More visibility could increase potential of c-store condom sales.
This is a category that’s hot.”David Case made this proclamation at his “Unlocking the Potential of HBC” presentation at Convenience Retailing University in late January. But Case, a 23-year HBC Cindustry veteran and business development manager for a national broker, wasn’t referring to internal-analgesic products such as Tylenol or Nyquil. Nor was he referring to the rapidly expanding energy and protein supplement segment. He was talking about condoms.
There’s no doubt that the category is performing well. Data from Chicagobased Symphony IRI Group shows c-store sales of contraceptives were up 13% through November 2012, making it the fastest-growing HBC segment.
While Case reports the average c-store now sells 25 condom units per store per month, there’s an opportunity to significantly raise that figure, as well as the high profits that condoms bring in. Case says he knows one Northeast retailer that offers 13 different condomSKUs at $5.29 per three-pack—nearly $2 more than the average c-store price of $3.49. That retailer averages a whopping 40 units per store per month.
“Condom sales have been steadily increasing, even though they are a line that never gets enough attention,” says Frank White, director of retail operations for Tri-State Petroleum, based in Wheeling, W.Va. “It’s an important profit driver, and a significant (HBC)segment outside of the supplement subcategory.”
To give proper attention to this segment,CSP asked those who know the business best to look at the success condoms have had at the c-store level and describe how product placement can have a dramatic effect on sales.
Category with Potential
One man who is quite familiar with the c-store condom business is David Harrington, vice president of special markets for the sexual health and wellness division of Iselin, N.J.-based AnsellHealthcare. Harrington started with Ansell, manufacturer of LifeStyles condoms, in the late 1970s.
“One of the things we recognized immediately was that nobody was really doing anything with the convenience industry,” says Harrington, who wouldultimately spearhead Ansell’s c-store efforts beginning in the mid-1980s.
Although few condom suppliers were targeting the c-store industry back then, Harrington saw lots of potential. At that time, convenience stores were some of the only retailers open late at night—the prime time Ansell’s customers wanted to purchase condoms. And c-stores had a strong business with the 18- to 24-year old male demographic that condom suppliers were after. It was a plan that paid off.
“Once we started this program of getting condoms into convenience stores, it took off like wildfire,” Harrington says.“It grew from five to six packages per store per month in the mid-’80s to 15 to18 per store per month in the mid-’90s. By the time we got to the 2000s, you’re talking 25 to 30 packages per store per month—and it continues to grow.”
And new data suggests that c-stores have overtaken the drug channel interms of package sales. In the late ’70s,pharmacies sold 90% to 95% of condoms in the United States, Harrington estimates. However, Symphony IRIrecently reported that the c-store industry now sells 57% of condom packages—although it’s important to note that while c-stores generally sell threepacks, the food, drug and mass channels tend to sell larger pack sizes.
“There’s still more individual condoms being sold in food, drug and mass, “Harrington says, “but convenience stores now sell more packages than any other outlet in the United States.”
White believes it’s actually these smaller, more convenient pack sizes that drive both intentional and impulse purchases at his Tri-State locations.
“We sell the convenience packs,” he says. “Nobody wants to pay $20 for a gross pack. These are sometimes an impulse item. That’s our sweet spot: quick, convenient and easy to find in the store.”
Location, Location, Location
The saying is not just about store location; it’s also true regarding product location. And it’s exceptionally true about condoms, an item that conjures up puritanical insecurities and customer embarrassment.
“We sell more condoms from the sales floor [vs. behind or at the counter],”says White, who places condoms within the HBC/GM sections of his stores. “If those are on the sales floor, then condoms are there. We have a few stores where the HBC/GM is merchandised near the front counter, but that’s mainly because of space.”
Based on his experience with Ansell, Harrington says 80% to 90% of c-stores join White in placing condoms on the store floor—meaning 10% to 20% of retailers still have the products merchandised behind the counter, as was traditional when the products were first allowed to be sold at the c-store level in the late ’70s. There’s a reason the majority of retailers have moved to self-service.
“If condoms are behind the counter, guess what happens? Consumers don’t ask,” Case says. “There’s an embarrassment, and there’s a stigma. It can kill your business.”
The issue of self-service vs. having task a clerk at the counter is all the more important given the fact that food, drug and mass channels almost exclusively merchandise condoms as a self-service item, so consumers are not used to having to ask a cashier.“Because of the embarrassment factor, if you don’t display the condoms in a self-service position in your store, a consumer may still buy it that one time, “Harrington admits. “But the next time they’re going to go where they don’t have to ask. Generally, what we see is if an account goes from self-service to behind the counter, we see at least a 50% decline in sales.”
With the threat of such an extreme sales decline, why would any retailer choose to merchandise condoms behind the counter? It often comes down to one particular threat.
“What’s one of the biggest challenges with condoms? Theft,” Case says.
As a smaller-sized product, condoms are easy to swipe—and tempting considering the price per unit, not to mention the stigma of buying them. Yet retailers who merchandise condoms on the sales floor aren’t seeing the huge pilferage numbers one might expect.
“It’s all anecdotal,” says White. “I have never seen enough theft to warrant pulling it from the sales floor.”And moving such products behind the counter may not actually address the true risk stores are facing. Harrington estimates only 5% of c-store condom thefts are from customers.
“Most of the theft is internal, not external,” he says. “So no matter where the product is positioned, you won’t stop the internal theft unless you have certain cameras and devices in line to catch people.”
“My philosophy has always been to put them on the floor,” White says. “It’s a matter of convincing stakeholders.”
Raising the Stakes
One way White and other retailers can persuade stakeholders that condoms belong on the sales floor is the impressive profit margins male contraceptives boast—margins that can more than make up for even a certain amount of theft.
Generally speaking, HBC is a very margin-friendly category: HBC products average a 35% gross profit margin for retailers. Condoms, however, carry an 80% to 90% gross profit margin.
“Consider the unit cost is $1.27,” Case says. “And let’s say you get a 15% rebate, which in this category would be very conservative. There’s a lot of margin there.”
And though no one wants theft, Case says that even with such potential, the margins more than make up for the losses.
“Let’s say your volume is 25 units, retailing at $4.29,” Case says. “That will give you about a 70% gross profit margin. Say 20% of your products walk out of the store; that’s still a 63% gross margin. You’re still ahead.”
“With condoms, even if a package is stolen and you sell one, you’ve made a profit on both because of the high margins, “Harrington says. “If you have a candy bar at self-service and somebody steals that, from what I understand, you have to sell five candy bars to make up that loss of the one.”
And then there are the sales opportunities. While drug stores such as Walgreens and CVS discount their bulk condom packages, Case says, they consistently sell their two- and three-packs at a significantly higher cost than the average c-store price of $3.49.
“If you go into a drug store, you’re sometimes paying as much as $5.99 for a three-pack,” Harrington says. “Even convenience stores—which have always been noted as being a little higher-priced—in the HBC section, their prices are very comparable or lower than drug stores. That’s one of the reasons I think people go in and buy them.”
With such an ideal overlap between condom and c-store customers, along with the high profit margins the segment provides, theft may no longer be a viable reason to merchandise behind the counter—especially as c-store condom sales and margins continue to increase.