Slotting fees: Crack cocaine for the supermarkets
Oligopoly Watch details how slotting fees, which are kickbacks the big supermarket chains charge their vendors, are a primary reason these chains are losing out to Wal-Mart, who doesn’t charge these “fees”.
You read that correctly. Vendors pay the supermarket chains to sell their goods.
Basically, the manufacturer pays a fee to the retailing for the privilege of “slotting” their products in the retailer’s warehouse, and ultimately placing their products on the supermarket shelves. The fee can be either in cash, goods, or services, or all three.
(Mercy, it would seem a dishonest manager of a big supermarket could pocket thousands in tax-free income each year from vendors anxious to sell at his store. But I’m sure that would never happen, because that would be wrong.)
Of course these fees get passed along to the consumer, thus increasing prices. Wal-Mart is many nasty things, however they do not charge slotting fees as they insist customers will pay the lowest price possible. According to Oligopoly Watch, this is a major reason they undersell the big grocery chains. Plus, because they aren’t addicted to slotting fees, they stock their shelves based on what customers want, not on what the slotting fees are.
In other words, Wal-Mart is winning not primarily because of low salaries and health expenses, but because of abstention from the slotting fees. Like a crack addict, the big chains are unwilling to give up the slotting fees and compete directly with Wal-Mart.
The Greedy Three says Wal-Mart is the reason they must, absolutely and tragically must, slash benefits and wages. Uh huh. Maybe they should give up their addiction first.
Wal-Mart hammers everyone but the customer to drive down prices. Employees and vendors routinely get ground down, and they have thouands of lawsuits pending against them. They are nasty, vicious, and no model for ethical business practices. However, with slotting fees estimated at 9 billion a year – which means 9 billion added to our grocery bill – it’s clear why Wal-Mart, who abstains from this, has lower prices.