THE TOP TEN LIST

MICHAEL SLEZAK

While the foundation of any supermarket health and beauty care department is its top 10 health and beauty care categories, a fear of developing cracks in the cornerstone has become a key concern for food retailers.

Those top 10 categories alone accounted for 48.3% of HBC dollar volume in food stores for the 12 months ended in March 1994, according to Towne-Oller & Associates, New York, a subsidiary of Information Resources Inc., Chicago. But important as they are, only one of those categories, vitamins and tonics, experienced double-digit dollar volume growth during that period.

While some of this trend in sales slippage at food

stores can be attributed to a lack of new product innovation within the other nine mature categories, the ever-increasing competition from mass merchants and drug stores cannot be dismissed as part of the problem.

To coincide with the National Association of Chain Drug Stores Marketplace Show in New Orleans June 19 to 22, SN interviewed retailers about the future of the top 10 HBC categories at food stores and what plans they had for keeping those category sales rock-solid. All category sales figures are from Towne-Oller & Associates for the 12 months ended March 31, 1994.

A few key ideas emerged:

Focusing on variety and selection to help portray the supermarket as a true one-stop-shopping destination where an excellent HBC selection is part of the mix.

Using private label as a way to boost profit and sales in a number of HBC categories, including analgesics, vitamins and cold remedies.

Thinking forwardly in terms of space and promotions for major new HBC product launches and working closely with manufacturers to maximize sales on those new introductions.

Being not only the first to stock new products that have been switched from prescription to over-the-counter status, but also the best, by promoting and providing information to consumers quickly and distinctively.

Cutting margins on frequently used products targeted by mass merchants, but staying alert to the package sizes and formulations other classes of trade do not target, and making up profit on those.

A chronic problem for supermarkets is the struggle to combat deep discount prices offered by mass merchants. The remedy to this dilemma, however, does not necessarily spell the death of HBC profitability in food stores. As Rhea Palmer, director of HBC merchandising at McKesson Drug Co. in San Francisco, said, "Every retailer has their attraction for the consumer. For drug stores it's primarily selection. For supermarkets it is convenience. With mass merchants it's price. As long as stores stay in the ballpark [of mass merchants' prices] and don't price ridiculously high, they'll do OK. And they can do the volume."

Yet each of the top 10 HBC categories has its own unique structure. Here's what retailers said about cementing success in those categories:

1. Analgesics

The analgesics category easily ranks No. 1 in HBC at food stores, with $1.32 billion in sales, or 9.4% of supermarket HBC dollar volume. While the category has slipped in food stores by 1.2% over the past 12 months, line extensions and manufacturer support have managed to spur activity in analgesics according to an HBC director from a large Northeastern chain, who asked not to be identified.

"Expansions of different lines [for specific symptoms] has helped grow the category," he said. "And as the total switch from prescription-only to OTC occurs in the next three to four years, we'll be talking [sales] in the billions. [OTC switches] will be the growth industry in health and beauty care."

Acting fast on OTC switches is a must, said the HBC director. "That's the most profitable time to be with a category, on a new item, during the first 90 days of introduction."

He added that private label is "big and growing" in the analgesics category. According to Towne-Oller, private-label analgesic sales are up 21% and now account for 14.1% of all food store analgesic sales.

Selection, too, is vital to supermarket success in the category. "I've got to carry all of [the analgesics SKUs]," stressed the executive.

Annual Vol. in Millions $1317

HBC % Share 9.43%

% Change -1.16

Private Label Sales in MIllions $185

% Change 21

2. Dentifrices

Baking soda toothpastes continue to grow strongly in the dentifrice category and have been joined by the latest craze, peroxide toothpastes. These new additions to the dentifrice category have not only boosted interest in the category, but have also increased profitability, said Fulton Royal, HBC category manager at Jitney Jungle Stores of America, Jackson, Miss.

"The mass merchants lowball [dentifrices] and it makes it tough to compete in the category at times," he added. "Dentifrices are right now more image than profit. But we can make a little bit better margins on the baking sodas and the peroxides. It's a good thing for us they're selling well."

According to Towne-Oller, sales of dentifrices were up 2.1% over the last 12 months to $856.4 million, accounting for 6.1% of food stores' HBC sales. Private label, however, is not as strong a factor, holding flat and accounting for 1.3% of dentifrice sales in food stores during the same period.

Annual Vol. in Millions $856

HBC % Share 6.13%

% Change 2.13

Private Label Sales in MIllions $12

% Change 0

3. Cold/allergy

As the second-fastest growth category in the top 10 -- up nearly 8% in dollar volume over the last 12 months -- cold-allergy remedies have the capability to surpass dentifrices as the No. 2 HBC category at food stores, if current trends continue, said one HBC buyer from a large Midwestern chain, who wished to remain anonymous.

