Corporate & Securities Law

Shelf Space Contracts and Slotting Fees in Israeli Supermarkets

A TOTM reader sends me the following interesting development on an emerging dispute over shelf space competition in Israeli supermarkets:

Israel?s Super-Sol to Aggressively Pursue Stocking Fees and Perhaps its Private Label Positioning
Tel Aviv?Stocking shelves in an Israeli supermarket will henceforth cost manufacturers and distributors money, it was announced by the mega Super-Sol chain, according to Globes, Israel?s leading business publication. In fact, Supersol?s announcement said that while it plans to take back its power from suppliers?or impose it on them unfairly, depending on how you look at it?by stocking products in its stores itself, it will permit food wholesalers to continue to arrange the shelves using their own workers for six months, as long as they pay Super-Sol for the privilege during the transition period. About six weeks ago Super-Sol sent its suppliers a letter stating that beginning at the end of December the chain will begin to gradually introduce its own stockers. The Manufacturers Association of Israel said it would go to the Antitrust Authority and demand that Super-Sol be declared a monopoly.

The chain has promised to hire a significant number of the stockers now working for its suppliers, who otherwise stand to lose their jobs. Super-Sol has promised to hire 1,275 stockers, some of them from among those who are working for suppliers as well as new employees it will train. Beyond the stocking fees, what is at stake here is a critical component of retail marketing, especially in the food sector: control of product placement, from the height at which items are shelved to the amount of shelf space they take up horizontally, to the battle for the all-important “end caps” at the end of an aisle. Suppliers fear that if Super-Sol takes over shelf stocking it will give priority to its own house brand and they will lose market share.

This is an interesting development.  Israel, in 2004-05, developed a code of ethics governing vertical relationships between grocery product manufacturers and supermarkets which was quite restrictive in terms of slotting contracts, category management, and partial exclusivity requirements.   The concerns were largely to do with supplier market power.  Apparently, the move by Super-Sol has reopened discussion of the code.  It should be interesting to watch.

Full post as published by Truth on the Market on December 29, 2009 (boomark / email).