In its first ever direct attack on supermarket slotting fees, the Federal Trade Commission has accused a marketer of offering discriminatory discounts on products to several grocers. The accusation could have major implications for packaged-goods marketers.
McCormick & Co., the nation's leading spice marketer, agreed to settle a complaint that it violated the Robinson-Patman Act by charging some stores higher prices than others for products. The goal was to grab more shelf space at the expense of smaller rivals, including Burns Philips Food's Tone Bros.
The consent decree, now open to public comment, was accepted on an unusual 3-to-2 vote, with commission members arguing over how far the agency should step.
The FTC already is exploring the competitive effect of slotting fees, and the McCormick case could have reverberations for other marketers. The practice deemed illegal by the FTC is a standard way of doing business in the grocery trade and in some other industries, anti-trust lawyers said.
"The fact is that if McCormick has violated the law, then there are hundreds of other grocery manufacturers out there that are similarly vulnerable," said Robert Skitol, an attorney for Drinker, Biddle & Reath, Washington. "When something is a widespread industry practice and all of a sudden the FTC comes out and nails one company . . . People are scratching their heads."
The Food Marketing Institute, an industry trade group, did not return calls at press time. Grocery Manufacturers of America said it was studying the decision.
Marketers spend billions of dollars on slotting fees for shelf space and display. In some arrangements, the discounts on products are considered part of the slotting fee.
$16 BILLION A YEAR
The tobacco industry, which has to report slotting payments publicly, spends more than $2 billion annually, and some estimates put the total spent on slotting fees at $16 billion a year.
Critics of slotting charge the payments put new products from small companies at an unfair disadvantage. Grocers respond that they use slotting fees to offset the high costs and risks of new-product tests.
U.S. Sen. Kit Bond (R., Mo.), chairman of the Senate Committee on Small Business, held hearings on slotting fees last year.
"I'm glad to see that the FTC has finally taken the bull by the horns and hope this marks the beginning of vigorous enforcement of anti-trust laws," he said in a statement last week. "Too many large manufacturers are using these tactics to knock competitors out of the market."
The FTC action is the commission's first on slotting fees. It's also the first time in 10 years the commission has taken action under the Robinson-Patman Act, which bars manufacturers from price discrimination in selling to retailers.
McCormick said it did not admit to violating the law and agreed to the settlement because it had "no adverse financial impact."
Anti-trust attorneys said the FTC had stepped away from bringing actions under Robinson-Patman because of criticism that pricing complaints were being brought against small players in the industry. The commission majority, consisting of Chairman Robert Pitofsky and commissioners Sheila Anthony and Mozelle Thompson, said that violations should be pursued when a dominant industry player engages in the tactics.
Copyright March 2000, Crain Communications Inc.