Why are slotting fees important?

Why are slotting fees important?

A slotting fee — sometimes referred to as a shelving fee, or slotting allowance — is a cost that manufacturers pay to place their products on retail shelves. It is a one-time charge that ensures brands will be able to stock a new product until its sales performance can be established, usually within four to six months.

What are slot fees?

Slotting fees are one-time payments a supplier makes to a retailer as a condition for the initial placement of the supplier’s product on the store’s shelves. This system allows the retailer to protect its return on investment when buying a new product.

Why is a slotting allowance required by retailers with limited shelf space?

Because consumers are assumed not to be willing to compensate supermarkets through increased margins or greater sales when supermarkets increase product variety, slotting fees are necessary, according to Sullivan, to allow supermarkets to recover their higher costs of providing increased shelf space for stocking new …

Why retailers ask slotting fees to the manufacturers?

For example, the first, and primary reason why you’d play a slotting fee is that it guarantees you space on the shelf. The result, which is also the second benefit, is that it allows for sales. Not only that, by paying for space on the shelf, you’re able to gain exposure for your products.

Do all stores charge slotting fees?

The fee varies greatly depending on the product, manufacturer, and market conditions. For a new product, the initial slotting fee may be approximately US$25,000 per item in a regional cluster of stores, but may be as high as US$250,000 in high-demand markets.

Do vendors pay for shelf space?

Retail shelf space is a hot commodity that thousands of manufacturers want a piece of. Regardless of their company size, suppliers in many food and beverage categories are required to pay a hefty slotting fee in order to get their products stocked on shelves.