'Payola' At The Supermarket

andrews woman grabbing food CBS

It is called the practice of slotting, when manufacturers pay retailers for top shelf space. But what's the cost to consumers?

CBS News Correspondent Wyatt Andrews takes a look at the cost of prime supermarket space.
It's no accident that some foods like Doritos are placed at eye level in the supermarket or sold at the end of the aisle. Manufacturers like Frito-Lay pay supermarkets big money for one of these slots.

And while this slotting fee, as it's known, is legal, the question now is, should it be?

"This is a payment which is usually under the table, unseen, unheard," says Sen. Kit Bond, R-Mo.

Bond sees slotting fees as the payola of the 21st century, a pay-to-play system that's now used not just in groceries but in bookstores, music stores and on the Internet. As far as Bond's concerned, legal or not, slotting limits competition.

"Basically what they are doing is knocking little competitors off the market," Bond says.

Federal investigators are taking a fresh look at the explosion of these fees. When Bond held a hearing on slotting fees, two witnesses hid behind a screen fearing retaliation - just for discussing the practice.

One California food maker, who asked CBS News to protect his identity, kept records on what it took to get his products into supermarkets; sometimes what it took was a bribe.

"When I went in, that particular buyer in that particular case asked for $10,000 personally and between $100,000 and $200,000 for his stores," he says.

Even the legal slotting fees hurt the small guy, he says. When a larger competitor would offer more in slotting fees than his company could, his products were kicked out.

He says the consumer loses because there's no competition at the store level, customers are being denied the opportunity of free choice, and manufacturers are robbed of the opportunity to succeed.

Some of the nation's biggest food chains would not discuss slotting fees on camera. But they argue the fees are actually good for small manufacturers; the system gives them access to an intensely competitive market.

And one industry lobbyist says stores don't always pocket the fees as profit; they use the fee to give discounts.

Tim Hammonds of the Food Marketing Institute says the fees are good for consumers because "anything that comes to the grocer gets passed along to the consumer."

Others, like Professor Marianne Jennings, say slotting and placement fees add billions to the cost of goods.

Says Jennings, a business ethics professor at Arizona State University: "Name one time in history when consumers have said, 'Gee, I'm really glad that behind my back you engaged in these under-the-table payments. Look what you've done for me!' To say that consumers benefit because you've tacked on a charge is nuts."

"I don't see much difference between this and the old payola," says the California food maker.

And thats what the U.S. Senate and Federal Trade Commission are asking: If payola on the radio has been illegal since the 1950s, why is it legal in retail stores today?
To contact Sen. Bond's Senate Small Business Committee, send an email to webmaster@small-bus.senate.gov or go to the committee's Web site.

To reach Prof. Jennings, send an email to Marianne.Jennings@asu.edu.

The Food Marketing Institute's Web site is www.Fmi.org.
  • CBSNews.com staff CBSNews.com staff

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