Profitability for a retailer is rotation x margin
Retailers make money by selling your goods at a margin. The quantity of goods sold in a certain period is the rotation, and as a manufacturer you have to make credible that the rotation of your product will be high. The other aspect is margin: but mostly retailers set a fixed margin per product category, which may range from 20 to 50% for fast moving consumer goods.
The same applies for online sales: although there you list as many products as you want, online retailers won’t do that. If the online customer has too much choice, he or she will find the website messy and perhaps even won’t buy.
To list a product means delisting another one
The space in a retail shop is limited. And it is already fully optimised. This means that if you want your product on the shelves, the category manager has to remove another one to make space. So he has to disappoint another manufacturer who has already paid a listing fee, but whose products do not sell enough.
What is a slotting fee (or listing fee)?
A slotting fee is the amount of money/fee required by the retailer, once she/he found potentiality for your product, to cover some direct costs (e.g. opening a supplier code, checking quality standards, list in the IT system,etc.) but mainly to cover the costs of space that is the most scarce/valuable resource for a retailer (both online and offline).
Profitability for a retailer is rotation x margin
Retailers make money by selling your goods at a margin. The quantity of goods sold in a certain period is the rotation, and as a manufacturer you have to make credible that the rotation of your product will be high. The other aspect is margin: but mostly retailers set a fixed margin per product category, which may range from 20 to 50% for fast moving consumer goods.
The same applies for online sales: although there you list as many products as you want, online retailers won’t do that. If the online customer has too much choice, he or she will find the website messy and perhaps even won’t buy.
What is the business case for your product?
Of course you can try to negotiate with purchasing managers of retail chains. There are alternative ways of payment, like advertising in the supermarket’s magazine or doing sampling in the supermarket. This will also help your sales. There are many parameters, and eventually you will have to keep in mind you business case: will you still be making money on your product?
Retail marketing has experience in presenting your product with supermarkets and with negotiations. Please contact your nearest representative or our matter experts.
What is a slotting fee (or listing fee)?
A slotting fee is the amount of money/fee required by the retailer, once she/he found potentiality for your product, to cover some direct costs (e.g. opening a supplier code, checking quality standards, list in the IT system,etc.) but mainly to cover the costs of space that is the most scarce/valuable resource for a retailer (both online and offline).
Slotting fees or listing fees, slotting allowances, pay-to-stay
These are all names for the fact that the supermarket or other retail outlet wants to optimise its shelf space. The specific metrics may vary, but the principe remains the same: its a way to share the risk/opportunity of a failure/success of a listing between the manufacturer and the retailer.
Getting supermarkets, convenience stores and drugstores as you distributor
We all want our products in full sight at the shelves of any supermarket, convenience store, drugstore or department store. This will boost your sales and give your product the status it deserves. However, in order to get there, you will have to pay for it, and the better the position, the higher the fee.
A listing is the introduction of a product/product line in the retail offer of a retail/foodservice company in a specific retail channel (offline or online), territory, store/s decided by a retail representative (Category Manager, Retail Manager, Store Manager, Buyer) after having received all information and deeply assessed the profit and sales potentiality.
What are slotting fees?
If you've been in the retail business for long enough, you'll have no doubt come across slotting fees. You may even have paid your fair share, depending on the products you offer or the category you supply, so you might not think it's worth unpacking the term.
For the sake of this piece, though, and for any supplier who is new to the business or hasn’t heard about them before, here’s a brief description:
A slotting fee, also known as a slotting allowance, is a payment (usually once-off) that you would offer to a retailer to ensure your products appear on the shelf in their stores. That's why you'll also hear it referred to as a shelf placement fee.
Of course, paying for shelf space isn’t a new trend. It’s been part of the retail industry for at least the last 35 years (it was first referenced in the early 1980s) if not longer. And it’s especially widespread across grocery stores and supermarkets.
But that doesn’t mean it’s not controversial.
For example, it’s common to hear talk of it being unethical. That argument is especially valid if you’re a small supplier with a limited budget. By making use of a slotting fee, retailers create high barriers that make it difficult for you to compete with your larger competitors. There is also the point that retailers can abuse their position and ask for exorbitant fees, thereby profiting at your expense.
An initial slotting fee could be as much as $50 000 per product per store on an annual basis. That cost could also climb significantly if you’re attempting to get into a high-demand market. Then again, you do need to view this from the side of the retailer. They’re looking to fill their shelves with products that will sell. They can’t afford to stock just any product.
The point of view of a category manager
A category manager of a Retail Chain has:
And a category manager knows that only 1% of new products launched in the market survive more than 1 year…
