Authors of Study Defending Slotting Respond to Critics; PG Poll Launched on Slotting
The authors of the study, "Are Slotting Allowances Efficiency--Enhancing or Anti-Competitive?", K. Sudhir of Yale and Vithala Rao of Cornell, responded to critics' remarks cited in yesterday's online news story, "Study Defending Slotting Draws Fire."
The study, which concluded that slotting allowances support efficiency in the marketplace, also drew additional comments yesterday from several manufacturers, one retailer, and a consultant.
Progressive Grocer has now placed a poll question on its Web site, www.progressivegrocer.com, to gauge further industry reaction.
The authors' response was as follows:
"There are several theoretical explanations (both efficiency-enhancing and anti-competitive) for the existence of slotting allowances. Our objective was simply to test which of these explanations are consistent with the data that we have.
"Our data only has information on whether slotting allowances are offered, but not on amounts. The reactions you received seem to focus on the amounts. Further, our analysis is based on a purist definition of slotting allowance (based on new products) and does not consider any other forms of fees for existing products, such as 'failure fees,' or 'pay-to-stay fees,' which are sometimes put under the umbrella term of slotting allowances.
"Our data are for one 'representative' retailer, but for a large number of new products offered over a period.
"Our analysis uses appropriate analytical techniques, given the data we have, to arrive at the conclusions we have.
"One important point that we wish to make is that we find support for several theories that are consistent with efficiency enhancing explanations, and we do not find much support for anticompetitive explanations in our data. This does not mean that there cannot be any support for anticompetitive explanations in other data. Our key conclusion is a very cautious one: Given that we find support for several efficiency-enhancing explanations in our data, the FTC is correct in its reluctance to completely ban slotting allowances without additional empirical support for anticompetitive explanations.
"Overall we have no 'axe' to grind one way or the other. We have not received any funding from any manufacturer for our study. We are interested in empirical reality rather than subjective experience of the agents involved either on the manufacturer or retailer side. In this context, we may even say that people (managers are no exception) have judgmental biases such as anchoring, representativeness, etc. The comments Progressive Grocer received may in fact be affected by such biases.
"We support the idea of Progressive Grocer conducting a survey to examine this issue further. In fact, we will be happy to assist. However, we believe surveys are subject to biases. The ideal analysis should be based on objective data collected systematically from a representative sample of retailers (both large and small) about their buying process with respect to new products offered to them by both large and small manufacturers. In such a study one may include other kinds of fees offered/received. as well.
"Regarding point No. 2 of the first response, it seems odd to focus on Wal-Mart and not on other retailers. Surely other retailers need to see how to take costs out of their supply chain on lines similar to Wal-Mart, but it does not seem that the right solution for manufacturers is to avoid selling to them. If that were a solution, slotting allowances need not be of any concern to small manufacturers."
Following are additional reactions to the study. Interesting to note is the fact that much of the negative reaction to the report is coming from the manufacturing side -- and primarily from smaller CPG companies, as a retailer pointed out:
"My bet would be that both of the comments you printed today were authored by vendors and not retailers. You need to couch that when reporting their negativity on this slotting issue." (PG Note: Both of yesterday's comments were submitted by manufacturers)
An industry consultant commented: "I read with interest your article on responses to Yale's slot fee study. I could not agree more with the critics that slot fees have distorted the incentives for managers so completely that they have lost touch with the consumer.
"The evidence is truly indisputable at this point: Whole Foods' success in the perishables categories -- largely unbranded territory -- vs. the decade-long slump in the CPG center store says it all. Well, almost all. Wal-Mart, at the other end of the marketing spectrum, says the rest.
"Bottom line: managers who depend on manufacturers for incentives and innovation will get manufacturer-based solutions, not differentiation at retail, but sameness. This is the source of the inferior results for the conventional supermarket -- no clearly defined market position.
"By the way, don't slot fees equal about 2 percent of sales, and aren't industry profits less than that? If so, this is empirical evidence that slot fees have replaced sales as the strategic goal."
Below are several additional comments from manufacturers:
"I think this is just another example of academics having their heads in the clouds rather than dealing with the reality of everyday life. How they could come to such a conclusion is beyond me. I agree with the writer who asks how the study was funded. As a longtime specialty food seller, distributor, and importer, I have seen many small companies with outstanding products shut out of the marketplace, due to outrageous slotting fees. The supermarket chains rely on this extra cash for their bottom lines and also to satisfy Wall Street. If the slotting fees were taken out of the equation, I wonder how many supermarket chains would show any profit at all."
"I have called on nearly every major chain in the country, and I have seen the chains fall, one by one. The similarity among all these chains was the fact that they all were more focused on slotting fees than selling product and making margin. This is the one reason, which is systemic in retail, of why Wal-mart has crushed the competition. Simple. End of story.
"Chains that charge excessive fees and have fallen would include Caldor, Bradlees, Hills, Winn-Dixie, Penn Traffic, K-mart, and Fleming. Others that are struggling and charge fees include ShopKo, Pathmark, Ahold, and Alberstons.
"How many more will go bankrupt is anyone's guess; it will only be a matter of time. How can anyone feel sorry when these guys raped so many companies over the years?"
"After reading the article on Thursday about slotting fees, I was rather astonished at the conclusion. I have downloaded the report paper and am still wading through it, but it seems the whole concept of the paper is misguided. Many innovative products are being held off the retail shelves, just for the reason they cite as a benefit.
