Slotting Fees Revisited

The California Senate Committee on Business and Professions in mid-February held an informational hearing on slotting fees and allowances provided by suppliers to retailers. The Committee is considering restrictive legislation governing slotting fees. Slotting fees are generally legal for businesses except for the alcohol beverage industry. Testimony was given on the alleged abuses of such fees as well as exclusivity agreements and “pay-to-stay” and other forms of access fees. The debate centers on the benefits retailers and consumers can receive by having suppliers share in the costs of getting new products on the shelves versus the anti-competitive effect of such fees. The U.S. Senate and the FTC have held similar hearings in the past without result.

Although it does not specifically address slotting fees, California alcohol beverage law generally prohibits suppliers from furnishing anything of value to retailers. The ABC Department has construed a slotting fee to be a “thing of value.” Similarly, federal alcohol beverage regulations administered by TTB expressly identify slotting fees as a “red light” trade practice and prohibits them because they place the retailer’s independence at risk.

When TTB’s predecessor, ATF, proposed amendments to liberalize its trade practice regulations in the mid-1990’s, slotting fees far and away engendered the greatest amount of debate among the industry tiers, as many retailers sought to keep slotting fees off of the “red light” list. Attempting to legislate restrictions on slotting fees as under consideration by the California Senate is sure to foster another round of debate on this controversial business practice.