Grocery Retail Distribution and Slotting Fees

Can we lay out the cost then? Let’s say you’ve got this two-dollar bottle and you want to get distribution. What are the major types of fees that you’re looking at?

Well, first and foremost, it’s going to be your distribution fees. Let’s take Kroger. Kroger is a great example because they’re a United States company across pretty much 40 states with different brands. Let’s say you want to get your barbeque sauce into Kroger. The first thing from a cost perspective: how are you going to get it to them? Where are you going to send it from? If you have a location, let’s call it Texas, you’re going to have to get your product to all of the different distribution centres that Kroger uses and there are six of them across the country. You’re going to have to get your product from Point A to their distribution centre, before it ever gets to the store. What happens is, a lot of people say “Well, I have a single-route system, I can take it from here, why I cannot take it to a Kroger distribution centre?” Well, you can’t, you’ve got to take it to all of their distribution centres. Every retailer has that, so your distribution costs all of a sudden, because somewhere around, as a small start-up that’s about 12-15% additional costs.

Then you’ve got to pay slotting inside of those warehouses, not the shelf placement slotting, but the slotting you’ve got to factor in for the warehouse, for them to stock it into the warehouse to send it to their stores. You have another slotting fee there that’s typically 5-7% that they’re going to charge you if you’re going direct. I haven’t even discussed if you have to use a third-party because then it becomes even more expensive.

That’s five percent of what you believe you’re going to sell the final products at?

Correct, yes.

You mentioned the final retail price of $6.99 and you’re saying the 5-7% warehouse fee is on the retail price or wholesale?

No, that percentage is what you’re selling directly to them at your cost. Not the retail cost, because you won’t set the retail cost. That’s the next thing, you have to understand those two costs. Then you’re going to pay a slotting cost, which is a shelf placement cost in the United States. They’re interchangeable. A lot of people cost away from calling it shelf fee, and shelf placement fee, because it’s borderline illegal. They started calling it slotting. If you have your barbeque sauce, you better have at least two flavours before you can even get an appointment. Let’s call it two SKUs of my barbeque sauce, a smokey and a sweet. Each of those are going to cost you a $75,000 shelf placement fee per SKU. You’ve got to factor that $75k I your budget. You get nothing for it, except for a slot on a shelf, one facing on the shelf.

If you’re going to use a broker to get distribution, you have one of two choices: you’re going to pay a person, which is my recommendation, or the only other way is that you pay a broker. Brokers are trying to sell ten other barbeque sauces at the same time. It’s a waste of time. It’s the only two methods you can use to go see any retailer. Let’s say you use a broker. The broker fee for a small company, a start-up brand is another 5-7%. If you’re an established brand, it’s 3%. What they call a hunter’s fee, they’re going to charge you 5-7% of total sales.