Slotting Fees: What Grocery Stores Charge, and the Math

Slotting fees are what some grocery retailers charge a maker to put a new product on their shelves: a payment for each item, often for each store, sometimes as cash, sometimes as free product, sometimes as discounts off the first orders. The idea is that shelf space is limited and a new product is a risk, so the maker shares the cost of trying it. Practices vary widely: some chains charge them, some independents and co-ops don't, and the amount and form are often negotiable. The way to judge one is to treat it as an investment: what you pay up front, against what each unit leaves you, gives how many weeks the shelf has to sell before the account pays back. In the example below, a 20-store chain wants $100 per item per store and a free case of each, $4,936 to start for two kinds of chips, which pays back in 13 to 21 weeks if each item sells six bags a week in each store, and twice that if it sells three. Below is what slotting fees are, the example, and what to ask.

The short version

• Slotting fees are payments to a retailer for shelf space for a new product, per item and often per store.
• They come as cash, free product ("free fill"), off-invoice discounts or promotion money.
• Not every retailer charges them, and the terms are often negotiable.
• Work out the total up front, including free product at what it costs you to make.
• Divide by what each unit leaves you to find how many units, and weeks, it takes to pay back.
• Ask what happens if the product is dropped, and how long it gets to prove itself.
• TaroStack shows your margin by customer, so you can see what a chain leaves you each week. More below.

The forms slotting fees take

Some retailers ask for one; some ask for several together. Get every form in writing before you agree, because a cash fee is easy to see and free product is easy to forget.

A worked example

Windward Roots, the made-up taro business I use in these examples, is offered a place in a 20-store regional chain for two kinds of taro chips. The chain asks for $100 per item per store, and one free case of 12 bags of each item for each store.

The free fill is costed at what the bags cost to make, $1.95 each, not at their price, because that's what it really costs you. Then the payback, at six bags of each item a week in each store, 240 bags a week:

At three bags a week instead of six, both paybacks double, to about 27 and 42 weeks. Whether that's acceptable depends on how long the chain keeps a new item that sells slowly, which is the question to ask before signing. How the $2.92 distributor price is worked out is in distributor margin.

What to ask before you agree

• What exactly is the fee, in every form? Cash, free product, discounts, promotions, placement.
• How long does a new item get? And how is it judged: units per store per week, or something else?
• What happens if it's dropped? Is any of the fee returned, and who pays for unsold product?
• Can it start smaller? A few stores first, or one item instead of two, lowers the risk.
• How are the free cases and discounts handled? On an invoice, as a deduction later, or by the distributor?
• What else will they ask for? Shelf life on delivery, barcodes, insurance, lot codes on every case.

What grocery buyers ask of a supplier beyond the fee is in requirements for selling food to grocery stores, and barcodes are in GS1 barcodes for small food producers.

Is it worth it?

A slotting fee is worth paying when the payback is short enough that the product will likely still be on the shelf when it's done, and when the account is one you'd want for years. It's worth negotiating when the payback depends on sales you haven't proved yet; a smaller first test, in a few stores, is a common answer. And it's worth walking away from when the numbers only work if everything goes right.

Where this stops working

The payback sum is done once, in a meeting. Then the account runs: free cases go out with the first deliveries, deductions arrive on remittances weeks later, sales differ store by store, and the chips' cost moves with the price of taro and oil. Six months in, nobody can say whether the chain has paid back, because the fee, the free product, the deductions and the margin live in four different places.

How TaroStack does it

TaroStack keeps each account's orders, costs and margins together, so the payback is something you can work out.

The chain is a customer. Each chain or store is a customer, with its sales orders, one picking list and delivery notes that list each case's lot and best-by date. A customer's days-of-shelf-life rule is kept with the customer, and the pick takes the oldest lot that still meets it.

Free cases, recorded at cost. Free fill goes out of stock as an adjustment with its reason, sample, at what the bags cost, so it's in the record of what the account cost to win, not lost in the counts.

And the margin by customer, on real costs. Each batch is costed from what you paid for its ingredients, divided by what came out good, and margins are reported by product and by customer, so the chain's margin sits beside your independent stores' and moves when costs do. If a supplier recalls an ingredient, one report says which stores got which lots.

Customers, sales orders, lots and margins by product and customer are on every plan, from $49 a month. The first 30 days are free, with no credit card. If you'd like a hand setting up, ask, and we'll do it with you.

Questions people also ask

What are slotting fees?

Payments some grocery retailers ask a maker to make for shelf space for a new product, usually per item and often per store, as cash, free product, discounts or promotion money.

Do all grocery stores charge slotting fees?

No. Practices vary by retailer; some independents and co-ops don't charge them, and where they're charged the terms are often negotiable.

What is free fill?

Free product a retailer asks for when a new item goes on the shelf, typically the first case in each store. Count it at what it costs you to make and deliver.

How do you decide whether a slotting fee is worth paying?

Add up everything paid up front, divide by what each unit leaves you, and turn that into weeks at a realistic rate of sale. Compare it with how long the retailer keeps a new item.