Listing fees can decide a food product's fate
Written by Shirley Lichti, for The Record, December 17, 2003
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My son spent a week with his grandparents in Ottawa last summer. Of course, Granny spoiled him rotten, bought all his favourite foods and introduced him to a new frozen treat, Breyer's All-Natural Fruit Bars.
After he came home, I tried to buy some of these fruit bars, visiting four different grocery store chains without luck. The last one informed me it had carried the product until another frozen food company offered them a lot of money to prominently display its products. As a result, many Breyer's products were removed, including the All-Natural Fruit Bars.
Most consumers never stop to think about how products make it to grocery stores and don't realize that suppliers often pay thousands of dollars in listing fees to have their products stocked.
In the world of grocery marketing, shelf space and position are critical. Listing fees can determine whether an item gets placed on a middle shelf or down at the bottom where it's harder to find. An end of the aisle or "end cap" display costs more money because products get higher visibility.
The U.S. Federal Trade Commission estimates $9 billion U.S. per year is spent on listing fees (or slotting fees as they are called in the United States.) Fees can range from a few hundred dollars to $25,000 per item per store or $3 million per supermarket chain.
When it comes to getting listed in Canadian stores, says Val Laidlaw, director of customer marketing at Dare Foods of Kitchener, the first task is to get retailers on side and convince them your product will do well. "Retailers don't care if your product helps you gain market share. They only care if it will help them grow their category, bring new consumers to the category or grow their profit."
Many large grocery store chains charge listing fees that cover their costs in rearranging the store shelves and the warehouse, plus the administration costs associated with adding a new product.
The fee depends on many variables, including potential sales volume, trade allowances, product promotion offered (e.g. samples, in-store demos, promotional pricing, co-op advertising), product category, and company size.
Grocery retailers know that large companies like Christies or Colgate Palmolive can afford listing fees. However, some category leaders don't have to pay them because retailers know they simply must stock popular products like Coke and Tide.
Also, if there is high consumer demand for the product, there may be no listing fee. Retailers never want to lose business and will try to determine if their customers will go elsewhere to buy a product if they don't stock it.
The size of the section within a store plays a role in getting space, too. With products such as cookies and crackers, Laidlaw said, if you offer enough money in listing fees, you will likely get on the shelves since retailers know consumers like to try new products in these categories.
The candy category, Laidlaw warned, is a totally different story. "You just can't assume that because you are launching a new product that you will get space." Although Dare itself does not make frozen products, Laidlaw said that the frozen food section of a grocery store is very expensive to expand, making it even tougher to get your product listed.
Of course there are exceptions to every rule. Grocery retailer Loblaws enthusiastically embraced Crazy Plates, a frozen food product created by David Chilton and sisters, Greta and Janet Podleski.
Chilton told me he understands grocery stores can't afford to be the testing ground for new products, but that there are creative ways to get around listing fees. Having a great brand and sales of over 1.3 million copies of two popular cookbooks certainly helped open doors for Chilton and the Podleskis.
Getting retail space is one step. Making sure the product sells is another. "If your product is not performing well, it's de-listed within six months of hitting the shelves," Laidlaw told me. Based on the AC Nielsen definition of a successful new product, failure rates can range up to 70 per cent.
The initial sales of Crazy Plates were below expectations. Research showed that consumers loved the concept and thought the food was great. However, the packaging was not working and the large size provided too much food for most consumers.
"We knew we had to take the bull by the horns to revitalize our marketing efforts," Chilton said. As a result, he and the Podleskis decided to buy back the existing product and give it away to consumers as free samples before relaunching Crazy Plates in new packaging and a smaller size. While it was an expensive gamble, it paid off - the product is now selling well.
As for my son, I guess he'll have to live without his favourite Breyer's All-Natural Fruit Bars - or make more frequent trips to his grandparents who live near a store that still stocks them.
After he came home, I tried to buy some of these fruit bars, visiting four different grocery store chains without luck. The last one informed me it had carried the product until another frozen food company offered them a lot of money to prominently display its products. As a result, many Breyer's products were removed, including the All-Natural Fruit Bars.
Most consumers never stop to think about how products make it to grocery stores and don't realize that suppliers often pay thousands of dollars in listing fees to have their products stocked.
In the world of grocery marketing, shelf space and position are critical. Listing fees can determine whether an item gets placed on a middle shelf or down at the bottom where it's harder to find. An end of the aisle or "end cap" display costs more money because products get higher visibility.
The U.S. Federal Trade Commission estimates $9 billion U.S. per year is spent on listing fees (or slotting fees as they are called in the United States.) Fees can range from a few hundred dollars to $25,000 per item per store or $3 million per supermarket chain.
When it comes to getting listed in Canadian stores, says Val Laidlaw, director of customer marketing at Dare Foods of Kitchener, the first task is to get retailers on side and convince them your product will do well. "Retailers don't care if your product helps you gain market share. They only care if it will help them grow their category, bring new consumers to the category or grow their profit."
Many large grocery store chains charge listing fees that cover their costs in rearranging the store shelves and the warehouse, plus the administration costs associated with adding a new product.
The fee depends on many variables, including potential sales volume, trade allowances, product promotion offered (e.g. samples, in-store demos, promotional pricing, co-op advertising), product category, and company size.
Grocery retailers know that large companies like Christies or Colgate Palmolive can afford listing fees. However, some category leaders don't have to pay them because retailers know they simply must stock popular products like Coke and Tide.
Also, if there is high consumer demand for the product, there may be no listing fee. Retailers never want to lose business and will try to determine if their customers will go elsewhere to buy a product if they don't stock it.
The size of the section within a store plays a role in getting space, too. With products such as cookies and crackers, Laidlaw said, if you offer enough money in listing fees, you will likely get on the shelves since retailers know consumers like to try new products in these categories.
The candy category, Laidlaw warned, is a totally different story. "You just can't assume that because you are launching a new product that you will get space." Although Dare itself does not make frozen products, Laidlaw said that the frozen food section of a grocery store is very expensive to expand, making it even tougher to get your product listed.
Of course there are exceptions to every rule. Grocery retailer Loblaws enthusiastically embraced Crazy Plates, a frozen food product created by David Chilton and sisters, Greta and Janet Podleski.
Chilton told me he understands grocery stores can't afford to be the testing ground for new products, but that there are creative ways to get around listing fees. Having a great brand and sales of over 1.3 million copies of two popular cookbooks certainly helped open doors for Chilton and the Podleskis.
Getting retail space is one step. Making sure the product sells is another. "If your product is not performing well, it's de-listed within six months of hitting the shelves," Laidlaw told me. Based on the AC Nielsen definition of a successful new product, failure rates can range up to 70 per cent.
The initial sales of Crazy Plates were below expectations. Research showed that consumers loved the concept and thought the food was great. However, the packaging was not working and the large size provided too much food for most consumers.
"We knew we had to take the bull by the horns to revitalize our marketing efforts," Chilton said. As a result, he and the Podleskis decided to buy back the existing product and give it away to consumers as free samples before relaunching Crazy Plates in new packaging and a smaller size. While it was an expensive gamble, it paid off - the product is now selling well.
As for my son, I guess he'll have to live without his favourite Breyer's All-Natural Fruit Bars - or make more frequent trips to his grandparents who live near a store that still stocks them.
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