"Slotting fees, failure fees, and reclamation fees do nothing to bring better product to the marketplace, but just add hidden costs to the consumer. If these practices were to go away, products would be better able to stand on their own two feet and uniqueness rather then who has the deepest pockets to buy space on the retail shelf."
The study, which concluded that slotting allowances support efficiency in the marketplace, also drew additional comments yesterday from several manufacturers, one retailer, and a consultant.
Progressive Grocer has now placed a poll question on its Web site, www.progressivegrocer.com, to gauge further industry reaction.
The authors' response was as follows:
"There are several theoretical explanations (both efficiency-enhancing and anti-competitive) for the existence of slotting allowances. Our objective was simply to test which of these explanations are consistent with the data that we have.
"Our data only has information on whether slotting allowances are offered, but not on amounts. The reactions you received seem to focus on the amounts. Further, our analysis is based on a purist definition of slotting allowance (based on new products) and does not consider any other forms of fees for existing products, such as 'failure fees,' or 'pay-to-stay fees,' which are sometimes put under the umbrella term of slotting allowances.
"Our data are for one 'representative' retailer, but for a large number of new products offered over a period.
"Our analysis uses appropriate analytical techniques, given the data we have, to arrive at the conclusions we have.
"One important point that we wish to make is that we find support for several theories that are consistent with efficiency enhancing explanations, and we do not find much support for anticompetitive explanations in our data. This does not mean that there cannot be any support for anticompetitive explanations in other data. Our key conclusion is a very cautious one: Given that we find support for several efficiency-enhancing explanations in our data, the FTC is correct in its reluctance to completely ban slotting allowances without additional empirical support for anticompetitive explanations.
"Overall we have no 'axe' to grind one way or the other. We have not received any funding from any manufacturer for our study. We are interested in empirical reality rather than subjective experience of the agents involved either on the manufacturer or retailer side. In this context, we may even say that people (managers are no exception) have judgmental biases such as anchoring, representativeness, etc. The comments Progressive Grocer received may in fact be affected by such biases.
"We support the idea of Progressive Grocer conducting a survey to examine this issue further. In fact, we will be happy to assist. However, we believe surveys are subject to biases. The ideal analysis should be based on objective data collected systematically from a representative sample of retailers (both large and small) about their buying process with respect to new products offered to them by both large and small manufacturers. In such a study one may include other kinds of fees offered/received. as well.
"Regarding point No. 2 of the first response, it seems odd to focus on Wal-Mart and not on other retailers. Surely other retailers need to see how to take costs out of their supply chain on lines similar to Wal-Mart, but it does not seem that the right solution for manufacturers is to avoid selling to them. If that were a solution, slotting allowances need not be of any concern to small manufacturers."
Following are additional reactions to the study. Interesting to note is the fact that much of the negative reaction to the report is coming from the manufacturing side -- and primarily from smaller CPG companies, as a retailer pointed out:
"My bet would be that both of the comments you printed today were authored by vendors and not retailers. You need to couch that when reporting their negativity on this slotting issue." (PG Note: Both of yesterday's comments were submitted by manufacturers)
An industry consultant commented: "I read with interest your article on responses to Yale's slot fee study. I could not agree more with the critics that slot fees have distorted the incentives for managers so completely that they have lost touch with the consumer.
"The evidence is truly indisputable at this point: Whole Foods' success in the perishables categories -- largely unbranded territory -- vs. the decade-long slump in the CPG center store says it all. Well, almost all. Wal-Mart, at the other end of the marketing spectrum, says the rest.
"Bottom line: managers who depend on manufacturers for incentives and innovation will get manufacturer-based solutions, not differentiation at retail, but sameness. This is the source of the inferior results for the conventional supermarket -- no clearly defined market position.
"By the way, don't slot fees equal about 2 percent of sales, and aren't industry profits less than that? If so, this is empirical evidence that slot fees have replaced sales as the strategic goal."
Below are several additional comments from manufacturers:
"I think this is just another example of academics having their heads in the clouds rather than dealing with the reality of everyday life. How they could come to such a conclusion is beyond me. I agree with the writer who asks how the study was funded. As a longtime specialty food seller, distributor, and importer, I have seen many small companies with outstanding products shut out of the marketplace, due to outrageous slotting fees. The supermarket chains rely on this extra cash for their bottom lines and also to satisfy Wall Street. If the slotting fees were taken out of the equation, I wonder how many supermarket chains would show any profit at all."
"I have called on nearly every major chain in the country, and I have seen the chains fall, one by one. The similarity among all these chains was the fact that they all were more focused on slotting fees than selling product and making margin. This is the one reason, which is systemic in retail, of why Wal-mart has crushed the competition. Simple. End of story.
"Chains that charge excessive fees and have fallen would include Caldor, Bradlees, Hills, Winn-Dixie, Penn Traffic, K-mart, and Fleming. Others that are struggling and charge fees include ShopKo, Pathmark, Ahold, and Alberstons.
"How many more will go bankrupt is anyone's guess; it will only be a matter of time. How can anyone feel sorry when these guys raped so many companies over the years?"
"After reading the article on Thursday about slotting fees, I was rather astonished at the conclusion. I have downloaded the report paper and am still wading through it, but it seems the whole concept of the paper is misguided. Many innovative products are being held off the retail shelves, just for the reason they cite as a benefit.
"Slotting fees, failure fees, and reclamation fees do nothing to bring better product to the marketplace, but just add hidden costs to the consumer. If these practices were to go away, products would be better able to stand on their own two feet and uniqueness rather then who has the deepest pockets to buy space on the retail shelf."