JUMP-STARTING HBC

LIZA CASABONA

Health and beauty care categories, while faring better than general merchandise in competition with other channels, are still in need of extra attention, industry sources said. With no major headline-grabbing product innovation on the horizon, industry observers reported an outlook for 2005 that spells business as usual if retailers don't jump-start the year.

"Basically, 2005 is pretty much status quo," said Larry Schimpf, director, HBC/nonfoods, Clemens Markets, Kulpsville, Pa.

To generate more excitement, retailers will need to look to some familiar trends to move center stage in '05, such as increasing their focus on ethnic merchandising and private label, sources said.

"We feel pretty strongly that ethnic marketing is going to be something that virtually every retailer needs to take a careful look at, not just the two coasts, but everyone else in between," said Roy White, the New York-based vice president of education for the Educational Foundation of the General Merchandise Distributors Council, Colorado Springs, Colo. "One of the keys to success [in HBC] in 2005 is approaching ethnic marketing in a very sophisticated way."

GMDC will release a study looking at ethnic merchandising and marketing later this year.

Susan Spring, HBC buyer, W. Lee Flowers, Scranton, S.C., said her company recently redid its ethnic section, adding 40 to 50 new items, including hair extensions.

"We felt like that section needed some work done on it," she said. The company plans to do a test planogram soon. The mix of products W. Lee Flowers offers in its ethnic set is mostly hair care items, Spring said, including hair accessories, straightening kits and color kits.

While ethnic marketing has been looked to for many years as a coming trend, forward-looking companies do face some obstacles in incorporating ethnic products.

Al Jones, senior vice president, procurement and merchandising, Imperial Distributors, Auburn, Mass., said his company has looked into offering planograms for a specifically Hispanic set, but is struggling to find products.

"There's not a lot out there. People are talking about it, people understand that demographics are changing in the country, but there aren't people that have products or are offering selections aimed at that market unless it's really, really specialty."

That's not what the market he serves is looking for, Jones said.

Some mainstream brands are starting to introduce an ethnic selection. Pantene offers its Relaxed & Natural line for African-American consumers, and will add a color-care shampoo and conditioner this year. The company also will introduce a line called Extra Straight for Hispanic consumers.

Hair care is just one of a few areas in the nonfood sections of the supermarket that has received any significant attention from manufacturers looking to carve out a niche for ethnic products, sources said.

"What is unique in the case of HBC is that with the exception of hair care and cosmetics, there is very little that is understood about ethnic product needs in these categories," said Jim Wisner, president, Wisner Marketing Group, Libertyville, Ill. "When you look at supermarkets, there has been a lot of work done in terms of food products, cuisine and cultural assimilation -- what it means about the meal hour and how people eat products, etc. But it's really white space as far as both HBC and GM are concerned."

In spite of those difficulties, given demographic trends in the United States, ethnic marketing is going to be very important to pay attention to in 2005, White said.

"There are definitely reasons to look at ethnic merchandising for growth, but it varies with your geography and within metro markets on a store-by-store level. Retailers have to be smart. They can't just throw it against the wall and see if it sticks," said Diane Garber, president, In Sight Communications, Buffalo Grove, Ill.

In mainstream HBC aisles, retailers and distributors said they will look to new introductions in hair care and oral care, and some line extensions from well-known major brands to call attention to the HBC aisles. Yet few see any real blockbuster items on the horizon.

"The category with the biggest change early in '05 is going to be hair care," said Clemens' Schimpf. The introductions are about 50/50 line extensions and new products, he said.

"How many truly new products do we see coming for 2005?" asked Jones. "I don't see anything big on the horizon close enough in to have a strong impact on this year's sales, unfortunately."

Jones pointed to the whitening products and power toothbrushes to drive oral care and some new line extensions in hair care to continue to perform. However, he said more innovation is needed to really drive growth and spur sales.

"It costs a lot of money to launch new items, and when companies do launch new items they are conservative," he said. In particular, this has created some additional category pressure in the form of problems with out-of-stocks of key new items. Some manufacturers have been too cautious in trying not to overproduce a new item, he said.

