NONFOOD GETS THE SQUEEZE

Supermarkets may be forced to re-evaluate their nonfood categories as sales erosion continues from food retailers and other traditional channels to the alternative players. The large dollar volume categories declined except for cold/allergy/sinus tablets, which was flat due primarily to the scrutiny given cold medications that contain ingredients used to make the illegal drug methamphetamine. On the plus side, categories gaining the most increased because of new entries, or because new innovations in design or flavors helped boost nasal and mouthwash categories. The growing number of elderly consumers is boosting demand for adult incontinence products. Among the losing categories, technology changes have adversely impacted photo supplies and to some degree light bulb sales at supermarkets. Channel shift and lack of consumer demand has impacted some to the other losing categories sold at supermarkets. IRI figures indicate that supermarkets lost 3.13% in total nonfood sales, falling from $18.4 billion for the calendar year 2002 to $17.8 billion for the year ending May 15, 2005. Drug stores' nonfood sales rose 2.4% to $21.3 billion for the same period.

ease, stroke and other health problems could provide a needed category boost.

(Calendar Year) 2002 Dollar Sales; % Change; 2003 Dollar Sales; % Change; 2004 Dollar Sales; % change

Supermarkets: $1.016 B; -3.7; $997.2 M; -1.9; $930.4 M; -6.7

Drug: $1.011 B; 3.4; $1.043 B; 3.2; $994.5 M; -4.7

F/D/MX: $2.265 B; -1.1; $2.261 B; -0.2; $2.135 B; -5.6

52 weeks ending May 15, 2005

Dollar Sales; % Change From Last Year

Supermarkets: $931.0 M; -4.1

Drug: $1.0 B; -0.5

F/D/MX: $2.1 B; -2.0

Subcategories

Internal Analgesic Tablets: $825.6 M; -4.1%

Internal Analgesic Liquids: $83.7 M; -5.5%

Feminine Pain Relievers: $21.6 M; 0.8%

VITAMINS

Vitamins fell in all three channels, following a familiar roller coaster pattern in a category subject to hot trends and medical research studies. All subsegments fell as well, with one- and two-letter vitamins experiencing the biggest decline, 11.4%. Recently released studies involving beta carotene, folate and vitamins D and E have raised questions about their effectiveness in fighting specific diseases.

52 weeks ending May 15, 2005; Dollar Sales; % Change From Last Year

Supermarkets: $747.7 M; -4.3

Drug: $1.3 B; -1.3

F/D/MX: $2.3 B; -2.2

Subcategories; Supermarket Sales 52 weeks ending May 15, 2005

Mineral Supplements: $335.6 M; -3.6%

Multi-Vitamins: $261.3 M; -1.3%

1 & 2 Letter Vitamins: $123.2 M; -11.4%

Liquid Vitamins/Minerals: $27.4 M; -5.4%

(Calendar Year) 2002 Dollar Sales; % Change; 2003 Dollar Sales; % Change; 2004 Dollar Sales; % change

Supermarkets: $761.2 M; -3.3; $783.5 M; 2.9; $757.4 M; -3.3

Drug: $1.297 B; 3.1; $1.353 B; 4.3; $1.333 B; -1.5

F/D/MX: $2.301 B; -0.2; $2.376 B; 3.2; $2.326 B; -2.1

TOOTHPASTE

Toothpaste sales declined in all three trade channels despite the proliferation of new formulas and flavors. Whitening products, which were so popular over the last several years, plunged into the double digits. Wal-Mart may be capturing sales from other retailers. The mass channel tracked by IRI does not include Wal-Mart figures. There may also be too many choices in the market. The trend in this commodity category is to develop products with maximum and specific effects with the least effort.

Subcategories: 52 weeks ending May 15, 2005

Toothpaste: $665.6 M; -2.0%

Tooth Bleaching/Whitening/PWDR/PL: $72.5 M; -24.0%

52 weeks ending May 15, 2005

Dollar Sales; %Change from Last Year

Supermarkets: $738.1 M; -4.7

Drug: $386.4 M; -11.4

F/D/MX: $1.4 B; -6.5

(Calendar Year) 2002 Dollar Sales; % Change; 2003 Dollar Sales; % Change; 2004 Dollar Sales; % change

Supermarkets: $789.7 M; 0.2; $780.9 M; -1.1; $751.9 M; -3.7

Drug: $422.0 M; 21.5; $432.3 M; 2.4; $418.2 M; -3.3

F/D/MX: $1.495 B; 7.8; $1.499 B; 0.2; $1.458 B; -2.7

SANITARY NAPKINS/TAMPONS

Sales of feminine hygiene products have been declining at supermarkets over the last three years. Drug stores are faring better than supermarkets in terms of sales performance. Category sales are being impacted by an aging population, as more women of the baby boom generation move into menopause. There is a need for retailers and manufacturers to target a new generation of product users.

