February 28, 2001
FTC Report on Slotting Allowances and Related Practices
On February 20, the Federal Trade Commission released a staff report addressing
slotting allowances and other related practices in the supermarket industry: “Report on the
Federal Trade Commission Workshop on Slotting Allowances and Other Marketing Practices in
the Grocery Industry,” available at http://www.ftc.gov/opa/2001/02/slotting.htm. The report
concludes that the Commission should not issue formal guidelines in this area before undertaking
further empirical study. The report makes several enforcement recommendations, however, that
will be of interest to participants in industries where slotting allowances and similar practices are
employed.1 The FTC staff’s primary concern at this time is the effect that such practices may
have on the exclusion of rival suppliers’ products from markets. Accordingly, the report
recommends: (1) that the FTC “carefully review exclusive-dealing contracts” — i.e.,
agreements between manufacturers and retailers that prohibit rival suppliers’ products from
appearing on shelves, or consign them to unfavorable shelf-space — “to determine whether they
threaten a harm to competition,” and (2) that the Commission “examine slotting allowances and
pay-to-stay fees with particular attention to circumstances that could give rise to exclusionary
effects.” In a separate section, the report addresses the use of “category captains” and notes that
such arrangements have the potential to lead to the exclusion of rival suppliers or to anticompetitive horizontal collusion among groups of suppliers or retailers. Finally, the report
recommends that, in reviewing supermarket mergers, the FTC continue to take account of the
potential exercise of market power by supermarkets against suppliers, especially in situations
where a merger leaves a small number of supermarkets serving a single region.
I. Slotting Allowances and Related Practices
Slotting allowances, as defined in the staff report, are up-front, lump-sum fees
paid by grocery manufacturers to supermarkets for the placement of new products on their
shelves. “Pay-to-stay” fees are payments made to retailers, typically on an annual basis, to keep
1
These industries include pharmaceuticals, jewelry and apparel, household goods and alcoholic beverages, among
others.
February 28, 2001
Page 2
existing products on the shelves. Both are common — and controversial — practices in the
grocery industry, as well as other retail sectors. A related practice is a form of exclusive-dealing
contract whereby a manufacturer makes payments to a retailer to limit rivals’ shelf space, or
otherwise to disadvantage the placement of rivals’ products. The current report is the outcome of
a public FTC workshop conducted May 31 - June 1, 2000 to study the competitive implications
of these practices. Although the FTC workshop and report are limited to the grocery industry,
the conclusions drawn there may have implications for how the Commission approaches similar
practices in other industries.
The FTC staff report recognizes that slotting allowances and related practices can
have efficiency-enhancing effects. Slotting allowances, for instance, spread the risk of
introducing new products between manufacturers and retailers, making retailers more likely to
accept innovation in product placement on their shelves. Similarly, pay-to-stay fees have been
defended as a means of rationally apportioning limited shelf space to the highest-valued users,
i.e., those manufacturers most willing to pay to keep their products on the shelves. At the same
time, the staff report sounds a warning that such practices may have anticompetitive effects
under certain circumstances. Potential harms include the exclusion of small manufacturers and
their products from retail shelves, the reduction of innovation and product variety because of the
barrier to entry represented by such fees, and increased prices to consumers.
The FTC staff’s primary concern at this time — pending further study2 — is the
potential that slotting allowances and related practices may lead to the exclusion of certain
manufacturers’ products from retail outlets. Accordingly, the staff recommends that exclusivedealing contracts that limit or disadvantage a rival supplier’s shelf placement be subjected to
close scrutiny to determine whether they have the effect of excluding rivals’ products that are
important to maintaining competition. In the staff’s view, such scrutiny should not be limited to
contracts for absolute exclusion of rival products, but should extend to partial exclusive-dealing
contracts, preferential shelf space agreements, and other payments made in return for limitations
on distribution of rivals’ products (e.g., restraints on retailers’ promotional activities).
According to the staff report, slotting allowances and pay-to-stay fees should also
be examined to determine whether they give rise to anticompetitive harm. Although these
practices are generally less likely than exclusive-dealing contracts to have direct exclusionary
effect, the report notes that under certain factual circumstances, slotting allowances and pay-tostay agreements can also have the effect of excluding a rival’s products from a market.
2
The report notes the lack of reliable empirical data in the area of slotting allowances and recommends that the
Commission conduct further research by using its compulsory process power to obtain information from grocery
manufacturers and retailers about the use and effects of such practices.
February 28, 2001
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The report lays out an analytical framework for determining whether slotting
allowances and related practices produce anticompetitive effects. This framework focuses on the
exclusion of manufacturing rivals from the marketplace, by asking:

