NO MORE EASY MONEY 1994-09-12 (2)

'IT HELPS PAY THE RENT'

said candy is no stepchild category. It continues to pull in its share of dollars at chains large and small. The latest scanning data shows supermarkets still command the single biggest share of sales. Other formats, however, are cornering most of the category's growth.

"The candy business is important to us because it's profitable," said Rod Boni, grocery merchandiser at Pay Less Supermarkets, Anderson, Ind.

Mike Peace, grocery buyer at Brookshire Grocery Co., Tyler, Texas, concurred, saying, "Candy is very important to sales and gross profits."

Bill Vitulli, vice president of government and consumer affairs at A&P, Montvale, N.J., concurred. "We have a good, respectful distribution rate on candy in our supermarkets. Candy is an area where we find the net profit per linear foot a good bit higher than we do in other grocery commodities, because you get so many items per linear foot and the prices are in the upper category.

"It helps to pay the rent. There are many grocery items that we make little or no profit on, so we're happy to have display units and good pack-out on candy," he said.

It may pay the rent, but with tough competitors trying hard to move in, it may pay to look at candy in another light. Some supermarket decision-makers suggested the industry shake off the margins of the past in a bid to move more of the product in the future.

As one top executive at one of the country's biggest chains put it, "Why do we feel we have to make 30% on candy, when we gross 8% to 12% in grocery?"

BREAKING THE MARGINS HABIT

It's mostly just out of habit that grocery stores keep placing higher margins on candy, according to Acme's Downum.

"That came from the old 'drug store' attitude," he explained. "Years ago, a drug [direct-store-delivery] person would sell you drugs, candy and tobacco. All of these categories were higher-gross categories, and they've mostly stayed that way, because that's what you thought you should do.

"But now," he continued, "candy is behaving just like any other dry grocery item. As a matter of fact, it needs to turn faster to keep fresh. So in that respect, it ought to be at the lower end of the spectrum. An 18% or 20% margin would be OK."

Yost at Harp's agreed. To stay in fighting shape, his company "has been looking at accepting a little less gross margin percentage, but increasing the gross profit dollars. The best course to take would depend on the item; we could be more competitive through either everyday low pricing or ad items."

Granted, Yost and Downum

may share some opinions, because at one time, Downum helped set merchandising strategy for Harp's as a top executive.

For some other operators, the idea that the industry is being indulgent with its candy margins, and should pull back, can be a hard pill to swallow.

"Maybe sometimes in our everyday prices, we may be a little too high. But, of course, we check [grocery] competition, and if they're all up there . . ." reasoned Mimi Peck, grocery buyer for Copps Corp., Stevens Point, Wis.

And make no mistake about it. While retailers are impressed by the gains made by mass merchants, they said they aren't about to completely mirror discounters' price and profit strategies.

"We're not trying to give candy away, like the mass merchandisers, who use candy as a draw and lowball the price. I don't think we necessarily have to do that in the grocery trade," Peck said.

"When we're on promotion, we don't try to go down as low as the mass merchandisers. Because I don't think a 10-cent spread is a big deal," she said. She did concede that some candy items, such as popular brands, may be more price-sensitive than other brands.

Peck and others supermarket sources also conceded that perhaps supermarkets are a bit guilty when it comes to keeping margins high on seasonal candy. "I can see we try to get a lot more out of seasonal than we do on the shelf stock," Peck said.

Traditionally, holidays have been the time to really hype margins, but some supermarket merchandisers are questioning the logic -- and end results -- of such a tradition.

After all, seasonal candy is considered by many to be the heart of their category business, now and for the future. It's the essence. Other trade classes apparently have been talking louder when it comes to seasonal merchandising. Both mass merchants and drug chains sold more seasonal candy, by dollar volume, than supermarkets in the 52 weeks ended May 22, 1994, according to scanning data collected by Information Resources Inc., Chicago.

Interestingly, however, supermarkets showed dollar sales percentage gains in seasonal candy during each major holiday -- Valentine's Day, Easter, Halloween and Christmas -- while their rivals' performance was mostly either flat or declining.

A CRITICAL MASS

The retailers all agreed that the mass merchandiser, by far, presents the biggest challenge to supermarket candy sales and profits. Some also reported varying degrees of negative impacts on sales due to the candy merchandising at convenience stores and drug chains.

"I think convenience stores have matured to the level that they are no longer impacting supermarkets. And as far as drug stores go, I think people initially thought they were getting good deals; then they backed off and are now going back to supermarkets," said Acme's Downum.