(Calendar Year) 2002 Dollar Sales; % Change; 2003 Dollar Sales; % Change; 2004 Dollar Sales; % change

Supermarkets: $761.8M; -4.4; $731.0M; -4.0; $686.6M; -6.1

Drug: $430.6M; 2.0; $437.1M; 1.5; $451.7M; 3.3

F/D/MX: $1.457 B; -2.2; $1.423 B; -2.4; $1.311 B; -2.3

52 weeks ending May 15, 2005

Dollar Sales; %Change From Last Year

Supermarkets: $680. M; -5.0

Drug: $458.1 M; 3.8

F/D/MX: $1.4 B; -1.0

Subcategories

Supermarket Sales 52 weeks ending May 15, 2005

Sanitary Napkins/Liners: $402.7 M; -6.0%

Tampons: $277.1 M; -3.4%

COLD/ALLERGY/SINUS TBLS

Growth in the cold/allergy/sinus category has slowed since a big sales spike in 2003, when Schering-Plough's allergy medication Claritin went over the counter, and other manufacturers quickly followed with formulations containing the ingredient loratadine. The category is also subject to the severity of the flu and allergy seasons. A big concern for those who market the category is the growth of methamphetamine abuse, given the role over-the-counter cold medicines play in the production of the illicit drug. Safeway, Kroger Co., Albertsons, Wal-Mart Stores, Target and other chains are voluntarily restricting the sale of certain pseudoephedrine products used in making methamphetamine. Earlier this year, a revised Combat Meth Act of 2005 was reintroduced in the Senate. The bill would set a national standard on PSE product sales, instead of the current hodgepodge of state bills and laws.

52 weeks ending May 15, 2005

Dollar Sales; % Change From Last Year

Supermarkets: $675.0 M; 0.4

Drug: $1.0B; 10.8

F/D/MX: $1.9 B; 6.2

(Calendar Year) 2002 Dollar Sales; % Change; 2003 Dollar Sales; % Change; 2004 Dollar Sales; % change

Supermarkets: $543.2 M; -4.8; $681.0 M; 25.4; $635.9 M; -6.6

Drug: $613.0 M; 1.3; $898.5 M; 46.6; $914.8 M; 1.8

F/D/MX: $1.268 B; -1.7; $1.733 B; 36.6; $1.700 B; -1.9

TOP SALES GAINERS

GASTROINTESTINAL TABLETS

Antacid tablets account for the largest sales gain in the gastrointestinal category. Industry observers predict further growth as baby boomers age and increasingly seek out stomach remedies. Likewise, improved brand marketing and a rise in prescription co-pays are encouraging consumers to opt for over-the-counter products rather than getting prescriptions filled.

(Calendar Year) 2002 Dollar Sales; % Change; 2003 Dollar Sales; % Change; 2004 Dollar Sales; % change

Supermarkets: $528.6 M; -2.0; $538.1 M; 1.8; $572.9 M; 6.5

Drug: $668.9 M; 5.0; $712.2 M; 6.5; $784.3 M; 10.1

F/D/MX: $1.329 B; 1.2; $1.377 B; 3.6; $1.495 B; 8.6

52 weeks ending May 15, 2005

Dollar Sales; % Change From Last Year

Supermarkets: $576.1 M; 3.9

Drug: $797.1 M; 6.8

F/D/MX: $1.5 B; 5.8

Subcategories

Supermarket Sales 52 weeks ending May 15, 2005

Antacid Tablets: $364.9 M; 6.4%

Antacids/Analgesics: $22.7 M; -4.5%

Diarrhea Tables: $55.3 M; -5.1%

Laxative Tablets: $122.0 M; 3.3%

Stomach Remedy Tablets: $11.2 M; -2.6%

MOUTHWASH

After two years of declining sales in 2002 and 2003, the mouthwash category started to pick up in 2004 and then again in 2005. Along with plenty of other health and beauty care categories, the baby boom generation can be thanked for the reversal. Baby boomers are among the most dental-focused consumers because they have seen their parents get dentures and want to postpone the same from happening to them for as long as possible. Also spurring sales are new product flavors, such as citrus and cinnamon, and added-value formulations, like anti-cavity fluoride.

52 weeks ending May 15, 2005

Dollar Sales; %Change From Last Year

Supermarkets: $275.7 M; 2.4

Drug: $183.9 M; 11.3

F/D/MX: $549.4 M; 6.7

(Calendar Year) 2002 Dollar Sales; % Change; 2003 Dollar Sales; % Change; 2004 Dollar Sales; % change

Supermarkets: $275.9 M; -0.8; $268.5 M; -2.7; $272.0 M; 1.3

Drug: $160.1 M; 7.0; $163.3 M; 2.0; $173.7 M; 6.4

F/D/MX: $519.7 M; 1.5; $511.4 M; -1.6; $529.6 M; 3.5

MISC. HEALTH REMEDIES

While large health and beauty care categories account for the bulk of sales activity, smaller segments are also showing action. The biggest gain in the miscellaneous health remedies sector came in bed-wetting remedies, with dollar sales soaring 55%. Wart removers also posted a double-digit sales increase, climbing 27%. It wasn't all positive news, however, as motion-sickness products dropped 7.6% and lice treatments slipped 5.1%, among other declining categories.