whether the practice in question disadvantages rivals,

whether such disadvantage is likely to have an effect on competition in the market(s)
where the rivals intended to compete,

whether the practice generates pro-competitive benefits that outweigh any
anticompetitive effects, and

whether there are less restrictive means of achieving such benefits.
The report notes that a thorough investigation by the FTC of a specific slotting allowance or
similar practice will require a fact-specific analysis of the likely effects of the practice on the
market in question. Participants in industries that use slotting allowances and similar practices
may use this framework to structure their agreements in ways that minimize the likelihood of
running afoul of the antitrust laws.
II. Category Management and the Use of Category Captains
The FTC staff report also addresses the practice of “category management” and
the use of “category captains” to supply information to retailers about a product line. Category
captains are typically large or important manufacturers upon whom retailers rely to provide
information on how best to manage a particular line of products. For example, a supermarket
might rely on a major soup producer to provide it with test marketing data on how best to place
canned soups on shelves in relation to instant soups.
The report recognizes that category management and the use of “captains” may
result in significant efficiencies (by, for instance, centralizing marketing decisions in the hands
of the party best placed to understand consumer preferences) and concludes that the practice
should not be called into question in a general way. However, the report identifies two potential
anticompetitive effects associated with category management and the use of category captains:
exclusion and collusion. Exclusion may occur where information exchanges between a retailer
and a captain allow the captain to obtain sensitive or proprietary information about rivals,
creating incentives for the captain to advise management practices designed more to
disadvantage rivals’ products than to promote sales in the entire product category. Collusion
between retailers may arise in cases where a single manufacturer serves as captain to a number of
retailers in a region. Identical category management advice provided by that captain may
facilitate explicit or tacit collusion among retailers. Likewise, where a retailer encourages its
important manufacturers to agree upon a single category management recommendation, the
result may be collusion (explicit or tacit) among manufacturers.
February 28, 2001
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In order to avoid these potential anticompetitive effects, the FTC report
recommends: (1) that retailers make their own category management decisions, rather than
relying solely on advice from captains, (2) that captains set up firewalls between those
employees who receive information from retailers about competitors and those who manage the
captain’s own brands, and (3) that retailers limit as much as possible the amount of competitorrelated information they provide to captains.
III. Supermarket Merger Policy
In the area of supermarket merger review, the report recommends that the FTC
continue to take careful account of the potential for anticompetitive effects in the “upstream”
market via the exercise of retailer market power in relation to suppliers. While acknowledging
evidence that the supermarket industry is relatively unconcentrated, the report recommends that
the FTC remain alert for factual situations — such as regional markets where supermarkets are
more highly concentrated — where a supermarket merger might result in the creation of market
power with respect to products that are geographically limited to those regions (e.g., bakery
products).
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If you have any questions concerning the FTC’s report on slotting allowances and
related practices, or the other issues addressed in this memorandum, please call Jim Atwood,
(202) 662-5298, George Chester (202) 662-5198, Harvey Applebaum (202) 662-5626, Ted
Voorhees (202) 662-5236, Tom Barnett (202) 662-5407, Steve Calkins (202) 662-5493, or Mike
Cicero (202) 662-5581 in our Washington, D.C. office.
COVINGTON & BURLING