A FORMULA FOR TROUBLE

LISA SAXTON

Infant formula, so important in drawing the young mother into the store, is also one of the more complex segments in the baby aisle.

Not only do retailers generally sell formula at cost, but the category also falls under the state-administered, federally funded Women, Infants and Children program.

Through the WIC program, lower-income families receive vouchers for formula and other food products for children. The program is designed to ensure that the nutritional needs of children in these families are met.

"The WIC program has been turned over to the states, and each state has a different philosophy," said Rick Hagan, direct-store-delivery manager for Norfolk, Va.-based Camellia Food Stores.

For retailers operating in more than one state, this can create a challenge.

"In New York we deal with 15 different agencies on WIC. And in New Jersey we just deal with the WIC headquarters in Trenton," explained Bill Vitulli, vice president of government and consumer relations at A&P, Montvale, N.J.

"Our major problem is if we open a new store in an area with a WIC potential, but [the state] has sufficient coverage in that competitive area, they will not approve WIC [for us]."

Steve Trageser, assistant director in Maryland's WIC office, Baltimore, said his state also restricts retailers.

"We do not put two stores on [the program] that are directly across the street from each other. If you had four stores sitting around a crossroads, we would take the lowest-price store at that intersection. The other three would be put on a wait list."

This can have a definite effect on the store's bottom line, said retailers contacted by SN.

"If you lose that WIC license, the people with food stamps don't shop with you either. That's a tremendous loss of business," said Camellia's Hagan.

"If you don't want to be involved [with WIC], that's a big chunk of business you'll be throwing away to your competitors," noted Vin Costanzo, senior grocery buyer at Bozzuto's, a wholesaler based in Cheshire, Conn.

"And if a retailer doesn't want to bid or accept the vouchers, he's going to have a serious problem staying in business. It's just like food stamps; you have to accept them."

On the positive side, WIC tends to create loyalty among consumers, retailers said.

"People who are on the program are tried-and-true Kroger shoppers," explained Reuben Shaffer, director of communications at Kroger Co.'s Cincinnati-Dayton division.

"We have a sensitivity to those individuals who need these products. After all, it's for infants. We try to be very sensitive to the needs of customers, not only on the WIC program, but all of our customers," he said.

"The WIC customers are pretty loyal," said Bozzuto's Costanzo. "Once they know you accept their vouchers, they pretty much will come back and not comparative shop."

Generally speaking, the peak shopping period for infant formula is after the first of the month when the vouchers are distributed. Likewise, if a formula is recently approved by WIC, retailers said there will be a jump in sales of that particular product.

"Carnation was the new player in the category about three years ago," said Bozzuto's Costanzo. "They tried to get in [the market] through doctor's offices, hospitals, and with sampling and things like that.

"Then, all of a sudden, one of their items became approved in New Jersey, and it probably does about four or five times more a week than it did prior to its approval," he said.

"We saw a couple of items go down in sales once they fell off WIC," said Randy Williams, a buyer-merchandiser at Fleming Cos.' Miami division.

Nonetheless, retailers still carry other brands beside the WIC-approved products. "Sometimes," said Williams, "a pediatrician will still recommend a formula if it isn't WIC-approved and we want to have it for our retailers."

Monitoring which products are WIC-approved in different states can make formula warehousing tricky for both retailers and wholesalers.

"When we had our own warehouse, it was a nightmare," said Camellia's Hagan. To add insult to injury, he noted, the formula was selling at cost.

Hagan said Maryland's retailers must bid to be licensed by WIC, with the lowest-priced retailers getting the deal. "Whereas, in the rest of the states [we operate in], it's open to everybody who applies."

Indeed, there are a few headaches that come with working with the government, but, for the most part, retailers said they have a handle on how to work their WIC programs.

At A&P, "in both New York and New Jersey, the stores that are licensed for WIC have shelf tags that say: 'WIC approved,' " explained Vitulli. "We plan on expanding that. But right now we're doing it in Food Emporiums and A&Ps in the [New York] metro area.

"Our stores are pretty well educated on how to handle it and how the program is outlined and how it operates," said Kroger's Shaffer. "We have not encountered any major problems. We receive notification of any changes [in product] and then we, in turn, communicate that down to our store managers, who pass it on to our staff."

Shaffer said as long as the government continues to keep retailers notified of any changes in the state's programs, he doesn't foresee any problems. "That's because the formula is handled out of a central distribution point and the stores order what they need," he said.

For Elizabeth Fields, buyer at Piggly Wiggly Carolina Co., Charleston Heights, S.C., operating in South Carolina and Georgia hasn't presented any difficulties because both states have Enfamil and Prosobee on their WIC programs.

John Paton, buyer at Autry Greer & Son, Prichard, Ala., agreed that, although her company operates in a handful of Southern states, as long as she knows which products are WIC-approved, she can warehouse and stock accordingly.

"Most of our formula sales are in the WIC program," said Steve Reynolds, director of purchasing at Lem Markets, South Boston, Va. "We operate in Virginia and North Carolina, and the [WIC-approved formulas] are different in both states. But as long as our warehouse carries the products, we don't have a problem."

Thus, for wholesalers such as Fleming, it's important to know what each retailer needs.

"[Formula manufacturers] that switch over to WIC let us know which items to avoid out-of-stocks on," said Fleming's Williams.

"We know several weeks in advance what is coming," he added. "We don't want a situation where we have calls from customers requesting a particular WIC item. That's kind of our policy. We try to keep all WIC-approved items in stock," he said.

"From a wholesaler standpoint, you have to be aware of what's approved. We make sure we keep up with every state's acceptability. And we also make sure we carry the leaders in the category, whether it's a WIC item or not," said Bozzuto's Costanzo. "But every so often something gets approved for WIC in one of our trading areas, like New York, New Jersey and Connecticut, that wasn't before. If we do carry it, then we look for an immediate increase in sales. And if it's an item that we don't carry, then we go after it."

When buying formula, Costanzo said he looks "at the normal average movement and what I generally keep on hand for buffer stock.

"I know when I get near the end of the month and I've got an order going, I'll bring in a full pallet, because in another couple of weeks, that's going to sell. So rather than scramble, and screw up some stores, I prepare for it. WIC does play into my buying decision."