How much does it cost to get a preferred space on a shelf?
So, how much does it cost to get a preferred space on a shelf?
Somewhere between $0 and $3.5 million per item. Usually closer to $0.
Surprised? I hear it from people outside the industry all the time — they are convinced that evil manufacturers are paying supermarkets to have their items placed at exactly the right position on shelves.
Don’t get me wrong — there’s some truth to the idea that manufacturers pay supermarkets for placement. Just not how you think. (Be sure to check out my previous post about the world of planograms.)
A Hypothetical Case Study: Asta Pasta
Let’s say a supermarket currently shelves their pasta together by type — that is, all spaghetti is together, all ziti is together, and so on. However, I want my brand (let’s call it Asta Pasta) to have all of its varieties shelved together. This might cause consumers to shop within my brand, maybe ignoring some of the other brands in the section.
I might even have some data showing that Asta Pasta’s sales go through the roof with this specific shelving configuration. I’m not going to show that to anyone outside my company!
Instead, I’ll hire an outside consulting firm that will analyze the entire section: Asta Pasta, store brand, and competitors’ brands too. And their study shows how sales for the entire section will improve if brands like Asta Pasta are placed together in blocks.
The cost of redesign
If you can show that a category will have an amazing increase in sales by grouping like brands together, this shift can easily be implemented into a supermarket’s shelf reset schedule if it’s not too drastic. It might cost a manufacturer absolutely nothing to implement this change, aside from the cost of the study (negligible, hopefully) and the cost of a sales call to the supermarket’s headquarters.
What if the approved shelf redesign is more radical in nature? The manufacturer might be on the hook for the cost of resetting the entire section. This cost might run $200 or more per store.
Here is where money comes into play: when a manufacturer wants to introduce a new item. Especially one that did not have a spot on the shelf before. This is generally known as a slotting fee or slotting allowance. These fees can run up to $3.5 million per discrete item (per flavor and size combination — that is, per UPC) to be placed in every U.S. supermarket. We’ll cover that in a coming post.
(Image: Used under a Creative Commons attribution license from Flickr user AndyCunningham)