It’s been a common practice for as long as I’ve been in the meat industry for certain food service customers to ask for a "sheltered income program."

What, you may ask, is that?

Also called a marketing program or known by other names, the program basically states that your customer can bill you back, or deduct from payments to you, amounting to a certain percentage of the invoice amount.

We all know that our industry is a low margin business for raw, unprocessed meats. Yes, processed items like hot dogs and deli meats are typically sold with higher margins than sub-primals, grinds and steaks. Maybe the higher margin items can have some amount added without hurting the sales in the street. But not raw meats.

So when a customer asks for a deduction, or a program, you simply add the cost of the deduction to the price. So on a 2% bill-back, you simply add 2% to the price you’re charging. Who ends up paying for that? The final customer, which in most cases is the restaurant operator.

One reason this is done is that food distributors need to make money on the buy-side of the equation that their restaurant operator doesn’t usually know about.

On the restaurant side, commonly a food distributor will get a chain account on board by promising a flat percentage increase over cost; 8% is typical. But a food distributor can’t pay the bills by charging 8%, so they need to hide what "true cost" really is.

What do you think about this practice? Is it legal? Is it ethical?

On the retail side, slot fees have been in practice for decades. A retailer may charge $1,000 or $10,000 or somewhere in between to place your new item on their shelves.

Yes, this real estate in a meat case is valuable, and a retailer can charge whatever they want in order to grant your new item access to their customers, but who pays the final cost of these slot fees? The consumer does, because you had to raise your price to cover the cost of the slot fees.

Some retailers make a substantial profit charging slot fees. And if your new item doesn’t sell well over a 60- or 90-day period, your item is kicked out of their retail case. This slot fee practice allows a retailer to make a good profit even on an item that may not make it in the marketplace long-term.

On one hand, I can see the value of the retail space and the risk extended by the retailer as they test whether a new item will sell well enough to stay in the case.

On the other hand, a retailer also loses the motivation to display new items in a way that facilitate strong sales. One example is a new meat item I placed in a retail market that was put in the bottom bin of a frozen reach-in case. It was such a poor place in the frozen case that no one could find it. The item didn’t sell well and was kicked out after several months. The slot fee was wasted.

What’s been your experience with slot fees? Do you think they’re worth the investment? Or could there be a better way to insure your new products get a fair shake and the exposure they deserve?

Sheltered income programs and slotting fees

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