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Senate panel examining grocery industry fees

Updated:
WASHINGTON (AP) -- Ever wonder why some foods get prime placement
on supermarket shelves while other products are stacked practically
out of reach?

The short answer? Money. So much of it, in fact, that a Senate
panel is exploring the issue of grocery industry "slotting fees."

The Senate Small Business Committee said its investigation of
the practice found evidence suggesting that small businesses suffer
because of food makers that spend millions of dollars to muscle
competing products off store shelves.

As a result, a small business that can't scrape together the
huge amounts needed to compete with other manufacturers might not
get its product to market, which troubles Sen. Christopher Bond,
R-Mo., the committee's chairman.

Bond said the fees are a barrier that keeps some small
businesses from ever getting their products sold in some markets.

"Retail shelf space is some of the most expensive real estate
that money can buy," he asserted at a hearing today on the issue.

Sen. John Kerry of Massachusetts, the panel's senior Democrat,
said there is a "legitimate question" as to whether slotting fees
fit the country's standard of free and open competition.

"At best such a practice would seem ... suspicious," he said.
"Why does a business have to pay a fee to reserve space on a
shelf?"

A supermarket trade group defended the fees, saying small
businesses would actually be in a worse position without the
practice, which has existed for decades.

A common fee quoted is $5,000 per item, per store, but it can be
as low as $10,000 per item for an entire chain, according to a
committee background paper prepared for today's hearing.

Slotting fees total at least $9 billion annually, said Gregory
Gundlach, a University of Notre Dame business professor.

Others said they limit consumer choice by reducing the variety
of available products and may lead to higher retail prices.

Craig Orfield, a committee spokesman, said the panel was getting
involved because of possible antitrust concerns and numerous
complaints about the practice from small-business owners.

John Motley, the Food Marketing Institute's senior vice
president for government and public affairs, said slotting fees are
a necessary marketing practice, given the high cost to retailers of
putting a new product on the shelves.

Manufacturers and retailers typically negotiate the fee.

Four out of five new products fail, said Motley, whose
association represents 21,000 retail food stores. The typical
supermarket stocks 30,000 products out of the more than 100,000
available to choose from, he said.

"We don't have empty shelf space, so when somebody introduces a
new product, in order to sell it or display it, we have to displace
products that are selling," Motley said. "We have to take a
chance."

Slotting fees are meant to offset that risk.

Without them, smaller retailers and suppliers would likely lose
the battle against established food industry giants that have ample
budgets to advertise and promote their products through coupons and
other means, Motley said.

Some retailers won't accept the fees, and some manufacturers
refuse to pay them, he said.

"It is a practice that manufacturers use to say to the
retailer, 'We believe that this new product is going to do well and
we stand behind it and we're willing to help you offset the cost of
putting it on your shelf,"' Motley said.

Bill James, senior vice president for industry affairs at the
Grocery Manufacturers of America, said the association generally
dislikes the fees but doesn't tell members how to market their
products.

"It's a little different than just a payment for shelf space,"
said James, whose group represents about 90 percent of all
supermarket goods.



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