FTC pinpoints slotting fees

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The Federal Trade Commission is dropping hints in a staff report that its focus on the anti-competitive effects of package-goods slotting is sharpening-just as a joint venture of marketing powerhouses is announced.

Slotting fees, the funds many marketers must pay to supermarket chains to reserve space on store shelves, have become the subject of FTC scrutiny in recent months. Last week-the same week Coca-Cola Co. and Procter & Gamble Co. made public their venture to market juices and snacks-the FTC staff released a report recapping a workshop on slotting practices it held last year. The report urged the commission to quit waiting for recalcitrant marketers to volunteer information on slotting practices and subpoena the information, a good possibility given that Congress last year gave $900,000 to the commission to examine slotting issues.

The 61-page report recommended the FTC hold off on issuing any guidelines for marketers or retailers on slotting activities ranging from fees for introduction, fees to stay and fees to win category captain leadership. It also offered several theories in which the fees could raise antitrust issues that have to be looked at in mergers.

too much power?

One chapter of the report focused on potential antitrust implications of retailers having too much gatekeeper power, which stymies market competition. That could result in greater scrutiny for grocery industry mergers.

Some lawyers and antitrust experts who saw the report said the FTC now will have slotting clearly in mind when it reviews merger deals. "It's hard to know exactly what it will mean with the change in administrations, but it puts the idea in the air," said Steven Salop, professor of economics at Georgetown University Law Center. "Now that [the rep0rt] put [the slotting issue] on the front burner, the FTC will be looking for situations where those effects are likely."

Robert Skitol, a Washington antitrust lawyer who represented some tortilla makers in urging the FTC to act immediately to set guidelines, said that while he is disappointed agency staff didn't take immediate action, he is hopeful the FTC has now become "sensitized" to slotting issues. "If nothing else, it raises consciousness and visibility of slotting issues in the outside world," he said. He called the staff recommendation to subpoena information from companies the most significant part of the report.

Mr. Skitol said the FTC already is examining slotting issues in its antitrust review of PepsiCo's purchase of Quaker Oats Co.


Slotting has been a major issue in the continuing fight over the FTC's attempt to block H.J. Heinz Co. from buying Milnot Holding Corp.'s Beech-Nut brand. In court papers, the FTC said both Heinz and Milnot are making money on baby food and the merger would lessen competition to be the second baby-food brand on store shelves (along with Novartis' Gerber). That shelf space battle would partly be waged via slotting fees.

Heinz, meanwhile, claims the slotting fee wars actually hurt consumers. With the two brands splitting the second position in stores and fighting slotting-fee battles, neither has the national distribution or ad muscle to effectively challenge Gerber, which pays no similar fees.

Sen. Kit Bond, R-Mo., chairman of the Senate Small Business Committee, has held hearings on slotting issues, questioning whether slotting practices prevent small businesses from getting store shelf space.

The FTC report, however, also presents several theories for looking at slotting, especially when mergers of marketers or retailers are involved. If a dominant marketer or a small group of marketers win exclusive shelf-space agreements in a market in its top retailers, the report suggested "competitive harm might occur." Even if an agreement isn't exclusive, activities that make it difficult for rivals to get effective distribution also could warrant scrutiny.

"If a dominant firm's use of slotting allowances, pay-to-stay fees or exclusionary contracts reduces the number of competing firms sufficiently or otherwise hinders rivals' ability to compete, it can harm competition," the report said. It also questioned the antitrust implications of stores turning over category management to some of their suppliers who act as "category captains."

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