Cold remedies accounted for $832.4 million in food store sales (or 5.96% of all food store HBC sales) over the 12-month period.

With increased consumer awareness of OTC switches and the trend of increased consumer self-medication, "there's no reason why the category should stop growing," said the buyer.

Private-label remedies are helping build the category's unit sales and profitability, she added.

"Private-label items are relatively inexpensive to manufacture, so it is an excellent opportunity, absolutely. We've added several new products in private label," said the buyer.

In addition, added the buyer, both private-label and name-brand cold remedies currently seem to be a safe haven for HBC profit as mass merchants' pricing attacks in the category have been limited to "just a couple different products."

"It's not a product consumers buy on a frequent basis. So it wouldn't be the target of a lowballing price situation," explained the buyer.

Annual Vol. in Millions $832

HBC % Share 5.96%

% Change 7.99

Private Label Sales in MIllions $99

% Change 20

4. Deodorants

"The growth is coming from most of the major manufacturers adding clear to their lines," explained Rhea Palmer, director of HBC merchandising at McKesson in San Francisco.

Unfortunately for retailers, "they're normally parity priced with the rest of the line," she said. "There aren't a lot of specialty items in deodorant. Therefore, there's not a lot of room to make extra profit."

The deodorant category was flat over the 12 months, holding at $763.8 million, or 5.5% of all food store HBC sales. The key to the massive category, Palmer said, is selection. "It's definitely a category you need to have the selection in, because the fragrances are so important to consumers. You can't have a 1- or 2-foot section and do the business."

Palmer said the best way to make a profit in this tight-margin category is to buy heavily when a new product is introduced and the "deals are pretty deep."

"Then you can really tie in with the advertising and feature the brand on an endcap. You sell what you sell during your promotion and then what's left over you can sell at full price and make a nice profit," she said.

To date, private-label deodorants have been weak, dropping 5% over the 12 months and accounting for less than 1% of food store deodorant sales.

Annual Vol. in Millions $764

HBC % Share 5.47%

% Change 0.01

Private Label Sales in MIllions $7

% Change -5

5. Shampoos

"The population is aging and manufacturers are really targeting baby boomers," said Palmer of McKesson. "Anything with shine or moisturizing or volumizing will sell."

The emergence of professional salon brands at food stores, additionally, has made shampoo a more profitable category "because there is a better margin on those brands. And that helps offset some of the more price-sensitive brands that you can't make a nice profit on," said Palmer. "The popularity of the salon brands is really healthy for the category."

"Midpriced brands are suffering," she added.

Overall, shampoo dollar volume dipped 3.3% for the 12-month period, down to $721.4 million, or 5.2% of food store HBC sales.

Palmer said private label is not a major factor in shampoo, and selection and convenience are more vital to the category's success than matching mass merchants' prices. Towne-Oller reported private-label shampoos accounted for only 2.5% of all food store shampoo sales, a figure up 3% from the previous year.

"I think that a supermarket can compete with the mass merchants in the category," she explained. "If you're in the ballpark, there's no problem. It gets ugly when you try to compete on price with mass merchants."

Annual Vol. in Millions $721

HBC % Share 5.17%

% Change -3.32

Private Label Sales in MIllions $18

% Change 3

6. SANITARY NAPKINS

Sanitary napkin sales slid 1.7% to $529.7 million over the 12 months ending March, 1994, but still account for 3.8% of supermarket HBC sales.

"The category is trending flat," said Dan Dailey, HBC buyer for Carr Gottstein Foods, Anchorage, Alaska. He said despite new launches and proliferations in sanitary napkins over the past year, the category was revolutionized so much in the preceding few years that, "how many more new and innovative things can [manufacturers] do?"

Dailey said he expects the category to remain flat this year, perhaps until a completely new product idea enters the category.

Private label, however, is a growing factor in the category, he said. Private label sanitary napkin sales rose 25% over the past 12 months and now account for 10.7% of food store sanitary napkin sales.

"Private label sanitary napkins are selling well and they improve profitability," said Dailey.

Annual Vol. in Millions $530

HBC % Share 3.79%

% Change -1.66

Private Label Sales in MIllions $56

% Change 25

7. Vitamins/Tonics

The vitamins and tonics category is the fastest growing in the top 10 HBC. With $480.3 million in sales, the category surged 15.4% for the 12-month period and now accounts for 3.4% of supermarket HBC.

