HBC AT A CROSSROADS

Dan Alaimo / Additional reporting: Stephanie Loughran

With competition eating away at sales and margins, retailers must craft a health and beauty care strategy that will work best in their stores, whether convenience-oriented, value-focused or a pharmacy-centered whole-health program.

For some retailers it comes down to a choice, although many may elect to combine all three. But the essential ingredient is to meet specific customers' needs.

"Today, there are numerous opportunities for supermarkets to measure up to the consumers' expectation to serve as an HBC-destination shopping experience," said Doug Schwab, corporate director, wholesale health and beauty care, Supervalu, Eden Prairie, Minn.

"Supermarkets that achieve success will have differentiated themselves from their competition by acknowledging who their competition is, knowing their customers and creating the store environment to satisfy their customers' needs," he said.

"Mass retailers show no sign of losing HBC sales, but supermarkets that can provide a strong price/conveni-ence/service alternative for the consumers still have opportunities for growth," said Jeff Lowrance, spokesman, Food Lion, Salisbury, N.C.

Store preference numbers from Retail Forward, Columbus, Ohio, show supermarkets holding steady from 1997 to 2002 in prescription drugs, but losing to supercenters in such key categories as over the counter, vitamins and supplements, and personal care products. Store preference is defined as where the primary household shopper buys a product most often.

"Unfortunately for the supermarket industry, relative to some alternative channels, HBC represents a smaller part of the business and is not growing as fast as such areas as fresh, pharmacy and general merchandise," said Sandy Skrovan, vice president, Retail Forward. HBC is 19% of sales at drug stores and 9% at mass merchandisers, while only 4% in supermarkets. "So perhaps because of this, the department is not getting as much attention as it should," she said.

As in other areas, Wal-Mart Stores is the price leader, and is the format of choice for several HBC categories, such as OTC, vitamins and supplements, hair care products, skin care products and cosmetics, Skrovan said. To compete with this, Target, for example, is offering private labels, designer brands and product exclusives. Drug chains like Walgreens, CVS and Rite Aid are growing their private-label programs and launching new lines, mostly in the bath and body category, she said.

"There are some exciting innovations taking place in these competitive channels that supermarkets should take notice of. Supermarkets are ideally positioned to grow the HBC part of their business as they open more pharmacy counters and strive to become a one-stop-shopping and whole health destination," Skrovan said.

The OTC launch of Prilosec this month from Procter & Gamble, Cincinnati, will be a big part of many supermarkets' marketing plans. "Prilosec is a big deal to us and we have to communicate that significance to our customers," said Stephen Cucchi, vice president, pharmacy, Giant Food Stores, Carlisle, Pa.

"The main trend in HBC right now is the continued switch of prescription products to OTC," said John Beckner, director, pharmacy and health services, Ukrop's Super Markets, Richmond, Va. "It presents a tremendous opportunity to pharmacists if we're able to leverage it correctly. Consumers will have questions and who better to counsel them than pharmacists?"

For the Prilosec launch, Beckner said, "We have to make people aware that we have Prilosec."

But competition is fierce for price and quantity in OTCs and nutritional products, like herbal supplements and multi-vitamins, said a pharmacy executive who asked not to be identified. "Customers will go with the pharmacists' recommendation the first time, but if they can get it in large quantities somewhere else, we might lose the sale the next time around," the executive said.

Retailers can find a way around the price and quantity quagmire by focusing on concepts like whole health by taking advantage of the entire selling environment of the supermarket, and women's well-being, which addresses the grocery store's core customer, industry experts said. These concepts have been championed by the Educational Foundation of General Merchandise Distributors Council, Colorado Springs, Colo., which is holding its annual HBC Marketing Conference this week in Palm Desert, Calif.

"Whole health continues to be an important but slow-building trend," said Roy White, vice president, education, for the foundation, which is based in New York. "OTCs along with other health-related products are in the center of that.

"There is an increasing interest in finding out how to develop a positive interplay between the pharmacy and OTCs," White said.

"With the increasing emphasis on self-care, retail facilities, particularly those with pharmacies, are taking on a much bigger and broader role in how individuals manage their health and wellness," said Jim Wisner, president, Wisner Marketing Group, Libertyville, Ill.

"Women's well-being is rapidly becoming the focal point of HBC merchandising. This is not surprising, since most of the shoppers in supermarkets are women," Wisner noted. Historically, supermarkets have "not gone to great lengths" to think in terms of gender-specific marketing. "But this is changing, first of all, because it is good business, and secondly because there are now more women in the management ranks of chains."

Wisner pointed out that each day in the U.S., 4,000 women enter menopause. "This alone has an extraordinary impact on how women manage their well-being and on the products they buy," he said.

One major chain looking closely at this is Albertsons, Boise, Idaho. "Our customers, and especially women, focus on three major categories related to their lifestyle, diet, exercise and stress management, for themselves and for their families," said Claire Thomas, vice president, general merchandise category management/procurement.

"Products and services in the health and beauty care category are being designed more and more to help people take increased control of their multidimensional lives," she said.

"People are moving faster today, juggling roles in a fast-paced environment. The challenge for supermarkets is to provide not only the products, but also adequate and comprehensive information about health, well-being, diet, exercise and stress management, and the aids that are available in the marketplace," Thomas said.

Among the ways Albertsons is making progress in relating health and wellness products to other services in its stores is by employing dietitians in most of its operating divisions, she said. The retailer also has a national diabetes specialist pharmacy team to provide customers with resources and expertise, and is launching bilingual health and wellness information.

"Supermarkets need to find the most effective way to help customers reach the intersection of food, health and beauty to achieve lifestyle management. It's a challenge we must meet if we are to grow and progress in a dramatically different global marketplace," she said.

For a report on the value challenge in HBC, see Page 34