U.S. Department
of Justice
Frito-Lay Investigations : 05/28/1996: Memorandum: Interview
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[REDACTED TEXT (b7D)] BACKGROUND [REDACTED TEXT (b7D)] TARGETING COMPETITORS According to [REDACTED TEXT (b7D)] Frito's aggressive marketing campaign included targeting specific regional competitors and trying to buy up those competitors' shelf space from the retailer. Typically, Frito will go to a retailer and offer [REDACTED TEXT (b7D)] to get a particular competitor's shelf space.
SHELFSPACE Often Frito would make cash payments for shelf space. Other times, it would disguise shelf space payments as "rebate plans" or "advertising fees." In both instances, the retailers would admit that the money was really for space accommodation. Frito rarely needed the space it bought. [REDACTED TEXT (b7D)] described a practice called "half filling." If a typical shelf holds bags six feet deep, Frito would only stock the shelves three feet deep. Frito tended to occupy about [REDACTED TEXT (b7D)] percent of the shelf space for salty snacks in any given store. In a typical store with [REDACTED TEXT (b7D)] feet of gondola shelf space for salty snacks, Frito will buy up about [REDACTED TEXT (b7D)] feet of shelf space, leaving [REDACTED TEXT (b7D)] feet each for the other vendors. Most retailers did not explicitly ask for shelf space payments. Usually, a retailer would simply take away space from a vendor and explain that Frito offered X amount for that space. However, some retailers (e.g. [REDACTED TEXT (b7D)] would ask vendors how much they were willing to pay for shelf space whenever the retailer would do a "re-set" The retailer would approach a vendor who already had shelf space and tell him that Frito offered X amount for the space. If the vendor could not match Frito's offer, he would lose his space. [REDACTED TEXT (b7D)] Buying shelf space is an accepted practice among vendors in the [REDACTED TEXT (b7D)] area. Every vendor that can do it, does it. [REDACTED TEXT (b4), (b7D)] Often a vendor will supplement shelf space payments with "free sets" or "free fills." In essence, the vendor is trading product for space and allowing the retailer to make a full 100 percent profit on a particular product. RETAILERS SELLING SHELF SPACE [REDACTED TEXT (b4), (b7D)] gave some examples of retailers who explicitly sell shelf space. [REDACTED TEXT (b4), (b7D)] He requires all vendors to pay for space. He does not allocate based on volume of sales at all. He made a comment to [REDACTED TEXT (b4), (b7D)] to the effect that last time it dealt with him, it was not willing to offer enough to get into his store. The buyer at [REDACTED TEXT (b4), (b7D)] has made statements that it would be loosening some space and asked what vendors would pay for it. [REDACTED TEXT (b4), (b7D)] [REDACTED TEXT (b4), (b7D)] is less explicit about selling shelf space. Payments are often disguised as advertising fees or rebate plans. However, Frito will pay more for an ad than smaller vendors will, leading one to believe that the money is actually for something else besides the ad. In addition, Frito admits to others in management that the money is actually for shelf space. [REDACTED TEXT (b4), (b7D)] allocates space to most vendors based on volume, but it allows Frito to buy up more space than its volume of sales dictates. [REDACTED TEXT (b4), (b7D)] did not have to pay for shelf space. However [REDACTED TEXT (b4), (b7D)] does recall paying [REDACTED TEXT (b4), (b7D)] for "wing racks" (free-standing, free-moving displays located throughout the store). However, it was understood that if a vendor wanted more space that it was allocated, it would have to cough up more money. [REDACTED TEXT (b4), (b7D)] INTIMIDATION Frito also engaged in intimidation tactics. [REDACTED TEXT (b4), (b7D)] [REDACTED TEXT (b7D)] [REDACTED TEXT (b7D)] [REDACTED TEXT (b7D)] SHELF SPACE ALLOCATION [REDACTED TEXT (b7D)] claims that shelf space allocation is rarely based on volume. Rather, retailers allocate space by payments for shelf space. If a retailer wants to conceal this fact [REDACTED TEXT (b7D)] it will only include its allocation of gondola space in its calculation of space per volume sales. It will not include the endcaps and "shop-arounds" that it also gives to a vendor. EXCLUSIVITY [REDACTED TEXT (b7D)] PERSONNEL Frito also makes a regular practice of going after the competition's best salesmen. It tells the salesmen that they might as well go with Frito now since Frito will control the entire market in about ten years. [REDACTED TEXT (b7D)] admits that this is a regular practice within the industry and that every vendor tries to hire its competition's employees. So/So #11005size> |
