NEW YORK -- Supermarkets will be forced to re-evaluate their private-label programs in health and beauty care given the competition from drug chains and mass merchandisers, according to Brian Sharoff, president of the Private Label Manufacturers Association here. With few exceptions, development of sophisticated private-label HBC lines has lagged behind those sold in food departments at supermarkets. The emphasis has been on secondary labels rather than on a designed, packaged line with the potential for brand-name recognition, Sharoff told SN prior to the association's annual trade show, which kicks off next week, Nov. 16 to 19, in Chicago.
In HBC, drug chains remain in the leadership position. Of HBC units sold in drug stores, 17% are in private label, according to the PLMA's 1997 Private Label Yearbook. Supermarket chains still remain ahead of mass merchandisers with a 13% private-label unit share of HBC. Mass merchandisers are quickly closing the gap, however, with private label representing 10% of all HBC units sold.
Finding the lowest-cost products will be needed for supermarkets to grow their HBC private-label business. Although some expansion will be in new prescription to over-the-counter switches, it is the development of value-added premium lines that offers supermarkets the most growth potential, said Sharoff.
"If you are going to bring in new business and sell more products, it's more likely to be in value-added lines," Sharoff stated.
The following is how Sharoff sees private-label HBC shaping up in all three channels and factors affecting its development.
SN: What's your assessment of the development of private-label HBC lines in supermarkets?
The process is a little behind on the HBC side. A lot of retailers haven't decided they want to make HBC as much a part of their family of private-label brands as Center Store in grocery. They are still tentatively looking for Health Pride or Good Health or a secondary name. There are some that have gone the other route which is to start and develop packaged lines like American Stores' Daily Rituals premium line, which is upscale with a special package design. SN: Why do you think HBC private-label lines have been slow to emerge?
It has to do with the initial positioning of HBC in supermarkets. Initially it was positioned as a convenience for the consumer, part of one-stop shopping. But let's face it, if supermarkets aren't a destination for HBC, they are going to pay attention to what they do best.
However, when supermarkets start to see CVS, Walgreen and others begin to up the ante in having their private-label redesigned with a big expansion of stockkeeping units, then they realize they better match drug if they are going to remain a convenience stop. Then comes the mass merchandisers who are knocking everybody's head off with very low prices both on brands and on private label. Then supermarkets now realize that to be competitive they better come up with something because they aren't going to beat mass on the price of Gleem.
The result is that HBC programs will begin to get aggressively marketed because the drug chains have more variety and the mass merchandiser is selling for prices that can't be matched.
SN: You see the drug chains as leaders in product line development in HBC?
In the HBC area they are definitely leaders in terms of SKUs and product development. But there are only five major drug chains in the United States, so you are dealing with powerhouses in what they can do.
SN: What could change this?
Supercenters. When Walmart decides in its supercenters to actually put their name on HBC products and not just use the Equate name. That will start the ball rolling. As long as it remains a control label, I think other retailers don't feel the pressure.
SN: What are the big issues supermarkets face in private-label HBC?
A lot of supermarket executives know what a drug chain pays for a particular private-label product. Manufacturers are under tremendous pressure to lower prices for drug chains. Supermarkets will sooner rather than later make the same demands on suppliers. The big difference is supermarkets deal with the in-house broker, which doesn't exist for drug chains. These brokers are interested in expanding the HBC side and it's a question of getting the best prices. I would imagine there probably will be a ripple effect from the drug-chain side. Cost is a big issue.