How will governmental regulation of slotting fees affect the cereal industry?

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GOVERNMENT REGULATION OF SLOTTING FEES WILL ADVERSELY AFFECT THE SMALL CEREAL PRODUCER.
Grocery stores have become a real estate business. They're just renting shelf space," the type of fees contributing to the downfall of America's small cereal family farms. small cereal farmers receive only a small fraction of the price consumers pay for produce. When farmers are also required to pay up-front fees or provide free merchandise to retailers to stock their produce, it becomes significantly more difficult for farmers to make a profit and
continue to farm. We hear today about these types of
retail practices and what they mean for small cereal farmers and
consumers.
There are many definitions about what a slotting fee is,
but most agree that slotting fees generally take the form of
up-front payments of cash or product from a manufacturer to a
retailer in exchange for the retailer stocking the
manufacturer's products. Through the Committee's investigation hearing last year, we learned that large-chain retailers routinely demand substantial up-front slotting payments from manufacturers to get products on the shelf or to keep them on the shelf. We are talking about the most expensive real estate in America.
During its history there are countless theories and anecdotes about what these fees are, how retailers request the fees from manufacturers, how they are treated for tax purposes and how these fees harm consumers through increased prices and decreased consumer choice and innovation.
In order to make informed policy decisions about this issue
Congress needs to get the full picture of what is occurring in the marketplace. To truly know when these fees are acting as an anti-competitive force, Congress and relevant Federal agencies must be able to compile the facts about how much retailers collect, how the fees are negotiated, and for what the fees are used. Acquiring this data, however, has been almost close to impossible.
It seems that these fees are the ``dirty little secret'' in retailing. Often nothing is in writing between the manufacturer and the retailer, and only supermarkets, their brokers and distributors usually know the amount of money paid in slotting fees.
In addition, most small cereal manufacturers have expressed considerable fear of retribution from chain retailers for valid reasons and we have heard too many instances where someone complaining about slotting fees has been totally excluded from the market. Anybody who complains about the fees publicly, even anonymously, if they are discovered, gets dealt with. The phenomenon that retailers charge up-front fees for small cereal growers just to get their products on the shelf.
Every one has heard from other farmers about these unsavory
practices. You do not need a slotting fee to convince somebody that they need to buy tomatoes. That is usually on my shopping list when I go to the grocery store. In any event, these are not new products, and accordingly, the it is appropriate to hear about why fees are requested from the produce industry and what they mean for the small cereal farmer.
We are not so naive today, and our larger challenge is the seemingly growing appetite for side deals, slotting fees, rebates, allowances, promotional fees, and all sorts of charges ranging from warehouse construction to store remodeling that are not contained in contracts, do not appear on invoices, and are otherwise unaccounted for in transactions.
Today, produce companies are being asked by some retailers, not all, to pay numerous off-invoice fees unrelated to the actual product costs. These rebates and allowances are sometimes tied to promotions or advertising which can serve consumers and growers alike. But in many cases they are more likely to be unrelated to any particular incentives or performance. small- to medium-sized growers are particularly vulnerable to these demands.

THE RATIONALE : Since retailers are offered many more products than they can carry, they often have a great deal of bargaining power with suppliers. Retailers are often reluctant to accept a new product that may or may not be successful. Often, when a new product is introduced, manufacturers are asked to pay a "slotting" fee to get access to the retailer's shelves. This may seem unfair at first, but two facts should be considered: (1) The retailer is taking a risk by putting out the product, possibly replacing an existing product on which it has at least broken even. (2) Slotting fees may compensate the retailer for given space to a slow-moving product category. If the retailer could not charge a slotting fee, it might decide to devote most of its shelf-space to major national brands that would "turn" more quickly. That is, on a given "slot," you might sell fifty packs of Nabisco cookies per day, but only seven of the smaller brand. Ultimately, of course, the slotting fee is at least in part passed through to the consumer, but the slotting fee both allows the retailer to protect itself from risk and maintain a unit selling at lower volumes. It should be noted that price competition in the retail field is intense with very low margins. The money received from slotting fees is part of the store's total revenue. If no slotting fees were charged, prices on the slow-moving and new products may be lower, but it is unlikely that overall store prices would be lower. Retailers would simply have to charge higher prices on other products and would likely be tempted to drop many low share brands.
As more and more products compete for space in ...