"But it is the mass merchandisers that have taken the candy business away from supermarkets," he said.

"There's definitely a migration to the mass merchandisers and convenience stores," said a retail source at a large Southern chain.

"I see the mass merchandisers taking away a lot of candy sales from grocery stores. And convenience stores are going to more peg items, which might be a threat also," observed Peck. "There has been a slow but steady decline on overall candy sales, due to mass merchandisers," said Brookshire's Peace. "That's because mass merchandisers are very aggressive on their candy pricing," pointed out Boni.

Indeed, supermarkets can learn some moves from mass merchants. Probably the most important one is right there in the trade's moniker: mass.

While it's important to feature more aggressive price points, blindly following mass merchandisers into the footballing arena is probably not the answer, retailers agreed. It's better to swipe a page out of the opponent's playbook, focusing on seasonal push times and massive displays.

"There are opportunities in our stores for mass, lobby displays, especially during the holidays," said the grocery executive at one of the country's largest chains. "We can pile it out for better sales."

To do massive candy displays, however, it stands to reason you need massive amounts of candy. And supermarket retailers admitted to SN that they still tend to shrink back from that level of commitment, because they do not want to be left holding the unsold bag.

Mass merchandisers, on the other hand, don't mind leftovers; and because of that, some supermarkets are beginning to rethink their ordering practices, especially to take better advantage of the major selling seasons.

"We can really do the majority of our candy business then; that's when we need to hype candy," said the chain grocery executive.

"Seasonal is a big deal. It cannot be overemphasized. And it's something we really need to work on," said Acme's Downum. "We have to display it in mass, like Wal-Mart."

"With candy, you think about Valentine's Day, Halloween, Thanksgiving, spring, fall -- there is constantly a good reason to have large displays promoting candy," said A&P's Vitulli.

And with a tiny stretch of the imagination, just about every day is part of, or close to, some holiday or event. "It's almost year-round," said Sue Hosey, vice president of consumer affairs at P&C Food Markets, Syracuse, N.Y. "If you take Halloween, Christmas, Valentine's Day, even back-to-school, there's almost always a reason for mass and secondary displays of candy in the stores," she said.

"So the strategy now is to keep it out there."

It's not uncommon for other retail trades to "rush the season," and grocery stores should do the same with candy displays, advised Boni of Pay Less. "Get it out there early," he said. "And put it in mass."

But to do this properly, supermarkets have got to get over that sell-through mentality, retailers advised. Merchandisers said this represents a fundamental difference in retail thinking between supermarkets and the discounters who reason that the more you have to sell, the more you can sell.

"Mass merchandisers order 110% of what they need; supermarkets order 85%," said Harp's Jost.

"We as an industry have got to come up with better ways to sell candy," said the source at the large Southern chain. "I go into stores and say, 'Is this all the candy we have?' We have to stop being worried about how much we're going to be left with and start worrying about how much we can sell. Ten to 12 cases of candy isn't going to do it," he said.

Some supermarket officials, however, insist that massive displays aren't the whole game. Hosey of P&C said that while mass merchandisers buy a lot of product and display it in mass, they're not always going to have the same products, and that's a weakness supermarkets can exploit.

"Constant variety of products and sizes available at supermarkets distinguishes them from the other trade outlets," she said. "Therefore, if a consumer is looking for something specific, they know they can get it at a supermarket."

"Over the years, people have always come to expect candy in supermarkets," agreed Vitulli.

Hosey added that her chain's candy sales are up, "so people must be buying candy in both supermarkets and mass merchandisers."

FEEDING THE IMPULSE

Where they are buying, consumers often grab candy on impulse. Catering to that kind of consumption is another tactic some supermarkets are relying on more and more to defend their candy business.

"We've been increasing the display units and shelf allocation, because candy's a strong impulse item," said Vitulli of A&P. "We put out impulse secondary displays not only at the checkout and in the aisle, but around the store," added Vitulli.

At Brookshire Grocery Co., secondary displays come more often in the form of shippers and endcaps, and they are working, said Peace.

Peck at Copps agreed that while gondola shoppers often may have candy on their list, retailers must pull candy out of the aisle and put it around the store to garner sales from other shoppers.

"I don't know if you can make it strictly on-shelf sales, but you can make it on day-by-day impulse by putting it all over, using clip strips, secondary displays, cross-merchandising.

"Grocery must make a presence in other places, with off-shelf displays vs. just being in the aisle," she said.

"There are several ways to trigger that impulse purchase," said P&C's Hosey.

"But you've got to use shippers at the front and in other places in the store," said Hosey.