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Memorandum U.S. Department of Justice Seal

Subject: Interview with [REDACTED TEXT (b7D)] Date: June 4, 1996

To: Frito File From: Neeli Ben-David

Nina Hale and Jill Ptacek spoke with [REDACTED TEXT (b7D)]



[REDACTED TEXT (b4), (b7D)]

Space allocation is based on consumer demand and the ability to remain in stock during the peak periods. Salty snack foods account for approximately [REDACTED TEXT (b4), (b7D)] square foot store, and [REDACTED TEXT (b4), (b7D)] feet in an [REDACTED TEXT (b7D)] square foot store.

[REDACTED TEXT (b4), (b7D)] determines space allocation based on "shelf sets," which are physical plans describing how much space goes to each individual product. This plan varies based on geography. The allocation is based on consumer shopping behavior (whereas it used to be based on data provided by the manufacturers). Products are arranged by product not the manufacturer ("category sets" rather than "manufacturer sets"). The arrangement is made to the store's (rather than the manufacturer's) best advantage. Sharing marketing information with manufacturers is now strictly forbidden.

[REDACTED TEXT (b4), (b7D)]

[REDACTED TEXT (b4), (b7D)]

Manufacturers grant allowances as both a percentage of sales and as a flat fee. Allowances provide an incentive for inclusion in the store's coupon book, displays and so on [REDACTED TEXT (b4), (b7D)] described the process of offering allowances and store promotions as a cooperative effort between retailer and manufacturer. These flat allowances could be construed as payments for shelf space. [REDACTED TEXT (b4), (b7D)] admitted that at least some of the [REDACTED TEXT (b4), (b7D)] stores charged for shelf space. However, most manufacturers build an accrual fund which retailers can use against products or a group of products ("market development fund"). Agreements with manufacturers include situations in which a manufacturer will pay a certain amount if the retailer agrees to the manufacturer's conditions. For example, the manufacturer may say: For this fee, we don't want you to have a competing brand of the same commodity within the same division.

Contracts typically last for [REDACTED TEXT (b4), (b7D)] days. In a contract, a manufacturer will offer X amount for Y promotion. The retailer chooses the best offer. The options may include a temporary exclusivity arrangement, for example, one in which the retailer agrees not to advertise anyone else for the promotional period.

[REDACTED TEXT (b7D)] says that they will not allocate shelf space in the [REDACTED TEXT (b7D)] marketing agreements. In fact [REDACTED TEXT (b7D)] asserts that [REDACTED TEXT (b7D)] does not have any contracts for shelf space allocation. [REDACTED TEXT (b7D)] line managers typically reshuffle shelves every year or year and a half.

When a retailer is determining whether to bring on a new product, [REDACTED TEXT (b7D)] expects the manufacturer to offer a number of incentives for the retailer to adopt the new product. The retailer determines whether the products has the ability to incrementally grow sales and profit within each product. Usually, if the retailer is convinced, the manufacturer will get a five to six month grace period to prove itself.

Some locations carried Eagle when it was still in operation. However, once it was taken off the market, [REDACTED TEXT (b7D)] had no corporate policy regarding how to deal with the extra shelf space available. The product was removed from the market when [REDACTED TEXT (b7D)] was in the middle of a major re-set. As a result, it was able to re-allocate Eagle's shelf space using the usual analysis.

So/So #11173