In 2004, Jones said there were shipping and supply problems in keeping up with the demand for Prilosec, Tampax, Efferdent and other products. Those problems threaten to plague 2005 as well, he said, pointing to the new line of Oil of Olay lotions, which the company has been allocating in the early stages of distribution, despite being featured in a television advertising campaign.

New line extensions from Pantene in the hair care aisle and Dove introductions in the hair care and skin care categories are also on retailer and supplier radar for 2005, according to sources contacted by SN.

For some retailers looking to lift sales, the search may not go any farther than their own "backyard," as private label will continue to occupy an important niche, sources said. "We're seeing chains like Albertsons now beginning to consolidate their brands in HBC to make a more dramatic statement across the country," said Wisner.

Private-label trends will follow a pattern similar to the national brands toward product refinement instead of big introductions, Garber said.

"Retailers will line up what their best customers need and are looking for in terms of performance, brands, packages, etc.," she said.

Other trends that might affect HBC in 2005, according to Wisner, include lower prices for HBC, larger size offerings of HBC products, incorporation of more health and wellness concepts into stores, a continued focus on more "fun" HBC products, continued increases in the importance of the pharmacy for supermarket operators, and further development of the self-care trend for consumers.

Focusing on recapturing HBC sales in 2005 is challenging, but important, sources stressed.

"HBC is a very exciting category driven by a huge marketing budget. Consumers like to get a good deal on these products," said Jeff Manning, president, F&M Merchant Group, Lewisville, Texas. "The category is very price-sensitive, but it has the potential to be the most profitable category for a retailer."

OTC: The Future of Statins

An over-the-counter switch of the class of drugs aimed at managing cholesterol, called statins, could do a lot for the supermarket health care aisles in 2005, said industry observers.

"If any of the cholesterol drugs went over-the-counter this year, that would be huge -- the biggest switch item ever, possibly," said Jim Wisner, president, Wisner Retail Marketing, Libertyville, Ill. The drugs could possibly make the switch in 2005 or 2006, he said.

"I suspect the statins for cholesterol will be further out [than 2005], but that's the only thing that I see that could really generate excitement in the HBC category," said Al Jones, senior vice president, procurement and merchandising, Imperial Distributors, Auburn, Mass.

Despite industry expectations of approval, a Food and Drug Administration advisory panel voted this month against recommending OTC sales of the cholesterol drug Mevacor, which was up for review. Media reports said the vote was 20 to 3 against the drug, from Merck & Co., Whitehouse Station, N.J., and Johnson & Johnson, New Brunswick, N.J.

The FDA, Bethesda, Md., usually follows such recommendations, but does not have to. A Merck spokesman told the Wall Street Journal it intends to "continue to work with FDA" to switch Mevacor to OTC status. If it had been approved, it would be the first of the cholesterol-reducing statin drugs to go to OTC. Meanwhile, Bristol-Myers Squibb Co., New York, told the Journal it will continue to seek approval to switch its statin drug Pravachol to OTC.

Should any of the statin drugs make the switch from Rx to OTC, sources said they would be different from past moves.

"More than any other Rx-to-OTC switch, consumers will want information from their pharmacist [about the cholesterol drugs]," said Wisner. In the past, drugs that switched had an OTC predecessor that treated the same condition. Products like Prilosec, for example, drew users from OTC antacids, he pointed out. There is no comparable OTC alternative to cholesterol drugs available to consumers right now.

OTC switch products have been an important force for supermarket retailers in the past few years as blockbuster drugs like Claritin, Xantac and Prilosec made the switch and boosted sales.

"OTC switches will continue to drive business," said Jeff Manning, president, F&M Merchant Group, Lewisville, Texas.

Past OTC switches like Xantac continue to do well, said Susan Spring, HBC buyer, W. Lee Flowers & Co., Scranton, S.C. This year, the line has extended into a new dose that should do well, she said.

Meanwhile, it has been speculated in media reports that the increased scrutiny given to other FDA drug approvals in the wake of Vioxx being pulled off the market may have influenced the vote against Mevacor, and may slow down the pace of OTC switches in general.