Slotting Fee Pricing

You mentioned the slotting fees are roughly $75k per SKU. How do retailer’s price slotting fees?

It’s whatever. It’s crazy. One of the things I built and have still today, I keep it, it’s like my bible. It’s a retailer synopsis of every major retailer across every category. I have slotting fee requirements, what their margin requirements are, you name it, I’ve got the whole thing. It is a massive build, but it’s crazy. When I’ve been able to work with them, it’s like, wait a minute, it’s $5,000 here, but it’s $75,000 there. That’s exactly right. There is no rhyme or reason to it.

For Kroger, once you get some establishment inside of the building with good people, you can negotiate those fees. If you’re a start-up company coming in, it’s going to be $75,000 because you don’t know anyone. It’s going to be $75,000 and people pay it. I go in with the rice that I had, sit down with the buyer and he tells me, “I’ve published slotting $75,000.” I said, I know that. “However, I’m going to give you $40,000 and I’m going to take the other $35,000 and we’re going to invest it into promotional goods, or we’re going to do something at store-level with that 35,000.” They agree to it because I’m going to have the $35,000 working, turning my product. You can do that with certain retailers. It’s so crazy, and there are chains that charge $15,000 per SKU. There are chains that charge $100 per store for instance. You’d think, “That’s great. I’ll go in five stores.” Well, five stores, you’re not going to turn your product. It ends up costing you money no matter what.

Does it depend on how much market share the category incumbent has?

No, it doesn’t matter if it’s beans, it doesn’t matter if it’s barbeque sauce, it doesn’t matter if it’s rice, it’s $75,000. When you go over into frozen foods, it may be $100,000 because they’re putting electricity behind it and that kind of thing. If you’re a DSD (direct store delivery) company, it’s where all bets are off. That’s why I enjoyed having worked on both sides of the business for years. Frito-Lay for example, or Coke, they don’t pay those fees. Those don’t pay any slotting fees because they’re bringing the product to the store themselves. They have 15-feet and they’re getting that space worked for that retailer all the time. The retailer will tell you, “I charge you slotting fees because my people have to put your product on the shelf all the time, they’ve got to stock it every day.” That’s what that fee is really for. There’s just no rhyme or reason to it. People have asked me, how do they do it? There is no formula. They could decide tomorrow they’ve been charging $25,000, I think we could go to $40,000, and they’ll do it. If you want to stay in there, you pay it, or you don’t. The one thing to remember, I need to preface this, that’s a one-time fee. You’re not being asked to pay every year. That’s a one-time fee for that slot.

Is there an ongoing yearly placement fee?

No. Once you pay it, as long as you’re turning product, you don’t pay it again. Now, what happens is, again, this goes back to once you’ve established a relationship with a customer, so let’s say you have those two barbeque sauces. You think, wait a minute, this one is not doing it. I don’t want the smoky anymore, we’re going to come out with a tangy. You go to that retailer and you say, “I’m going to pull the smoky out but we’re going to replace it with tangy.” What they’re going to tell you is, you’re going to pay another $15,000. If you’re going to let go of that slot, then I may bring in somebody else that I’ve been wanting to bring in that may pay me $15,000 for that slot. You don’t just get to switch a product out. Now, that is if they don’t, again, if you’ve got a relationship, you can go in there and you can pull that off without having to pay that fee. If you don’t, you’ll pay it again, if you decide to change.