One topic that can get many people in the food and beverage industry riled up is listing fees. People often ask me, ‘why do retailers charge listing fees?’ and the simple and answer is: because they can and suppliers pay them. We will get into more detail and provide you with more rationale, but we do have to remember retailers do own the store and if getting to the shelf is worth something, they will take the money. This year we are helping you define different industry terms. We share insights into the terms and also how they are important to suppliers in the industry.
Listing fees are amounts retailers charge suppliers to get their product listed and on the shelf. There is no formula or published rate for listing fees. They are really determined by the reach of the retailer and the ability of the supplier to pay. When suppliers pay listing fees this will usually guarantee the space on the shelf for at least a year to get the product established and deliver the sales required to stay on the shelf.
Listing fees are usually only for regional or national listings. Retailers do not charge these for products in their local program. In specialty stores the request will usually be ‘free fill’ which is a form of listing fee. This is a free case for each store of each SKU. This can add up so be ready for it if you are working with a distributor selling into specialty stores.
A retailer’s justification
We aren’t sure how many suppliers will buy into our justification for listing fees but there are some reasons they exist. Although there is no timeline for the history of listing fees it is safe to say they have been around for a while.
Retailers do incur costs when new items are listed. A significant amount of this work has been off loaded to suppliers but there are still people within the retailer’s organization who spend time on new listings. It starts in the merchandising department where the items are set up in the system, priced and included in plan o grams. Once the listings have been created, they will need space in the warehouse and the stores.
Although the warehouse or distribution centre is usually off limits to suppliers there are a lot of functions that happen in there to make space for a new item and get it through the system to the retail stores. Once the product arrives at the store, we need to have room on the shelf. Believe it or not, when I started at a store in the ‘80’s we just relined shelves to make room for new listings. There was not a lot of strategy. If it was a new SKU of Campbell’s soup, we cut back on other similar SKUS or decided to stop ordering something to make room. This process is much more strategic (some might say bureaucratic) now. Most stores do not change line ups without a new plan o gram and the new item priced in the system. It does take a lot of hours to reline categories and it must be done in every store.
New items usually require promotion to get attention from consumers and get the sales going. Suppliers will fund the discounts but retailers do incur costs to print and distribute paper and electronic flyers. Prices also need to get changed at retail and displays will need to be built.
The point of this is not to justify listing fees and we would agree these costs do not come close to the fees paid by some suppliers. There are costs and new items are work for retailers. Some do generate incremental sales and profit but many do not. A real win for retailers is when the new items grow the category and bring in incremental gross profit dollars.
What suppliers get for listing fees
The quick answer is your space on the shelf in a defined number of stores. As we said earlier, listing fees should guarantee your position for at least a year.
Everything else you get is negotiable.
If possible, you can get commitments for promotions, over and above displays, theme ads, samplings with staff, space at retailer’s trade show, participation in social media campaigns or other initiatives where you see value for the investment you are making.
One of the most important things you can get for your investment is the sales expectation your customers have. This is the number your product will be judged against. If you are making the investment to pay the listing fees you should know the sales level you need to achieve.
Your ability to negotiate will depend on many things:
The sales and margin potential of your item.
How badly the retailer wants the product. Perhaps you are selling very well in some stores and they see they need it in the category. This is good news for you. You should be able to negotiate a lower fee and/or other benefits.
The ability of your product to grow the category. If you will only replace an existing SKU and deliver similar sales and profit, why would the retailer want the item? The listing fees will go up and your ability to negotiate will be slim if you are just a me-too item that does not deliver incremental sales and margin.
It is true consumers and retailers want more local products. Local is not usually an attribute that will help you negotiate lower listing fees. When you are paying listing fees it is for at least regional, if not national distribution.
How to forecast listing fees
As we said earlier there are no published prices for listing fees.
The best method is to assign a dollar figure to each store you want your product listed in.
If you want to get your item listed in Sobeys/Safeway they have the following breakdown of stores:
Atlantic 82
Ontario 98
Western Canada 246
Total 426
*Many retailers treat Quebec separately. Sobeys would have a separate program to get listed in IGA stores.
If Sobeys believe the listing in the category you compete is worth $100 per store they will probably expect you to pay $50,000. This is calculated by multiplying 426 stores by $100 and rounding up. Listing fees are usually per SKU.
You might negotiate down to $32,000 which is close to $75 per store.
If you want space in frozen food where the shelf is dominated by large, multinational companies, willing and able to pay listing fees, you will pay more. The space can generate more from other suppliers and retailers can justify the cost of refrigeration and a refrigerated distribution network. In these categories you might be expected to pay $1,000 per store per SKU.
Listing fees are usually in grocery, natural food and other packaged goods items. Commodities are more likely to have a rebate, which we will discuss next week.
As long as suppliers pay listing fees retailers will continue to charge them. Not every retailer does this so it is worth doing your research and learning about your customers.
If you have any questions or require help figuring out listing fees, you can always send me an email peter@skufood.com or call me at (902) 489-2900.
Peter
Walmart now will deliver in 30 minutes
Recently Walmart announced a partnership with Instacart to give consumers the option of 30 minute delivery in the Greater Toronto Area. The pilot will use 10 Walmart stores as the source for 4,000 everyday essentials in the program. This will likely grow Walmart market share in this market. Many consumers rely on public transportation and they just do not go to a large Walmart store for groceries. Now Walmart are bringing the store to them.
We know delivery time is one point of differentiation in other markets. Asia has been very focused on delivery time for many years. Our population density in Canada makes this less desirable but we probably thought next day delivery was not realistic but Amazon Prime has figured it out. Just look at how many trucks are on the road.
Mondelez acquires Clif bars
We continue to see shifts in the ownership for different brands. Mondelez will be paying $2.9 Billion USD for the brand. It is interesting to read the release and see the strategy Mondelez employ to grow their business.
The story of Clif bars is an interesting one. Did you know Clif is the original founder’s fathers name? You can hear the story of Clif bars in this podcast from How I Built This. We really enjoy these stories of entrepreneurs from NPR
When is Peter speaking?
Learnsphere Supply chain 123 Sept 28th
Alberta/Manitoba Consumers & Customers – Satisfying Both
Learnsphere Supply chain 123 Oct. 12th
Alberta/Manitoba Getting on the Shelf: Building Relationships with Customers
Learnsphere Supply chain 123 Oct. 26th
Alberta/Manitoba Getting off the Shelf: Consumer Marketing
FCC Peer groups in fall of 2022
It has been a real privilege to work with FCC in 2021/22 to launch the pilot program for their food and beverage industry peer groups. We had some incredible discussions with processors about our industry and they really did learn some very valuable insights from each other. We discussed so many topics from customers to ecommerce to distributors to co-packers and so much more.
We are excited to let you know FCC plan to continue with the program and if you are interested this could be a great program for you in the fall of 2022. Check out the details and if you have any questions just let me know!
