The checkout aisle is the most valuable real estate in a grocery store.
“This is the beachfront property,” says a food broker who specializes in checkout economics, but prefers to remain anonymous.
There, space is sold by the inch. The typical store charges $3 an inch for placement by the register for a few months, according to another broker. Still another says $3 is on the low side. “The average chain charges at least $5 an inch,” he insists.
This higher number is confirmed by a fourth broker, who says deals have crossed his desk that have a manufacturer agreeing to pay a single chain more than $500,000 to get its product by the registers of all its stores. That’s with the hope that it would sell well enough to remain there for the duration of the 52-week deal and not just the few months the store was guaranteeing through the placement fee.
Numbers like this demonstrate just how impressive it is that discount supermarket chain Aldi committed to remove all candy from all checkout aisles in all its stores by the end of 2016.
Big demand, less supply
“Stores have a lot more demand for space than they have space available,” a broker notes. So stiff is demand for space at the front of the store, he says, that “retailers can get away with charging pretty much what they want.”
They have no trouble selling this space because it’s that valuable to manufacturers.
Especially valuable for candy manufacturers
Candy makers have to be there. That’s because nearly two out of every three people entering a store don’t visit the candy aisle. But everyone needs to go through checkout. Those six inches by the register, where impulse buying is high, can account for more than half of a candy maker’s profits in a store, according to a food broker who specializes in securing companies a place by the cash register.
The economics are different for the soda and chip makers.
Sales of the two-liter bottles of soda and family-sized bags of chips keep the factories working at peak efficiency. But it’s the sale of smaller-sized snack versions that stores sell by the cash register that generate the lion’s share of the profits.
Coca-Cola—and the stores—make very little on the two-liter bottles and the 12-packs of cans that stores are constantly running on special. “No one is making money on that two-liter bottle,” one broker explains. “Not the bottler and not the retailer.”
But the individual 20-ounce plastic bottles people grab from a refrigerated box in the checkout line generate enormous profits. That’s why convenience stores devote so much space to refrigerated single-serving bottles. Similarly, Frito-Lay makes a lot more profit on the small $1.49 bags of Doritos people buy on impulse while waiting to pay for their groceries than the big bags advertised in the circular for $3.49.
“If I’m Coke or Frito-Lay, I’m paying whatever I have to so as to get placement by the cash register,” another broker confirms. “That placement is so valuable to their profitability model.”
Lucrative for the store, too.
This checkout-line property is equally valuable to the store and not just because of the extra cash these placement fees bring in.
The country’s supermarkets are able to get away with markups of 40 percent or more above wholesale on items they sell by the cash register. These items account for only about $6 billion a year in sales—barely 1 percent of a store’s overall sales— but generate industry-wide profits of $2.4 billion a year—about one-fourth of the industry’s overall profits—before factoring in the fees companies pay to have their products placed in stores.
“It’s sad,” says a food company executive. “The country is demanding healthier products, but…it doesn’t make a difference how good a product is for you or how much people might like it. “If you don’t have the money, you can’t play the game. You’re buried in the back of the store—if you can get inside at all.”
Source: Rigged: Supermarket Shelves for Sale, a 2016 report from the Center for Science in the Public Interest.
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