Vol. 127 - NO. 39

Blog Startup CPG

SINCE 2019

Ready for Retail?
Slotting Watchouts and What To Do About Them

Melanie Kahn is founder and CEO of Poppilu® lemonade, which offers a boldly flavored, healthier alternative to traditional kids juices. Kahn is a veteran of CPG, having cut her teeth in brand management at companies like Kraft and Sara Lee before creating and nationally launching the fairlife dairy brand, at the time a joint venture with Coca-Cola. Poppilu was a finalist in StartUp CPG Pitch II.

OK, I admit it, I thought I knew what I was doing when launching Poppilu Lemonade at retail a few years ago. But I really didn’t appreciate the pitfall of slotting, or at least take it seriously enough to think it would be a problem for me. (Famous last words!). So to spare you the growing pains of learning about slotting the hard way as I did when launching at retail, here’s my guide on how to think about slotting and how to handle slotting that’s beyond your budget.

What is Slotting?

It’s the upfront pay-to-play that a lot of retailers charge. Yes, after you’ve gone through the hardship of getting noticed, being granted a meeting, making your case and impressing the category manager enough that they’re interested in taking on your brand, then you have to pay for that glorious opportunity. It pretty much sucks.

Never Bring It Up First

While I always want to know if there’s slotting, ask your industry peers but DON’T mention it to your category manager. Let them tell you if they have a slotting requirement. They’re not going to charge you slotting if you haven’t agreed to it.

Retailers’ Perspective

Your category manager has their own P&L to address. They have an annual slotting budget they need to fill that’s usually an internal mandate, and if they let you in without slotting, they’ll have to make it up with another brand. So while it’s never fun to spend your hard-earned capital on slotting, sometimes it’s the only way in.

Category managers are people too, of course. And many of them can be understanding that slotting is harder for the small guys than it is for the big guys. So they’ll often reduce it for you and sometimes they’ll even waive it. But many times, they’re going to require it, no matter how compelling your case.

Play Up Your Diverse Certification

Other than your category manager’s goodwill, there’s another way to reduce or eliminate slotting: Being a certified diverse supplier. Target and Kroger are two of the biggies that have supplier diversity programs. To successfully use your diverse-supplier card (and why wouldn’t you?!), approach the supplier diversity team and your category manager concurrently so that they can work in tandem to get you in slotting-free. The supplier diversity team can make recommendations to your category manager and often has a lot of influence.

Understand the True Cost

If you’re stuck with slotting, evaluate how big the bill will be. Slotting ranges from 1 case per store per SKU (known as a “free fill”) to more than $50 per store per SKU. That can add up really fast when you’ve got multiple items and the retailer has hundreds of stores. I made the dumb mistake once of accepting outrageous slotting because I felt I really needed that retailer – my P&L wanted the volume, my ego wanted the prestige, and my unbending category manager viewed me as a naive target to quickly fill up his slotting budget. (Yes, in hindsight, I realize he totally took advantage of me). All the marketing support that could have helped drive velocity instead went into the black hole of slotting, my brand’s performance was poor, and my items were discontinued the following year. And the retailer made out like a bandit with the exorbitant slotting I paid to get onto the shelf.

What I should have done instead – and what I encourage you to do – is to truly evaluate the cost. Don’t forget that distributors will tack on a fee for the free-fill as well, often 18%. Do you know how many cases you’ll need to sell to recoup your investment? How long will it take?
Here’s a handy free fill calculator from my friend Alex Corral at TheAccountrepreneur to understand the full cost.

Everything is Negotiable

If the category manager really likes your products and isn’t just looking for you to fill his/her slotting budget, he/she will be willing to negotiate. I recently received interest from a category manager for several hundred stores. When I learned that the cost of entry was 3 cases per store per SKU, I was devastated! I countered at 1 case per store per SKU because that was truly the maximum I could afford. The retailer countered at 2 cases per store per SKU and I walked away. I knew I was doing the right thing for the business even though I desperately wanted to tell my investors and the (LinkedIn) world that I had scored a HUGE new customer. And guess what? After I walked, the category manager met me at 1 case/store/SKU (and my ego will be sharing that news on LinkedIn in June – stay tuned!). I wasn’t playing hardball, I wasn’t bluffing. I knew I couldn’t afford it and I had to stick to my guns.

Negotiation examples:

  • 1/2 case free fill per item
  • Free fill on 2 of your 3 items
  • $30 per store instead of $50 per store
  • Ask for ads if you commit to the slotting
  • Ask for a reduction in their margin requirement for promotions so you spend less on trade
View Slotting as Part of the Package

When you negotiate slotting, remember that it’s part of the total package. This year, when confronted with slotting for a retailer I really wanted, I reluctantly agreed to the slotting requirement but assumed the category manager was also agreeing to my pricing recommendation. After all, I had made the recommendations multiple times by email and never got pushback, so I assumed he was agreeing to my price proposal. But only after I agreed to the slotting did I learn that the retailer was NOT going to agree to the pricing recommendation. So I was in a situation where I had committed to slotting, but the category manager was taking so much margin that the retail price would be too high to sell a single unit! It was a bad situation, and eventually the category manager came around. But it didn’t leave me in his good graces! So don’t fall into that trap, make sure you negotiate slotting as part of the total package, and get the commitment in writing in case the bill doesn’t match what you had agreed to.

Walking Away

If you can’t agree on slotting and need to walk, don’t worry about burning your relationship with the retailer… as long as you walk away early and don’t mislead the category manager into thinking you’ll accept the fees. They’ve got a business to run as well, and if they’ve planned on adding your items to the planogram and you back out at the last minute over slotting dollars you’ve known about for several weeks, then you’re leaving them in a bind. Be upfront. Try to negotiate. And if all else fails, walk.

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