Slotting and promotional allowances: red flags in the supply chain

Abstract

Purpose This paper seeks to provide an overview of the growing popularity of slotting fees and their potential for abuse that led to congressional hearings as well as investigations by the Federal Trade Commission and the General Accounting Office, respectively. It also aims to discuss the widespread use of promotional allowances and their potential for abuse, leading to accounting irregularities. Design/methodology/approach It focuses on how promotional allowances have been improperly accounted for at Royal Ahold, Fleming Companies and AmerisourceBergen Corp. By reviewing how the Financial Accounting Standard Board (FASB) overhauled the accounting rules, it sheds some light on the magnitude of these practices. Findings The FASB failed to go far enough in its crack‐down. It reveals that heavy reliance on these allowances by financially weak retailers can be a red flag to current and potential investors, both professional and individual. However, the post‐Enron accounting rule changes and the Sarbanes‐Oxley Act are forcing CEOs and CFOs of publicly traded companies to rethink how to account for these allowances. Additionally, while the vast majority of grocery chains dabble in the slotting ritual, the world's largest retailer and the world's largest commissary do not demand and do not accept slotting fees. Originality/value By reviewing a limited sample of the literature, this study offers some guidelines for conducting future research.

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