(Calendar Year) 2002 Dollar Sales; % Change; 2003 Dollar Sales; % Change; 2004 Dollar Sales; % change

Supermarkets: $217.4 M; 1.3; $216.9 M; -0.2; $215.2 M; -0.8

Drug: $423.2 M; 4.7; $437.6 M; 3.4; $449.6 M; 2.8

F/D/MX: $722.9 M; 3.1; $732.6 M; 1.3; $746.6 M; 1.9

52 weeks ending May 15, 2005

Dollar Sales; % Change From Last Year

Supermarkets: $223.3 M; 3.8

Drug: $470.8 M; 7.5

F/D/MX: $779.8 M; 6.9

Subcategories

Supermarket Sales 52 weeks ending May 15, 2005

Bedwetting Remedies: $75,182; 55.0%

Chest Rubs: $25.2 M; 4.1%

Diuretic Liquids/Powders: $179; -50.0%

Ear Care Products: $4.3 M; 8.2%

Ear Drops/Treatments: $9.7 M; 8.4%

Epsom Salts: $10.4 M; -2.5%

Hemorrhoidal Creams/Ointments/Sprays: $21.8 M; 0.1%

Hemorrhoidal Remedies: $21.0 M; -3.1%

Lice Treatments: $13.0 M; -5.1%

Lip Balm/Cold Sore Med.: $93.1 M; 3.8%

Motion Sickness: $3.7 M; -7.6%

Wart Removers: $20.8 M; 27.3%

ADULT INCONTINENCE

Adult incontinence has been a strong performer for years, and, due to the aging of Americans, is likely to continue to be. Manufacturers are helping, too, through new advertising, retailer promotions and updated displays. Packages for Kimberly-Clark's Depend brand, for instance, now feature simplified graphics and images of active baby boomers.

52 weeks ending May 15, 2005

Dollar Sales; %Change From Last Year

Supermarkets: $189.3 M; 6.5

Drug: $289.3 M; 2.8

F/D/MX: $539.4 M; 4.5

(Calendar Year) 2002 Dollar Sales; % Change; 2003 Dollar Sales; % Change; 2004 Dollar Sales; % change

Supermarkets: $163.9 M; 5.9; $173.5 M; 5.9; $184.0 M; 6.1

Drug: $280.3 M; 7.5; $279.9 M; -0.2; $286.1 M; 2.2

F/D/MX: $503.2 M; 6.1; $511.5 M; 1.7; $529.4 M; 3.5

NASAL PRODUCTS

The nasal category witnessed a big turnaround in 2005. While sales were down in 2004, they posted a 5.8% gain in supermarkets in 2005. A rise in nasal strips and sprays purchases can be thanked for the change. Consumers seeking relief from snoring, sinusitis and nasal congestion are getting help from both categories. The biggest player is the Breathe Right brand, with a family of nasal-related products.

52 weeks ending May 15, 2005

Dollar Sales; %Change From Last Year

Supermarkets: $138.8 M; 5.8

Drug: $250.4 M; 8.9

F/D/MX: $421.5 M; 8.5

(Calendar Year) 2002 Dollar Sales; % Change; 2003 Dollar Sales; % Change; 2004 Dollar Sales; % change

Supermarkets: $127.0 M; -8.5; $131.1 M; 3.2; $130.0 M; -0.8

Drug: $210.2 M; -2.1; $227.0 M; 8.0; $232.2 M; 2.3

F/D/MX: $363.6 M; -5.2; $385.5 M; 6.0; $390.8 M; 1.4

Subcategories

Supermarket Sales 52 weeks ending May 15, 2005

Nasal Aspirators: $1.0 M; -8.3%

Nasal Spray/Drops/Inhalers: $118.6 M; 4.5%

Nasal Strips: $19.1 M; 14.9%

TOP SALES DECLINERS

LIGHTBULBS

Lightbulb dollar sales fell over the past year while manufacturers offered more diverse lighting options in response to a heightened consumer interest in home decorating and new-home construction. Home centers and hardware stores have obtained a growing portion of the market share as customers are beginning to prefer the longer-lasting, energy-efficient and more innovative halogen and compact florescent lights over basic soft white bulbs.

