HBC BREAKS OUT

Stephanie Loughran

In the late 1950s, supermarket health-and-beauty-care sections had few cosmetics, a thin stock of hair care and personal care products, and over-the-counter remedies were virtually nonexistent. In fact, drug remedies were strictly limited to the drug store channel. Today, the wealth of HBC products, the inclusion of related categories like whole health and pharmacy, and retailers' recognition of the category's significance propelled store size to greater length.

The evolution of HBC as a profitable force in supermarkets has always been recognized, but the execution to make it a formidable category only came to fruition in the last decade, according to retailers and analysts. HBC came into its own by the proliferation of technologically advanced products like the Gillette Mach3 razor, the advent of consumer self-health care, the graying of the baby-boomer generation and the growing interdependency between HBC and pharmacy, among others.

"We didn't sell our products in supermarkets when I started in 1958. Manufacturers directed distribution to drug outlets only, because the mentality was that these were products that drug stores helped to build and establish," said Jerry Gilbert, a retired veteran of the HBC business and the former vice president of business development for Johnson & Johnson Consumer Group, New Brunswick, N.J. "The whole category was basically restricted from supermarkets."

Manufacturers got in "big trouble" if bootlegged OTC drugs found in some supermarkets were traced back to them, he recalled. It was consumers that mandated the expansion of HBC distribution to other channels like supermarkets in the early 1960s, Gilbert noted.

"Consumers really changed that and started to demand it [in other trade channels]," he said.

Merchandising these "banned" products has come full circle today, said Jim Wisner, a 30-year veteran of retailers like Jewel-Osco, a subsidiary of Albertson's, Boise, Idaho, and Shaw's Supermarkets, West Bridgewater, Mass., and currently president of the consulting firm Wisner Retail Marketing, Libertyville, Ill.

"[Bootlegging] certainly went on," he said. "It's not unlike what's going on with professional hair care products right now."

Wisner told SN that HBC had little space and slow turns in the old days.

"It was regarded almost as an afterthought both at store level and corporate level," he said. "Thirty years ago, there were not nearly as many product options; the category wasn't promoted."

Diane Garber, president, In-Sight Communications, Buffalo Grove, Ill., agreed that the category lacked a high ranking in retailers' minds.

"It was a courtesy call," she said. "Grocers had very small selection, no creativity, no innovation, no price-point appeal. It was a last-minute convenience."

Product innovation was one factor that lifted the category to larger prominence, said George Satterwhite, director of nonfoods, Affiliated Foods, Amarillo, Texas.

"Merchandising has changed mainly because of the proliferation of SKUs. We've finally run out of ideas. There are only so many things you can do to a toothpaste, deodorant or hairspray, so we make it in different colors, shapes and sizes to gain shelf space," he said. "That's been the biggest difference."

The constantly changing product innovation in hair care, the progression of products like deodorant transforming to antiperspirant, and the explosion of Rx-to-OTC switches in the cough-and-cold category revolutionized HBC, Satterwhite said.

"It's created one-stop shopping," he said.

Moreover, the link to pharmacy and the greater use of seasonal HBC products have given supermarkets a competitive edge with mass merchants and drug stores, Garber said.

"The service level coming out of pharmacy and the seasonal synergies like suntan lotions and bug spray help position the grocery channel to compete in the expanded HBC area," Garber noted.

The importance of pharmacy and the pharmacist to the overall well-being of the customer, the entire supermarket and the whole-health effort is another key trend, said Jeff Manning, managing partner, F&M Merchant Group, Lewisville, Texas.

The aging of the baby-boomer generation has made OTC drugs increasingly important. The over-the-counter drug industry is projected to get an influx of $8 billion in new products from 2000 to 2005, Wisner said.

"These products are more important in terms of their daily needs, so everyone is jumping on the bandwagon," he said.

The accelerated growth in HBC happened only within the last 10 years, said analysts.

Supermarkets became much more aggressive in marketing new introductions during this time, Gilbert said.

"Eight years ago, [supermarkets'] attitude was, 'Let's see if these products will make it, then we'll make room for them on our shelves.' When you do that, you lose tremendous market share of those new products," he said. "Now, the food philosophy is to be the first to market [new products]. That is a revelation."

Jon Hauptman, vice president, Willard Bishop Consulting, Barrington, Ill., agreed. "They've done a good job of becoming a first-to-market source for new HBC items, and a good job at becoming information providers at the store shelves, [as well as] having people on site to provide information."

The age of self-health care, availability of medical information, and expansion of supplements also drove HBC to higher profits. The expanded category became a necessity to retailers back in the 1980s, said Wisner.

"In the early 1980s, you saw rapid expansion, and that's when supermarkets got their arms around nonfood," he said.

Today, supermarket HBC categories have been impacted by the continued threat of the mass merchants and the growing emergence of discount dollar stores. Aggressive promotion and advertising of the category have propelled it to larger space devotion in stores, defined subcategories like women's health, and gave HBC overall prominence among consumers and retailers.