HBC remains a niche category, but opportunities for buoying sales exist.
Just what’s ailing the health and beauty care (HBC) segment in c-stores these days?
In-store space limitations, competition from drug chains and dollar stores, and convenience retailers’ overall tepid approach to HBC merchandising has put a drag on the growth of health-oriented offerings in the category.
The cold/allergy/sinus subsegment saw unit sales tumble 30% from 2008 through 2012, as the average price for such products rose 12.6%, according to data from Chicago-based IRI.
“I think we treat the category as a necessary evil, if you will,” says Lisa Dell’Alba, president of the 11-store Square One Markets Inc., Bethlehem, Pa. “While it can generate some nice margin for us (30% to 40%), it can be time-consuming, and exposes us to a lot of theft unless [it’s] positioned behind the counter.”
As the number of drug and dollar stores grows, and c-stores struggle to compete on value and price, HBC becomes further “marginalized” in c-stores. “Let’s face it: Most customers are not heading to a c-store to fulfill their HBC needs,” says Steve Montgomery, president of b2b Solutions LLC, Lake Forest, Ill. “It’s more about that forgotten container of shaving cream or a travel purchase on the way to the airport, or relief for that headache or allergy symptom.”
The consolidated HBC category is an unwieldy one, too, sporting 31 subcategories within the umbrella, says Tom LaManna, vice president of merchandising services for Convenience Valet, Melrose Park, Ill. Being so fragmented has made the category diffi cult for retailers to manage, according to those who play in this space.
Representing less than 2% of in-store sales, HBC nonetheless carries high-margin potential that can create opportunity through retailer commitment. Name brands, for one, are mandatory. Second, a store’s location often determines consumer shopping tendencies. (See sidebar, p. 110.)
Paul Rossberger, vice president of sales and marketing for HBC brokerage Lil’ Drug Store Products, Cedar Rapids, Iowa, says because many retailers allot on average a modest 3 feet for HBC sets, winning merchandising must be built upon sleek branding, consistent packaging, affordable price points and a smart product mix.
“This can begin to maximize the effi -ciency of a category that was never one c-store retailers placed much stock on anyway,” he says.
HBC as Money Maker
Building a successful HBC set includes afew givens. For one, brands—the Advils and Tylenols of the industry—count. Another given is offering the right package size: The four- and six-count sizes, as well as possibly a 12-count, fit well in c-stores. A third is insult pricing: HBC experts say retailers should realize that 100% markups will likely discourage a customer from relying on c-stores for a fill-in HBC purchase.
But there are others issues at play. Cross-promotional (see sidebar, right) campaigns involving HBC and other categories are few and far between, providing one fewer card retailers can play. “It’s all about the blocking and tackling, avoiding out-of-stock and getting the right brands that help you maintain and grow the category,” says LaManna of Convenience Valet.
“Space is extremely precious in a 3-foot HBC plan-o-gram,” he continues. “You have approximately 85 SKUs, so it is critical to have only the best-selling SKUs and categories. By comparison, both 6- and 8-foot HBC plan-o-grams have approximately 170 and 220 SKUs, respectively.”
While it’s not sensible to bundle a cold medication with shampoo, bundling like products in the category makes sense. “A consumer with a cold, for example, may want a pain reliever for aches or a cough drop for a sore throat, so merchandising these items together can make the shopping experience easier for the consumer and more profitable for the retailer,” says Rossberger. “Entice them to buy it by making it easy and convenient, and be creative.”
Lil’ Drug, for example, recently introduced EZ Bins, providing a merchandisingsolution for c-store personal-care sections aimed at maximizing efficiency of space, as well as retail sales and profits. “Featuring high-quality graphics; a single, accessible price point; and clean, consistent merchandising can increase retail turns by up to three times,” says Rossberger.It’s also essential to emphasize brand names and implement a “tiered” package and price approach for same product types in subcategories. A tiered technique helps convince shoppers to trade up to a larger size in the name of value. “Retailers that often stock four- and six-count offers might want to graduate to a 12-count package, but this depends [on] where your store is located,” says Montgomery. “If you are the only location that offers HBC, then customers [are more likely to] purchase the larger take-home sizes than they would in highway locations, where the goal is immediate problem-solving.” Dell’Alba says that with items such as cold medicine, offering a larger, multipleuse size is important because customers may need more than one dose to ease their pains. “We have always offered the larger option, when possible,” she says. “We seem to do well with this package size, not to mention the fact that they are easier to merchandise and more difficult from a theft perspective.” The specific smaller count sizes found in the c-store environment are dictated by operational decision-making, perhaps based on plant operations. For example, “Zyrtec features a three-count, Allegra a five-count; but you have some brands with 10- to 24-counts, and they retail for $7 to $10 in the c-store,” says LaManna. One promising development, he says, is the effort by manufacturers to work with c-stores on customizing package sizes. A year ago, Procter & Gamble announced that DayQuil and NyQuil were being outfitted in a 16-count box. (Previously they had been packaged in 12-count boxes.) “Realizing that 16-count would be impractical for c-store sales, P&G came to Convenience Valet and our competitors with the proposal to repackage DayQuil & NyQuil in eight-count for c-stores. It made perfect sense, plus trade-up options became more attractive,” LaManna says.
