FTC workshop puts pressure on slotting fees

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A week after its first direct action against supermarket slotting fees, the Federal Trade Commission upped the pressure on marketers and their retailing partners by announcing plans for a "workshop" to look into the practice.

The FTC said in a press release that the broad-ranging public workshop -- essentially a hearing, scheduled for May 31 and June 1 -- is intended to "learn about the nature of slotting allowances" and "better assess competitive concerns."

However, a Federal Register notice used much stronger language, saying: "The term `slotting allowance' has been used to cover an extremely broad range of conduct, some of it clearly unlawful as commercial bribery, some clearly lawful and a great deal of it in a gray area." The notice was posted at the commission's Web site (ftc.gov).

UNDER PRESSURE

The FTC has been under congressional pressure to act on slotting fees. U.S. Sen. Christopher "Kit" Bond (R., Mo.), chairman of the Senate Committee on Small Business, held a hearing last year in which he charged that fees put smaller marketers at a major disadvantage, and may keep superior or innovative products off shelves.

In its notice, the FTC said it intends to examine both slotting fees and category management. Among the questions for marketers included on the Federal Register notice: whether slotting fees are paid to obtain exclusivity; whether the fees increase the capital costs of entering markets; what impact they have on product development and innovation; and whether they, category management or other practices raise antitrust issues. Category management entails allotting more shelf space to what are deemed to be the most profitable products.

William Cohen, the FTC's deputy director of policy planning, said the agency feels there hasn't been enough systematic gathering of facts about the effects of slotting fees and it wants to more closely examine them.

`SHORTAGE OF FACTS'

"There has been a lot of discussion and debate, but there is a shortage of facts," he said. "The first step is to increase the FTC's knowledge and see where it leads. It may help us sort out where the competitive problems are and where they aren't."

Traditionally, grocers have contended slotting fees, which can come as discounts, payments or advertising fees, help offset the high cost of bringing in new products. Sen. Bond, however, has complained they often are used to ensure shelf space for current brands.

The Grocery Manufacturers of America had no immediate comment on the FTC notice last week.

George Green, general counsel for the Food Marketing Institute, a grocers industry group, said he was hopeful that the FTC would achieve its goal of getting a better understanding of slotting.

PRO-COMPETITIVE FEES

"I suspect what will come out at the end of the day will be the need for the fees to be pro-competitive and for cases to be reviewed on a case-by-case basis," he said.

The FTC, which had never previously brought a case on slotting fees, accused McCormick & Co., on March 8, of giving some stores lower prices than others in order to gain shelf space. The company settled the complaint (AA, March 13).

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