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Slotting fees boon to grocers (California Strike and WalMart)
Press Telegram ^ | January 13, 2004 | Michael Rappaport

Posted on 01/13/2004 10:19:40 PM PST by calcowgirl

Walk down any aisle in a major supermarket and look at the products on the shelves.

If you wonder how they got there, it wasn't random luck, a clerk's decision or even the invisible hand of the free market system.

Food product manufacturers pay major supermarket chains slotting fees to guarantee space on store shelves. They pay even more to make sure their products are visible and easily accessible to shoppers.

The Federal Trade Comission estimates that these fees amount to as much as $9 billion annually for the industry, of which the three companies involved in the Southern California supermarket strike probably get more than half.

Nobody knows the exact amount. The companies who pay aren't talking, and the chains won't comment on the practice.

"If you're a smaller producer, it's hard to get into stores because of slotting fees,' said Jack Kyser, chief economist of the Los Angeles County Economic Development Corp. "This is one of those industry customs that almost no one is aware of.'

Alone among the major players, Wal-Mart doesn't slot, allotting shelf space based on which products offer the lowest wholesale prices.

Since food producers pass the cost of slotting along in higher prices, that's a competitive disadvantage for Albertsons, Ralphs and Vons once they have to compete with the Arkansas- based giant.

"Wal-Mart will come into Southern California with no slotting, and their prices will be lower than the chains,'Kyser said. "They will not have the same array of products, but if you want low prices and are content to live with the big brands, then you'll shop at Wal-Mart.'

If that's a hidden issue in the 96- day-old supermarket strike, it makes it easier to understand why businesses that are showing a profit at present are so eager to cut costs.

At least to date, the chains seem to be taking an "our way or the highway' approach to negotiating with the United Food and Commercial Workers union.

"I'm not going to say their offer is exactly the same as it was in October,' said Ellen Anreder, spokeswoman for six of the seven striking locals of the UFCW. "It isn't exactly thesame, but it is nowhere near where it needs to be.'

On the crucial issue of health- care costs, the chains currently pay $3.85 per worker per hour for health care. In addition to asking for employees to contribute $5 to $15 per pay period for their insurance and making larger co-payments for treatment, the chains want to cap their own contribution at $4.60 for current employees and $1.35 for future ones.

The unions argue that such a system would force employees to absorb all future cost increases past $4.60, and that the lower rate for new employees would mean that by the third year of the current contract, even old employees would be paying as much as $100 a week for their insurance.

Jonathan Ziegler, a grocery analyst with JM Dutton & Associates in Santa Barbara, said the dispute might be settled more quickly if the chains gave in a little.

"It might help if they didn't implement a two-tier pay system,' he said. "In lieu of that, they could establish a (Wal-Mart-type) policy where employees aren't granted health care benefits for the first six 6 to nine months. That would cuts costs because the turnover in that business is so high.'

And the strike continues.


TOPICS: Business/Economy; News/Current Events; US: California
KEYWORDS: competition; grocery; grocerystrike; slotting; strike; ufcw; walmart

1 posted on 01/13/2004 10:19:42 PM PST by calcowgirl
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To: calcowgirl
They got healthcare immediately????? My Gosh, they had no idea how good the HAD it.
2 posted on 01/13/2004 10:23:19 PM PST by Hildy
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To: calcowgirl

3 posted on 01/13/2004 10:28:41 PM PST by BunnySlippers (Help Bring Colly-fornia Back ...)
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To: calcowgirl
I ran into a manager of the local Smith's Grocery (a Kroger owned company). He had just returned from an out of town rotation in California. It seems Kroger is spreading the "pain" by swapping out managers from areas that are not involved in the strike to keep things running smoothly. The unions are going to lose this fight.
4 posted on 01/13/2004 10:34:41 PM PST by Myrddin
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To: Myrddin
BTW, the Smiths in question in located near Pocatello, Idaho.
5 posted on 01/13/2004 10:35:29 PM PST by Myrddin
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To: Myrddin
The unions are going to lose this fight.

Someone's going to win? Maybe Wal-Mart...

6 posted on 01/13/2004 10:58:20 PM PST by Smogger
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To: calcowgirl
Paying for "slots" has been going on for a long time. The man who came up with the recipe for Dove Bars was selling them on a corner in NYC. He couldn't get any supermarket to sell them. Finally, he went to a Food Broker who arranged the financing to pay for the slots, etc.

If you wonder why some of your favorite foods disappear from the market, it's because the mfgr. has to either pay more for slots, or remove a current product to put in the new one.
7 posted on 01/13/2004 11:13:51 PM PST by kitkat
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To: kitkat
The product shelves at Egg Head Software stores had a major influence on how products were packaged. The boxes were created to have maximum impact on an Egg Head shelf.
8 posted on 01/13/2004 11:26:08 PM PST by Myrddin
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To: Smogger
Someone's going to win? Maybe Wal-Mart...

Walmart would be fine. They deliver a good product at a competitive price. The shelves at my local Walmart are kept stocked with what I need. The meat department at Fred Meyer is certainly a bit better. Our local WinCo is employee-owned, non-union and competitive with Walmart. The Albertson's is a union shop with higher prices and far fewer annoying customers in the aisles. They will be closing soon and the building will be taken over by Target.

9 posted on 01/13/2004 11:31:51 PM PST by Myrddin
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To: calcowgirl
Let me see if I understand this right.. Before the strike, the 18 year old bag boy had full coverage health insurance for himself and his family, plus was earning a base $8 an hour for a part time job?

o/` The party's over, turn out the lights... o/`
10 posted on 01/13/2004 11:49:32 PM PST by kingu (Remember: Politicians and members of the press are going to read what you write today.)
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