Montgomery says retailers should expect gross margin on larger sizes to be reduced from a percentage standpoint. “Per-cost for the larger sizes is higher than what drug/mass merchandisers pay,” he says. “When you add same percentage gross margin that retailers expect from their smaller sizes to the larger ones, you end up with insult pricing.”
Name Brands, Consumers Rule
Count-size diversity adds category strength, but it’s hollow if brand names are not in the respective subcategory mix. For starters, private-label HBC—unless offered by a retailer with a robust private-label reputation—is not a trusted alternative.
“The attraction of name-brand products to retailers are clear,” says Lil’ Drug’s Rossberger. “They have better name recognition, leveraged national advertising and marketing, a higher retail selling price and an attractive shelf presence.”
Dell’Alba of Square One Markets, who has seen flat to minimal unit and dollar sales growth in cold, sinus and analgesics, devotes about 3 to 4 feet to name brands such as Tylenol, NyQuil and Tums in neighborhood locations. Even if it’s an emergency purchase, “the customer confidence is there with those brands. Since our customers generally do not look to convenience stores for [the] health and beauty category, name brands are key.”
And she understands that customers enter her stores for a lot of these items “knowing what they need.” But her expectations are modest. “We are not the first destination for that item, and I don’t think that impression has changed much over the years,” she says. “With the advent of the mega-stores, I wouldn’t expect a customer to have a long-term plan to purchase HBC items from us.”
Tums or Zantac paired with ginger ale. Maybe Advil Congestion Relief or AlkaSeltzer Plus with orange juice—placed on sleek merchandisers affixed to the cold-vault handle or window. While cross-category promotions are not beyond the realm of possibility, it hasn’t been a technique c-store retailers have regularly implemented to increase sales of OTC products.
Susan Viamari, editor of Times and Trends for Chicago-based IRI, believes crosspromotions involving HBC could be a viable opportunity in c-stores—particularly considering other unlikely cross-promotions that have seen the light of day.
Viamari and her team recently completed a comprehensive report on the c-store channel titled “Keep the Core, Appeal to More.” The group did not directly address HBC, but Viamari shed some light in an interview with CSP.
“In my experience, I have never seen HBC cross-merchandised in c-stores. They need to throw some products up there and say, ‘We carry shampoos and lotions.’ Maybe put shampoo or conditioner in with another non-HBC category, or place antacid tablets near the gum or mints, and offer a discount,” says Viamari. “I have never seen a whole lot of marketing muscle behind HBC, but I think they need to elevate it, and they can start by promoting it.”
Viamari says access to scan data and other analytics can be the gateway to unlocking some potential campaigns and then executing them. “C-stores have to look more closely at the shopper market basket to determine that this consumer buys a carbonated soda and mints together 50% of the time they are in the store,” she says. “This granular knowledge means they can think about expanding a department here, even contracting it with another HBC product.”
Lisa Dell’Alba, president of Square One Markets Inc., Bethlehem, Pa., says HBC is not a segment that’s easily promotable. “If I don’t have a headache, I’m probably not going to buy it in the c-store,” she says. “If there was such a thing as a ‘planned emergency’ purchase, you might have some wiggle room for these types of opportunities.”
Seasonal marketing is gold to retailers, and one type of product under the HBC umbrella that has a definitive seasonal cycle is allergies. Dell’Alba says this lends itself to creating if not a cross promotion, at least a marketing campaign around allergy season. “Put a small display of your branded allergy meds at your valuable counter space. I have not seen anyone actually yet try or succeed with this type of promotion,” she says.
The Right Fit
Customers entering a c-store might view it as a destination purchase for health and beauty care products, but that decision is often predicated by location.
If it’s a destination purchase, retailers should stock a larger size offering. “The right size for the department varies depending on several factors, including a store’s location—be it highway, urban, rural or suburban,” says Steve Montgomery, president of Lake Forest, Ill.-based b2b Solutions LLC.
“Most c-stores today are in the refreshment and snack business, but there are some that are still more in the replenishment category,” he continues. “A store’s competitive set is based upon their knowledge about how customers use the store.”
In a highway or suburban location, c-store retailers often find customers purchase only emergency sizes because they have an immediate need, and will buy a larger size where the cost is lower. However, if the retailer carefully selects and prices the smaller take-home sizes, they can move the customer up to the larger size, says Montgomery. “For years, it seemed more people only perceived it as emergency purchase, but perhaps with category commitment, those perceptions have changed,” he says. “Again, that depends on how the customer uses the store.”