"There's been so much positive publicity in the national media during the last couple years regarding the worth of vitamins that I think the trend will continue," said Nick Borze, director of nonfood merchandising at Abco Markets, Phoenix.

Private label is an excellent opportunity in vitamins and tonics as well, now accounting for 32.3% of the vitamin category, and up 20% from the previous year. As Borze put it, "Private-label sales have always been very good in the category."

Not only are sales booming for vitamins and tonics, said Borze, but"they're very profitable. It's the kind of category that all the classes of trade seem to be making a good gross profit on."

To capitalize on consumers' recent zest for the products, "you have to offer pretty deep discounts and offer your customers a chance to really stock up at key sale times. Then you can get people into the habit of buying vitamins at your store, recognizing you have every bit as good an assortment as any drug store would, and that your prices are certainly competitive with drug," explained Borze.

Annual Vol. in Millions $480

HBC % Share 3.44%

% Change 15.37

Private Label Sales in MIllions $155

% Change 20

8. Razor Rack

"Manufacturers promoting the lines [have kept razors strong] because we haven't had too many major introductions come out. But Gillette will have the Sensor Excell coming out this fall, which will be a major, major introduction," said Royal of Jitney Jungle.

Indeed, while only a few new products stirred up the razor rack category, dollar volume rose 5% for the 12 months to $479 million, or 3.4% of supermarket HBC.

"We do pretty well with the gross margins in that category," explained Royal. "Although mass merchants try to lowball some of it, especially in the Sensors and some of the disposables in 10-counts and up."

Private label is not the mood in the razor category, said Royal. "People might be still scared about using a blade that might not be the very top quality, that's not a name brand."

According to Towne-Oller, private label accounted for 5.8% of the razor rack category for the 12 months, up 9% from the previous year.

Annual Vol. in Millions $479

HBC % Share 3.43%

% Change 5.03

Private Label Sales in MIllions $28

% Change 9

9. Antacids

Antacid sales rose 1.2% during the 12-month period to $401.8 million, but it has not been a category booming with activity, according to Abco's Borze.

"They're pushing antacids with calcium to some extent, and maybe with the aging population, that part of the category might have some potential growth. But I don't see any revelations in the category that necessarily would prompt a jump in sales. I'd expect antacids, however, to maintain a slow, steady growth," said Borze. "Still, it is an excellent category."

Excellent enough that antacids accounted for 2.9% of all supermarket HBC sales for the 12 months. "Line extensions, developments of new formulas and new types of antacids, like liquid to tablet and so on," have spurred growth, too, said Borze, but he added, "You have to make the larger sizes available.

"It tends to be a little more price-sensitive than some categories, but anytime you're ringing that kind of dollar ring to the checkstand, you're still making a good penny profit on those items, even if the margin is a little lower," he added.

Private-label sales in antacids soared 25% during the 12 months and now account for 6.3% of the category.

Annual Vol. in Millions $402

HBC % Share 2.88%

% Change 1.18

Private Label Sales in MIllions $25

% Change 25

10. Tampons

While accounting for 2.6% of supermarket HBC, menstrual tampon dollar volume rose a mere 1.3% to $366.3 million in food stores over the last year.

"Certain sizes of the two top brands, Tampax and Playtex, are being targeted as everyday-low-price, or lowballing-type, items. The sales are trending flat because the dollar ring is going down," explained the buyer from the large Midwestern chain.

Mass merchants in particular are trying to draw tampon users to their stores, the buyer said.

"There haven't been any new, fabulous introductions, either," said the buyer.

But, she added, "profitability depends on the size of product. If you're talking about the 32-count Tampax or the 22-count Playtex tampons, they're not profitable. So you have to be aware of what the mass merchants are targeting."

Private label, up 102% in the category, accounts for a meager 1.7% of food store tampon sales.

Annual Vol. in Millions $366

HBC % Share 2.62%

% Change 1.29

Private Label Sales in MIllions $6

% Change 102

Topping Drug Stores in Top 10 Sales

The top 10 health and beauty care categories at food stores generated $6.75 billion in sales over the 12 months ended March 1994. Those same categories accounted for $4.71 billion in sales at drug stores. From the total pool of both food and drug sales, food stores held a decided edge, with 59% of sales in the 10 categories compared with drug stores' 41% share.

Food Stores Drug Stores

Analgesics $1317 $1043

Dentifrices $856 $333

Cold/Allergy $832 $796

Deodorants $764 $374

Shampoos $721 $376

Sanitary Napkins $530 $253

Vitamins & Tonics $480 $692

Razor Rack $479 $270

Antacids $402 $371

Menstrual Tampons $366 $197