52 weeks ending May 15, 2005

Supermarkets: $361.8 M; -6.3

Drug: $91.0 M; -6.6

F/D/MX: $589.6 M; -6.0

(Calendar Year) 2002 Dollar Sales; % Change; 2003 Dollar Sales; % Change; 2004 Dollar Sales; % change

Supermarkets: $413.5 M; -3.0; $398.7 M; -3.6; $365.1 M; -8.4

Drug: $97.9 M; -0.2; $97.6 M; -0.3; $92.1 M; -5.7

F/D/MX: $681.7 M; -3.3; $650.0 M; -4.7; $594.4 M; -8.5

PHOTOGRAPHY SUPPLIES

Lows in film sales coupled with highs in digital camera, printer and accessory sales reflect the overall drop in photography supplies' dollar sales. Disposable camera sales have not dropped as much as conventional film sales, proving that convenience is still a key driver for consumers. As Kodak and Fuji race to make the most out of the transition into digital, many retailers are still deciding whether to diversify.

52 weeks ending May 15, 2005

Dollar Sales; %Change From Last Year

Supermarkets: $320.2 M; -19.2

Drug: $580.4 M; -14.8

F/D/MX: $1.1 B; -18.2

(Calendar Year) 2002 Dollar Sales; % Change; 2003 Dollar Sales; % Change; 2004 Dollar Sales; % change

Supermarkets: $472.9 M; -9.8; $418.1 M; -11.6; $344.2 M; -17.7

Drug: $777.5 M; -4.5; $709.7 M; -8.7; $616.5 M; -13.1

F/D/MX: $1.592 B; -8.6; $1.405 B; -11.8; $1.164 B; -17.2

Subcategories

Supermarket Sales 52 weeks ending May 15, 2005

Conventional Film: $116.3 M; -30.7%

Disposable Cameras: $192.3 M; -9.3%

Instant Film: $11.6 M; -29.0%

CANDLES

Although the candle market enjoyed category growth from 1995 to 2000 due to growing consumer interest in aromatherapy and home fragrance, retailers are now facing the maturation of the market, and the dollar value of sales has been declining. Low-priced, private-label candles, inexpensive candle imports and the development of many new fragrance delivery products have cut into candle sales. Sales for food, drug and mass combined were not available from IRI.

52 weeks ending May 15, 2005

Dollar Sales; %Change From Last Year

Supermarkets: $301.2 M; -5.0

Drug: $150.4 M; -5.8

F/D/MX: N/A

(Calendar Year) 2002 Dollar Sales; % Change; 2003 Dollar Sales; % Change; 2004 Dollar Sales; % change

Supermarkets: $326.1 M; -7.2; $323.1 M; -0.9; $306.2 M; -5.2

Drugs: $147.8 M; -1.3; $156.7 M; -6.1; $149.9 M-4.4

SUNTAN PRODUCTS

Suntan products were up in the calendar year ending 2004 but were down again during the 52 weeks that ended May 15, 2005. In line with the trend toward products that do more than block UV rays, combination sunscreen and insect repellent dollar sales fell by only 0.1% to $1.1 million, while the suntan lotion and oil subcategory dropped 7.2% to $122.7 million. Weather that keeps people indoors as well as a movement to make last-minute vacation plans could contribute to lower sales.

(Calendar Year) 2002 Dollar Sales; % Change; 2003 Dollar Sales; % Change; 2004 Dollar Sales; % change

Supermarkets: $129.6 M; -4.1; $128.4 M; -1.0; $129.1 M; 0.6

Drug: $205.2 M; 5.3; $197.7 M; -3.7; $204.2 M; 3.3

F/D/MX: $428.0 M; 1.7; $408.7 M; -4.5; $418.2 M; 2.3

52 weeks ending May 15, 2005

Dollar Sales; %Change From Last Year

Supermarkets: $123.8 M; -7.2

Drug: $200.4 M; -1.8

F/D/MX: $408.5 M; -3.2

PANTYHOSE/NYLONS

Traditionally a consumer demand-driven market, pantyhose and nylon sales have fallen again as no trend has provided the push needed to increase sales. Casual wear remains the norm for office attire and formal wear, leading hosiery merchandisers to concentrate on marketing lingerie, which has more potential to attract retail dollars. Although the tights and socks category had been rising in the face of nylons' fall, both categories fell this year.

52 weeks ending May 15, 2005

Dollar Sales; %Change From Last Year

Supermarkets: $121.6 M; -13.8

Drug: $136.0 M; -3.4

F/D/MX: $329.7 M; -9.6

(Calendar Year) 2002 Dollar Sales; % Change; 2003 Dollar Sales; % Change; 2004 Dollar Sales; % change

Supermarkets: $178.1 M; -14.5; $150.4 M; -15.5; $128.3 M; -14.7

Drug: $171.9 M; -7.1; $147.4 M; -14.3; $136.5 M; -7.4

F/D/MX: $469.1 M; -12.7; $390.1 M; -16.8; $340.4 M; -12.7