(March 11) WASHINGTON, D.C. — With accounting scandals swirling around the food industry, some in the produce industry are beginning to wonder about the future of promotional allowances, trade credits or — in the parlance of some many or most? — slotting fees.

Such practices are attracting the scrutiny of governmental agencies, such as the U.S. Securities and Exchange Commission and the Justice Department in the wake of accounting scandals involving several retailers, the latest of which is Holland-based retail and foodservice giant Royal Ahold NV.

Deals between manufacturers and grocery retailers or distributors often involve complex deals that offer retailers discounts, money for advertising or payments for prized shelf space.

The practices have long been the subject of debate inside and outside produce circles and took center stage again when Ahold acknowledged that overstatement of promotional payments at its Columbia, Md.-based U.S. Foodservice subsidiary may have inflated Ahold’s profits by more than $500 million in 2001 and 2002.

But Ahold’s situation is not unique. Other grocery retailers or distributors that have been forced to reaudit or restate earnings because of trade credits include Lewisville, Texas-based Fleming Cos. Inc., Minneapolis-based Nash-Finch Co. and Paterson, N.J.-based Great Atlantic & Pacific Tea Co.

The question, for many in the food industry in general, seems to be what kind of impact these situations will have on the use of promotional allowances.

Karen Brown, senior vice president of the Washington-based Food Marketing Institute, a ret
ail trade group, wouldn’t comment on the practices of individual companies. But she did say that anything could happen in a fluid industry.

“This is not an industry of absolutes,” Brown said. “There is one thing about this industry, and that is that it’s constantly changing because it’s consumer-driven. Business practices change as the businesses change.”

John Gray, president of the Washington-based International Foodservice Distributors Association, also declined to comment on specifics. However, he said the problems individual companies may be having likely would have no impact on consumer habits.

“This isn’t going to affect consumer behavior,” Gray said. “Restaurants are still going to be functioning.”

Economic factors have prompted some changes in consumer habits, however. Wholesalers have noted an increase in sales of some staple items at retail.

On Wall Street, retail stocks — with the exception of Bentonville, Ark.-based Wal-Mart Stores Inc. — have taken a beating in recent months. Some chains have shed nonperforming units. Others have undergone cost-saving moves.

Accounting specialists have said slumping retail sales and accounting rules that gave firms choices about how to record vendor discounts have created a climate that is ripe for accounting meltdowns.

Some operators log discounts based on volumes they expect to move, only to end up not qualifying for those discounts because they couldn’t meet their forecasts.

Matt McInerney, executive vice president of the Newport Beach, Calif.-based Western Growers, said vendor promotions are difficult to account for since they don’t neatly fall into the category of revenue or a reduction in costs.

Some clarity is needed, he said.

It is wrong, he said, “to not account clearly for what money was solicited to promote or allow them to cover costs of introducing that product into the marketplace but was never used for that purpose. Shame on them and the government agencies that have turned their backs on the small suppliers and the law that’s supposed to protect them.”

Robert Guenther, vice president of public policy for the Washington-based United Fresh Fruit & Vegetable Association, indicated that all such practices likely would be scrutinized more closely.

“This is one more reason when everyone needs to be squeaky clean and treat all trade promotions as clear business transactions,” Guenther said. “Buyers and sellers need a clear and mutually understood expectation of what promotional allowances are for and how they're handled.”

Whether promotional allowances disappear or become less attractive to retailers is a mystery and may be beside the point, anyway, said Ed Odron, president of Produce Marketing Consultants, a Stockton, Calif.-based retail-consulting firm.

“I don’t think it’s going to change those kinds of practices,” he said. “There is going to be a lot of things everybody is going to be looking at, true sales, real sales, things like that.”