Supermarkets “Rigged” through Secret Deals with Food Manufacturers
New Investigative Report Finds Slotting Fees, “Category Captains,” and Other Deals Undermine Consumer Choice
Consumer demand is not the only factor that determines what supermarkets sell.
Backroom deals between supermarket chains and food manufacturers help determine which products get placed in high traffic areas—and which products appear at all. The Center for Science in the Public Interest today is releasing a report exposing these little-known and poorly understood practices and is calling on the Federal Trade Commission, the Securities and Exchange Commission, and state Attorneys General to investigate the murky financial arrangements between supermarkets and manufacturers that help shape what America eats.
CSPI commissioned investigative journalist Gary Rivlin to examine how companies get their products featured in particular locations in supermarkets. Rigged: Supermarket Shelves for Sale begins with an account of Jon Gordon, an entrepreneur who founded Clemmy’s, a brand of sugar-free ice cream that got shut out of the retail system.
Retail sales of ice cream are dominated by two giants: Nestlé (Häagen-Dazs, Dreyer’s, Edy’s, and Skinny Cow) and Unilever (Ben & Jerry, Breyer’s, and Klondike). Of the 24 freezer doors in a supermarket allotted to frozen desserts, Gordon calculated that 22 of them would be stocked with Nestlé or Unilever products or the store’s own brands. “That left only about two doors for the rest of us,” said Gordon, “meaning the stores could charge what they wanted to get space on one of those shelves.”
Slotting Fees: Gordon paid $30,000 to get into some stores of one chain (Albertsons), $50,000 to get into some stores of another (ShopRite), but blanched at the nearly half-million dollars he would need to get into all stores of another (Stop & Shop).
Slotting fees have come under some scrutiny in Congress (as in 1999, when anonymous industry insiders testified from behind a screen and through a voice-altering apparatus) and the FTC (in 2001 officials complained that a lack of candor on the part of retailers and manufacturers hampered their ability to get a clear picture of these practices). Few industry insiders would speak to Rivlin on the record about the fees. “You’re talking about a deep, dark secret of the retail world,” said former supermarket executive Mark Heckman. Retailers, he said, “don’t want one brand to know what the other is paying.” One insider at a condiment company said his company typically pays between $5,000 and $20,000 per item.
“Supermarkets aren’t neutral. Instead, they sell the most prominent shelf space to the highest bidder,” said CSPI deputy director of nutrition policy Jessica Almy. “That has the effect of squeezing out the little guy and ensuring that some products—especially name-brand sodas, chips, and candies—are displayed at multiple locations all over the store, while other foods are relegated to a single shelf.”
Pay-to-Stay Fees: Once a manufacturer has paid the price of admission, there’s no guarantee its products will stay. Pay-to-stay fees can take the form of cash payments or expensive trade discounts, such as coupons or “buy one, get one free” promotions. In the case of Clemmy’s, some chains demanded that it provide two or three free cases of ice cream per store per year to remain on a shelf. That worked out to between $40,000 and $60,000 per year for a retailer with 1,000 stores.
The most valuable real estate in the store is at the checkout aisle—the “beachfront property,” in the words of one anonymous broker, that is sold by the inch. Rivlin found that retailers generally pay $3 to $5 an inch for a given time period. One broker told Rivlin of deals in which manufacturers paid a single chain more than $500,000 to place its product by all of the chain’s registers for a few months. A company might have to pay up to about $5 million to place one candy bar in all the stores of the 50 biggest supermarket chains.
Besides checkout aisles, other prominent locations in stores, such as endcaps, command high prices from retailers. Endcaps—the displays at the end of an aisle—are typically the second-most expensive location, followed by shippers and other free-standing displays in the aisles. One broker told Rivlin he paid $17,000 for a one-time event at a 300-store chain; the same broker said the Publix chain might charge upwards of $75,000 per “event”—and push the manufacturer to hold six to eight such events per year.
Category Captains: Supermarkets assign one of the major manufacturers of a given category of food to serve as “category captains,” who create documents known as planograms to dictate where their—and their competitors’—products go on shelves. According to Clemmy’s Jon Gordon, Nestlé was the category captain for frozen desserts in 22 of the country’s largest 25 supermarkets, while Unilever likely served as the captain in the other three. Those captains would relegate him to a less desirable section of the freezer case, perhaps “behind a hinge . . . so you can barely see it,” Gordon told a newspaper.
“It’s hard to imagine a more unfair practice than giving the biggest food manufacturers the right to decide where its competitors sit on the shelf,” said Almy. “The FTC and state Attorneys General should investigate whether these practices are anti-competitive or in violation of state consumer-protection laws.”
Supermarket placement fees matter. Fees determine the selection of products available to consumers and how they are presented, influencing which foods and beverages consumers buy and eat, according to the report. The report also recommends that cities and counties adopt healthy-checkout ordinances to ensure that that prime location is not used to undermine customers’ health, and that retailers voluntarily reserve all or a percentage of endcaps, checkout, and eye-level placements for healthful products.
“Between slotting fees and the category-captain system, those two things alone make it almost impossible for a smaller manufacturer to make it,” Gordon said.
Clemmy’s declared bankruptcy in 2015.
About Gary Rivlin: Rivlin is an award-winning investigative journalist and former New York Times reporter who has written six books, including Katrina: After the Flood, which recounts the rebuilding of New Orleans. His work has appeared in The New York Times Magazine, The New Republic, Newsweek, and The Nation, among other publications.
Contact Jeff Cronin (jcronin[at]cspinet.org) or Ariana Stone (astone[at]cspinet.org).