t handle four cases at one time in every store, and didn’t have a good way to keep track when someone still owed me a case or two in some stores but not others.
That’s about the time when free goods started to morph over into slotting. Slotting is like a drug, and it’s hard to get off it. I know because I tried. I told my boss what I was going to do, and he said okay, so long as I made my numbers at the end of each period. I can tell you from experience, there’s just no way you can do that with the system as it is in the industry today, unless you want to increase your shelf prices and give the store keys to your competition.
Yes, there are retailers that don’t take slotting today. But if they know their competitor down the street is getting $50,000 in slotting, they are going to demand the same amount either in cost of goods or a trade allowance.
That’s how the money should be used in the first place. After all these years, we’re still way too focused on making money on the buy rather than on the sell. Right now, most slotting goes straight to the retailer’s bottom line.
While I think the industry would be a lot better off without slotting in the first place, there are a couple of things that should be done if it is going to remain a fact of life.
First, slotting ought to be based on the actual costs of the retailer when a new item is added. Otherwise, it’s like stealing, and there are bad feelings on both sides. Second, more retailers should consider basing slotting at least partly on case costs. All things considered, retailers shouldn’t be charging the same amount of slotting for yogurt as they do for cheese. It might be worthwhile to base it on forecasted sales, with one fee for up to $50,000, another for $50,000 to $100,000 and so on.
REACHING THE NUMBERS
Right now, retailers rely on slotting to reach their numbers each month. Let’s say you’re taking a margin of 32% on an item, but you need an average of 35% for the department to meet your company’s financial goals. That means you’ve got to raise your prices or find that 3% in adjustments via ad dollars, slotting, swell allowances and so forth at the end of each month. But if the slotting “profits” were put into the cost of goods, you’d have longer margins — and probably more unit sales as well because consumers would buy more. You’d also have a competitive advantage price-wise.
Yes, I know. This is easier said than done. But more retailers — most notably Walmart and others — are not charging slotting. That gives them better partnerships with their key vendors, lower cost of goods and lower prices for their shoppers. Over the long haul, how will this affect you?