Slotting allowance or slotting fee is the fee charged to producers/manufacturers by the supermarket retailers for various reasons like keeping their products, stocking the product in its warehouse, or inventory and IT support. The slotting allowance may also be charged on the marketing expenditure incurred by the company for the product.
Every year the producers suggest various new products to the retailers, generally to the concerned category manger. The category manager then decides on whether to stock the product or not depending on profitability and then charges the producer for stocking it. It is a very common practice in the United States where the stocking fee per product per manufacturer per year may be as high as $50000. It is a very important source of revenue for the retailers.
The slotting fee charged depends on the kind of retailer, his merchandizing range, producer, product category, rate of consumption of product, margin offered to retailer etc. Many people believe it is a wrong practice as it seriously inhibits the entry of new and smaller manufacturers in the market. According to retailers who are in support of the charged fee, it is charged to efficiently allocate scarce retail space, mitigate product failure risk, it makes manufacturers to signal their expectations form the product and many more.
Hence, this concludes the definition of Slotting Allowance along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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