‘Stress on shelves’—the battle for space in store aisles

Grocers are trimming both the number of items they stock and their overall physical space, said Steve Zurek, a vice president at consumer-research firm NIQ, also known as NielsenIQ. At the same time, store brands are taking up more space on shelves as stretched consumers ditch name brands to cut their food costs, Zurek added.

“This has put a tremendous amount of stress on shelves," he said.

In recent years, food companies were able to push through price increases on everything from eggs to coffee and milk to offset their own higher costs, but U.S. consumers now are looking for ways to cut grocery bills that have soared. In response, supermarkets and grocery stores are becoming more selective as they stock their shelves with an eye toward reining in prices for shoppers.

Executives at consumer-packaged-goods and food companies are taking note. They are investing in new products and working to ensure packaging and prices appeal to shoppers—and to grocers. And then there’s shelf space and location.

“It’s obviously critical for our business," Conagra Brands Chief Financial Officer Dave Marberger said of having prime shelf space for the company’s products, such as Hunt’s ketchup, Healthy Choice frozen meals and Slim Jim meat sticks. “But there’s no guarantee that you have that shelf space forever. The business has to perform."

Between 2009 and 2023, square footage in supercenters and supermarkets decreased 5% and 3.3%, respectively, NIQ data shows. Meanwhile, between 2020 and last year, retailers cut unique products by nearly 9%, NIQ said.

The strike zone

A confluence of factors influences which brands make the cut. Among them are brand recognition and whether brands’ products are selling, or are expected to. Retailers also charge slotting fees for aisle space.

The fees, which food companies pay retailers in exchange for shelf space for their goods and which are often a topic of negotiation, depend on the retailers and brands, as well as on categories, finance chiefs and retail experts say. Items that sit on a shelf for a while—think large appliances—may come with a different fee than ones that move quickly, such as eggs or dairy goods, they said.

Some brands are influential enough, and drive enough shopper traffic to products through their own marketing, that they may get around the fees. But for most companies, they are generally thought of as a cost of entry for shelf space, retail experts said. The fees, they said, can add up quickly, on average ranging anywhere from around $100 per item per store to five or even six figures. Leading brands may also influence what is on shelves as so-called “category captains," which are generally a retailer’s top sellers of goods such as coffee, snacks and cheese and provide advice and recommendations about the appropriate product mix in a given store.

The aim behind these actions isn’t to get just any shelf space—it is to be in a prime location, which is around eye level. Having the choice placement, referred to with descriptors such as the “strike zone" or the “bull’s-eye," can be significant for sales.

“We want to be right there in your sightline…because that really drives consumption," said Jarrod Langhans, finance chief at functional beverage company Celsius Holdings. “If you’re up in the gutter or down in the crack, it’s harder to get the consumer to know you’re even there."

Once on a shelf, major shelf resets generally follow a strict schedule. Retailers and wholesalers assess their shelves to determine whether they have the right mix of products and brands just once a year, on average. Minor product changes happen midyear, and companies can get on the shelf at irregular times if they have major new products.

“If you don’t get your space, then you’re kind of waiting for the next reset unless something else occurs," said Tucker Marshall, CFO of J.M. Smucker, the maker of Jif peanut butter and Folgers coffee.

Companies don’t tend to disclose financials related to shelving, such as how much they invest and the impact on sales from prime placement or losing space.

Clorox last August disclosed a cyberattack that prompted the company to take certain systems offline and resort to manually ordering and processing products at a lower rate than normal. The consumer-products manufacturer, whose brands include Glad trash bags and its namesake Clorox cleaning products, lost shelf space as a result of the breach. The company largely began to gain it back around April, when most of shelf resets were under way.

After announcing the breach, Clorox’s net sales declined 20%, to $1.4 billion, in its first quarter of fiscal year 2024, which ended Sept. 30. Around a year out from announcing the attack, Clorox has fully restored supply and distribution and recovered most of the lost market, Chief Executive Linda Rendle told analysts this month.

Shelf squeeze

On top of the standard competition for space, companies are being squeezed because of inflation and other store brands taking up a larger share of store aisles.

Food companies saw significant inflation over the past few years, and were able to raise prices to offset their own higher costs without a lot of pushback from consumers, said Corey Tarlowe, an equity analyst at Jefferies. As inflation continued to cool and consumers tightened their spending, though, retailers have started to push back on food maker’s higher price tags, he said. And at the same time, supermarket chains and grocers are growing their lower-cost store brands.

“So you have the same amount of shelf space basically, but you have private label that’s growing its share in that space," Tarlowe said. “Just by virtue of that dynamic, you’re going to have more competition."

Executives are noticing the pinch.

Consumer health company Perrigo has seen a dip in sales in its consumer self-care business for the Americas. Net sales for the six months ended June 29 were down 15.6% compared with a year earlier, with sales of infant formula decreasing 8.6% for the period. Sales for the rest of that business, which includes over-the-counter store brand cough, cold and allergy products, dropped 6.8% as a result of Perrigo cutting low-margin offerings from its unique product count, lower seasonal demand and inventory destocking.

Consumers are shopping more selectively, particularly for seasonal needs such as cold medicine, which means retailers are being “very careful," Perrigo finance chief Eduardo Bezerra told analysts in May. But as national brands drive prices higher, consumers are trading down to store brands, which is an advantage for Perrigo, according to the CFO.

In a bid for good shelf space, companies are investing to keep their product lines fresh.

Fresh deli prepared foods manufacturer Mama’s Creations is looking to expand organically and by acquiring outside brands, said CFO Anthony Gruber. The focus for growth is in the deli area of the grocery store rather than in the frozen-food or other aisles, he said. This, according to the CFO, allows Mama’s Creations to keep its retail partners, such as BJ’s Wholesale Club, Whole Foods Market and Foodtown, happy, which helps with good shelf placement.

Mama’s Creations typically avoids paying slotting fees, Gruber said, but the company is investing more in packaging and technology to add shelf life to its meatballs, tuna salad and other food offerings with the aim of keeping prime space.

“Shelf space is always something where you’re fighting your competition to make sure you get front and center," Gruber said.

Executives are additionally working to pick up more real estate in aisles. Celsius is up to an average of 20 unique products in the stores where its kiwi guava- and orange-flavored drinks, along with other varieties, are sold. That is up from an average of 13 a year earlier, CFO Langhans said. The company is investing more in areas such as new flavors and marketing to be competitive in the energy space, he said.

Positioning on shelves and in energy-drink coolers also helps. “You’ve got one or two seconds to get the consumer to really make a decision," Langhans said. “So better placement is super helpful."

Write to Jennifer Williams at jennifer.williams@wsj.com