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OM in the News: Suppliers and Whole Foods’ Slotting Fees

February 12, 2018

Whole Foods, which cut prices last year to make it cheaper to shop there, now is making it more expensive for suppliers to get their products onto shelves, reports The Wall Street Journal (Feb.9, 2018). The supermarket chain is asking suppliers of all sizes to pay new rates for prime shelf space as it tries to boost profits and better organize the exploding number of organic products hitting the market.

Many suppliers will see an increase from the average $25,000 “slotting fee” companies were paying to be featured in the stores’ most-visible, high-traffic areas. Additionally, Whole Foods is pitching its biggest suppliers on a promotion costing up to $300,000 for several weeks of prime shelf space along with souped-up marketing. The chain also is asking suppliers to offer bigger discounts on their products to earn the space. A high-visibility nationwide promotion at Whole Foods now often requires companies to cut product prices by at least 25%.  “We knew full-well that there would be discontent,” said Whole Foods’ V.P.

The firm is adopting a suite of retailing tactics meant to enhance profitability, including centralized purchasing decisions, tighter control over inventory and working with a national contractor to do in-store sampling. Grocery suppliers will pay a fee of 3% of the cost of goods delivered, and beauty suppliers will pay 5%. Whole Foods has hired an outside company to stock shelves “to provide a much more effective result.”

On the other hand, Kroger, the largest U.S. supermarket chain, has been courting niche brands over the past year with a new portal for local suppliers and a series of natural-foods trade fairs. The company doesn’t charge slotting fees for small suppliers.

(See our discussion of slotting fees in Chapter 9 on pages 374 and 392.)

Classroom discussion questions:

  1. Discuss the ethics of charging fees to allow products to be placed on supermarket shelves.
  2. Why is this an issue particularly in the grocery industry?
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