Nothing to Sneeze At
Recalls, competition strain HBC, but energy, allergy offer possible remedy.
Though cough medicine is a staple of health and beauty care (HBC), the category cries out for a new remedy. And with high-profile recalls and increasing competition from drug stores contributing to a 1% to 3% decline over the past year, some have abandoned hope for relief. Yet while many c-store retailers are pulling back from HBC, developments in subcategories such as allergy, energy and family planning may be just what the doctor ordered.
“It’s vital the set has the right mix of items to capture all potential consumer purchases,” says Cassandra Matos, category manager for McLane Co., Temple, Texas. “That will help ensure the consumer does not go across the street to the drug store.”
Changing things up for Lon Audet, merchandising manager for Boise, Idaho-based Stinker Stores, led to the desired result of higher gross-margin dollars. In 2010, HBC sales at the 53- store chain dropped 10%, but grossmargin dollars rose 14%, he says. To accomplish this, the stores eliminated larger, more expensive packages of product and focused on single-serve items with higher gross margin.
“Our gross margin percentage went from 33.1% to 41.7%,” Audet says. “We continue to review SKUs and eliminate the items with slow movement to bring in the new items in a single serve.” A combination of the economy, competition from drug stores staying open later and a series of significant recalls from Ft. Washington, Pa.-based Johnson & Johnson earlier this year have hurt the overall category. Matos of McLane says that in many cases, c-stores are cutting space for HBC from 8 feet down to 4, with some going smaller to 3 or even 2 feet.
In addition to the larger trend of shrinking shelf space, other new developments affecting the category are:
- Recalls.A massive Johnson & Johnson recall earlier this year affected numerous items including, Tylenol, Motrin and Benadryl (see sidebar, p. 116), causing a supply crisis that sent retailers scrambling.
- Energy shots.What started out as a beverage option has now shaken up HBC in the form of concentrated shots.
- Allergy alternatives. High margins and new-product developments have ignited overall sales in cold-allergy-sinus.
- Family planning. Sexual-enhancement products such as Extenze are pushing this subcategory beyond condoms.
To weather turbulent trends and maximize profitability, retailers must continue to assess subcategories within HBC, says Vince Licari, convenience-business analyst for category management for Johnson & Johnson Sales and Logistics Co. “[Retailers] turn over every stone in coffee, beverages, readymade food, tea and snacks, but HBC doesn’t receive the same scrutiny or due diligence,” he says.
Audet of Stinker Stores agrees. “We continue to evaluate retail [items] and increase them wherever we can,” he says. “Unfortunately HBC does 0.55% of our inside sales and contributes 0.84% of the profit. We don’t spend a whole lot of time with this category.”
One subcategory within HBC that stands out this year is allergy medications, according to Licari. The products are maturing in the market, in some cases moving from prescription to OTC and in others coming out in more economical, single- and multi-dose options.
The packaging and pricing trends overlay a greater underlying scenario of what people with allergies need. Someone with a cold may have symptoms that last three weeks, whereas someone with an allergy may suffer for months. The average shopper with allergies typically has 76 days of symptoms, with the “heavy” symptom shopper having as many as 195 days, Licari says.
Though cough-and-cold products saw a 10% decline over the past year, according to Licari; he describes allergy, sinus and nasal—the whole area of upper-respiratory products— as “still accelerating.”
A couple of up-and-coming products Licari mentions are Mucinex and Zyrtec. For Mucinex, manufacturers have started producing single-serve and six-count packaging, allowing for a lower price point than larger sizes. In addition, brand recognition through national advertising and sales via the food-drug-mass merchandisers have vaulted its visibility.
Zyrtec became an OTC drug about two years ago and, like its competitor Claritin, gained popularity via pre- scription use and availability in food-drug-mass. Licari says that in choosing brands to stock, retailers need to examine share. If there are two major brands with double- digit share, “Both brands resonate, and you need to have both there.”
