BOTTOM-LINE CONTRIBUTIONS

LISA SAXTON

Baby wipes are proving to be quite the tidy little product for some retailers, bringing in decent margins and reaching an expanding consumer base. But others are wary of the category's shrinking margins due to heavy market competition.

Some of that competition is coming from private-label products, with some retailers and wholesalers reporting that their private-label lines outsell the national brands.

But whether private label or national brands, baby wipes provide what the major baby aisle residents (diapers, food and formula) generally can't -- profit margins.

"We promote baby wipes with diapers," said Debbie English, health and beauty care buyer at Keith Uddenberg Inc., Gig Harbor, Wash. "It's a good way to pick up some of the lost profit on diapers."

"It's one of the more profitable items," concurred Roger Burks, senior vice president at The Mad Butcher, Pine Bluff, Ark., "Normally, the baby categories of food, formula and diapers are a loss or negative gross, less than 5%."

According to scan data provided by A.C. Nielsen, Schaumburg, Ill., premoistened towelettes drew in sales of $243.9 million for the 52-week period ended June 10, a 4.6% increase from the previous year. Unit volume mirrored sales with a 4.5% increase.

"Wipes have given us an opportunity to make a little money," said Burks.

The margins are by no means of the eye-popping variety, but they are decent enough to put a smile on the faces of some retailers.

"Depending on the store location, our margins normally range between 18% and 24%," said Burks.

Craig Carlson, grocery buyer for independent operator Home Quality Foods, Linstrom, Minn., reported that wipes are definitely not a loss leader at his stores, with margins close to 25%.

Home Quality Foods carries six to eight brands of baby wipes with about 12 to 15 stockkeeping units, said Carlson, who hasn't seen much change in the category, except for the rise of private-label products.

"Our biggest seller is our store brand," said Trudi Parris, nonfood buyer at Affiliated of Florida, Tampa, Fla. "Those products blow out of here."

Parris said the store-brand wipes retail for about 10% to 15% less than their national counterparts, which aren't priced to shock either.

"We've put all of our baby wipes at contract pricing," she explained. "That's an everyday-low-price-type arrangement. There's nothing off-invoice. They just net it out to us at the lowest possible price they can give."

It seems manufacturers are playing a noticeable role these days in the baby wipe category.

"It's not a loss leader," Burks of The Mad Butcher said. "We're still making good money off of it, and this is due to some extra street money or bill-back money. We're able to maintain a lower retail on it because of the extra money we're getting back from our supplier."

Burks is so impressed with the baby wipes category, he's looking to expand with a store brand. "Because we do exceptionally well with the other baby wipes, we're just now getting into the private label on baby wipes," he explained.

"For us, private-label baby wipes are the best-selling products in that category," said Uddenberg's English, noting that while private label rules, the chain does carry a handful of national brands.

And during the last year, the national-brand baby wipes category came under the spotlight when Kimberly-Clark and Scott Paper merged operations.

Gary Wilcox, buyer-merchandiser at Fleming Cos.' York, Pa., division, said he hasn't seen any downward pressure on baby wipe prices due to heated competition in the category over the last year.

Another wholesaler, Salt Lake City-based Associated Food Stores, hasn't seen any glitches in the supply of baby wipes, but has witnessed drooping prices.

"We have a lot of babies in our market," said Craig Parry, a buyer at Associated. "And baby wipes are a big item. I'm not seeing a lot of promotion right now; we're just buying it at net."

Renee Ruetten, category technician at the Mazomanie, Wis.-based general merchandise division of Roundy's, Pewaukee, Wis., carries about 48 SKUs of baby wipes, and has not experienced any unusual promotional activity. But she's definitely noticed tightening margins.

The baby wipes category, she said, is a very competitive market and retailers aren't getting the margins they would get with other, more profitable grocery items.

At least one retailer is planning to get more aggressive within the baby wipes category.

"We're trying to support private label as much as possible," said Robert Nowell, grocery buyer at Community Cash Stores, Spartanburg, S.C. "Any time we can promote it, we do, whether it's merchandising private label in the best location on the shelf or something else. That's what we strive to do."

Indeed, Community Cash is looking at a new planogram that would use a "shadow shelf" for baby wipes. "This would run the length of the diaper section in the middle of the shelf. And we'd run the wipes through there," Nowell explained.

"I think this might really work for us, because we have smaller diaper sections [than larger competitors] like Food Lion. There won't be an overabundance of inventory on wipes," he said, noting that generally the diaper sections in his stores average 24 feet in length, with a few stores running up to 28 feet.

Nowell said promotional activity is dependent upon support from manufacturers.

"We have promoted all the brands of baby wipes where we have gotten promotional funds from the manufacturer. Most of [the suppliers] have been flexible. That's just one of those things where they see their competition promoting, and either they go along or get left out. So most of them are willing to give us some funds to promote the product and draw attention to it," Nowell said.

Another notable aspect in the baby wipes category is that the wipes are being used for more than baby's tush. Baby wipes have been spotted at picnics, in toll booths, in automobile glove compartments.

Thus, it's important for retailers to bring the wipes out of the aisle in order for the general grocery traffic to see them.

"Baby wipes are a good impulse item to display," said The Mad Butcher's Burks. "Small five- and 10-case displays work best, believe me, especially if you've got a paper towel display."

Normally, he said, when paper towels are on ad, retailers are losing money on them. So wipes make a handy alternative and a good tie-in item. "If you've got a paper towel display, you need baby wipes around them."

Promotional activity in the category varies. Uddenberg's English said she promotes baby wipes once a quarter. Affiliated of Florida's Parris said she advertises private-label wipes when the company puts out a private-label roto. Community Cash's Nowell promotes some kind of baby wipe about once a month.

While the promotional schedule may vary from retailer to retailer, the reason the product sells is simple, according to Home Quality Foods' Carlson. "When our warehouse runs an ad, it's just straight away price that moves the product," he said.