Today, new items come to market with limited evidence of potential product success. Thus, slotting allowances are a way for manufacturers to support products that may not be properly tested and researched. Wholesale grocery distributors and their independent retail grocery store customers try to accommodate these new items in limited and ultimately, finite store shelf and warehouse space. Unlike many other retail businesses, grocery retailers and wholesalers actually take legal title to products when they are purchased from the manufacturer. They own what they buy and, necessarily, assume most of the risks of whether or not consumers will actually purchase the product.
Every new product requires the elimination of existing items both at the store and warehouse levels.
This process of addition and elimination layers added costs on both the retailer and their wholesaler. The costs that wholesalers and retailers incur include warehousing, transporting, and stocking products as well costs for making changes in scanning files. Consequently, slotting allowances are a means for retailers and wholesalers to recoup costs associated with adding and deleting products from the grocery supply chain. Most assuredly, without such reimbursement, both retailers and wholesalers would have to pass along these costs to consumers as higher prices for groceries. In addition to the actual costs incurred in handling these added and deleted items, wholesalers and retailers are faced with the increased risk of product failure.