Still, despite advances from allergy medications and recalls, cough-and-cold segments hold a significant 19% of the HBC category, says Matos of McLane. Internal data says items showing the largest total unit pulls (from January to May 2010) include 5-Hour Energy shots, Goody’s and BC headache powders and Chapstick and Halls stick items. Items showing the largest unit growth year to date over the prior year are 5-Hour Orange, 5-Hour Extra Strength, Lil Essential Clear Eyes and Extenze.
The area of family planning is increasing in importance, she says. While Trojan still leads the condom portion of this segment, products such as Extenze male enhancement have enough momentum to add to the mix.
In addition, she suggests considering products at the other end of the energy spectrum, meaning relaxation shots such as I-chill. With health-care costs and prescriptions skyrocketing, people are taking their health more seriously, says Jim Blosser, executive vice president of sales for Convenience Valet, Melrose Park, Ill. His company has seen success with a vitamin C program and the product Emergen-C. It has also seen promising movement with Vitapak Multi-pack vitamins in single daily doses for men and women.
Size, brand and quantity are also trends in motion, says Beth Noteman, director of convenience category management for Lil’ Drug Store Products Inc., Cedar Rapids, Iowa. In the past, two-thirds of shelved items had been full-serve vs. single-dose, she says. “I don’t believe that going all single- use is the answer, because we want to trade up [customers] as much as we can,” she says. “But I do think retailers are continuing to question us about what’s the right mix.”
Beyond these product trends is the larger consideration of value. “Consumers have become more value-minded over the last year … and are at times looking at a smaller count or private-label items,” Matos says.
Looking ahead, the challenge for the category is going to be finishing out the year strong despite numerous recalled items and product allocations, Matos says.
“Stores should aggressively work with their wholesaler to fill the gap with items that are comparable in nature and still c-store-friendly,” she says. “The message we want to convey is for retailers to ensure their HBC set satisfies all potential consumer needs, ranging from immediate, one-time needs to longer-term emergency needs such as big bottle OTC, grooming … to value offerings with private label.”
Licari says HBC represents 2% of the c-stores’ business but has 40% to 45% gross margins vs. other c-store categories, which typically hover around 28%. “Can you really afford not to right-size every square foot?” he says. “When you walk into a c-store, what do you see? A beautiful coffee bar with signage. With HBC, is it in front and center? Probably not; that’s because of velocity. But does it even have signage?
“Make me aware,” he says. “As long as you’re priced within 5% to 10% of the drug-store channel, we’ll accept a premium because it saves us another trip.”
“We believe that a managed HBC section of retail [takehome] sizes and a double dose is needed to keep customers coming back,” says Blosser. “C-stores will never be able to compete on price with the big-box stores, but having a poor selection will certainly drive away purchases.”
Tylenol, Motrin Products Recalled
Johnson & Johnson recalled specific lots of over-the-counter (OTC) products—including certain Tylenol- and Motrin-branded products—following an investigation alleging an “unusually moldy, musty or mildew-like odor,” according to company statements, which led to a small number of cases of “temporary and non-serious … nausea, stomach pain, vomiting or diarrhea.” McNeil Consumer Healthcare, a division of McNeil-PPC, Inc., a Johnson & Johnson company based in Ft. Washington, Pa., subsequently shut down its plant and just this past summer announced that it would not have sources of supply before the end of 2010 for most of the items produced there.
Operations at the Ft. Washington plant were suspended in connection with the recall of infants’ and children’s liquid over-the-counter (OTC) products. The suspension of manufacturing also affected adult OTC products made at that facility, the company said, but the majority of McNeil’s U.S. OTC business is not affected by the ongoing suspension of production at that plant. Among the brands recalled: Children’s Motrin, Children’s Tylenol, Benadryl, Extra Strength Tylenol, Motrin IB, Regular Strength Tylenol, Rolaids, St. Joseph Aspirin, Tylenol 8 Hour, Tylenol PM and Tylenol Arthritis.
Johnson & Johnson, which did not respond to CSP calls by press time, said the company is “conducting a comprehensive quality assessment across its manufacturing operations, and has identified corrective actions that will be implemented before manufacturing resumes at the Ft. Washington plant.” McNeil has not yet finalized plans for resumption of production at the facility, where the average annual sales of the products manufactured there have been about $650 million over the past three years.