After grocery shopping at my favorite grocery store, Trader Joe’s, this week, I started to think about all the things that make TJ’s so great and unique. Our discussion about rent seeking in class got me thinking about all the shelf space in grocery stores and why you see certain products more than others, and more frequently on that “eye-level” shelf. Majority of grocery stores take part in charging suppliers a “slotting fee.” This fee means that suppliers have to pay a fee in order to secure shelf space in the grocery store, and particularly more for the “better shelves.”
Think about it, usually the popular and go-to products tend to be right in front of you when you are looking at the grocery store shelves. You rarely have to dig deep for goods like Goldfish, Coca-Cola, Oreos, etc. – they’re all right there at eye-level. This is because these large corporations are able to buy that shelf space and hold a monopoly on it, pushing other competitors to the bottom shelves. This is a form of rent-seeking and leads to an inefficient allocation of resources. Suppliers try to outbid each other and spend resources to obtain these “rents” of the best and most shelf space from the retailers. Suppliers may even try to bribe or lobby retailers to put their product in the best location. These suppliers are looking to establish a monopoly with their product on that particular goods’ shelf space in grocery stores. This is a problem because this action may not lead to the supplier with the best, most deserving or healthy product getting the shelf space it deserves. Additionally, more slotting fees lead to higher prices for the customers. So, just to add to the list of things that make Trader Joe’s so fantastic and customer-friendly – they do not charge their supplies a slotting fee and therefore allow for the proper distribution of products on shelves and an efficient allocation of resources.
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