HBC WAR ZONE: CLEVELAND

Dan Alaimo

CLEVELAND -- Two supermarket chains are fighting a knockdown, drag-out fight for health and beauty care market share in this metropolitan area with competitors that include the usual national chains, but also two highly aggressive regional drug chains that place a heavy emphasis on food.

The battle underscores the intense, multi-layered competition that supermarkets face around the country as they attempt to recapture or retain this type of business.

Giant Eagle, Pittsburgh, and Tops Markets, Williamsville, N.Y., a division of Ahold USA operated by Giant Food Stores, Carlisle, Pa., have rolled up their sleeves with freshly updated HBC departments. All around them, however, they face challenges from the three major mass merchants: Wal-Mart Stores, Bentonville, Ark.; Target Corp., Minneapolis; and Kmart Corp., Troy, Mich., as well as the three major drug chains CVS Corp., Woonsocket, R.I.; Walgreen Co., Deerfield, Ill.; and Rite Aid Corp., Camp Hill, Pa.

That's the same impressive lineup supermarkets face in most U.S. markets, but in the Cleveland area, competition for HBC share has long been driven by two homegrown chains.

Marc's, Cleveland, one of the last of the deep-discount drug chains and certainly the most successful, has 52 stores total and 30 in the Cleveland market. Marc's has put together a unique mixture of HBC, general merchandise, closeouts and a very sizable food presentation with produce and meat in some units, all built on a no-frills, price-oriented drug store base.

The other local player is Discount Drug Mart, Medina, Ohio, with 60 total stores and 28 in Cleveland. Drug Mart, as it is known, is less aggressive on HBC pricing than Marc's, but is seldom much higher, and unlike Marc's, it offers a private-label program. With a more attractive store base, this chain puts a premium on convenience, offering a wide selection of general merchandise and grocery items, cosmetics, video rentals, and a strong pharmacy program. A new store in Independence, Ohio, includes a "cafe," produce, deli and meat under its skylights and attractive graphics.

"The supermarket retailers are very aware of Marc's and very aware of Drug Mart, but there is only so much that they can do. These two have an entirely different culture, and entirely different business model," said a local sales representative with a food broker.

"Both those guys run very lean and mean. There are not a lot of people in their office buildings," he said.

Marc's does not even use scanners for its point-of-sale system, thus putting them off the radar screen of the big data services, and hence the rest of the industry. The broker representative pointed out that Marc's is the biggest seller of certain products in the Cleveland market and manufacturers tuned in to Information Resources Inc. or ACNielsen wonder where their product is going.

"You've got two regional chains: Marc's being what it is, a deep-discount retailer, then Discount Drug Mart is a hybrid pharmacy with a tremendous [stockkeeping unit] count," said a merchandising executive with knowledge of the Cleveland market. "Those guys do a lot of business for two regional chains and, day to day, it affects the national players and the big supermarket chains. It isn't something that you find in other markets."

Wal-Mart's prices on HBC items in the northeast Ohio area are lower than in its other operating areas, noted Chuck Calalesina, senior business manager, Acosta Sales & Marketing, Twinsburg, Ohio, a division of Jacksonville, Fla.-based Acosta. "That's because of the very competitive nature of health and beauty aids in this marketplace and the way Marc's and Discount Drug Mart have established a foothold. So Wal-Mart has had to come in aggressively," he said.

Both Tops and Giant Eagle are addressing the HBC competition with prices that tend to fall between the discounters and the national drug chains, and new department designs that define HBC as a store-within-a-store alternative to the drug stores.

While HBC items are part of the Giant Eagle "Lower Price" initiative launched this month, Tops recently rolled out the upgraded HBC private-label line, CareOne, offered by other Ahold chains.

In its newest store in Brook Park, Ohio, Tops has adopted the "Relax. Renew. Revive." theme first launched by Giant Food, Landover, Md., and later extended to Stop & Shop Supermarket Co., Quincy, Mass. The carefully designed department takes up about 2,000 square feet, has a combination of wood-look and marble-look flooring, marble-look fixtures, a purple color scheme, and is topped by a large circular sign hanging from the ceiling. It prominently displays the "Relax. Renew. Revive." message, along with another slogan featured prominently throughout the section: "Come and bathe your soul, heal your body and emerge full of life."

Tops executives declined to comment for this story.

"Our re-merchandised departments are designed to provide our customers with an even more enjoyable shopping experience, including vivid and engaging displays, and warm and inviting colors," said Tina Flowers, vice president, nonfoods at Giant Eagle. The first section using these display techniques opened last fall in a large Lyndhurst, Ohio, store.

With selection, information, and enhanced fixturing and product presentation, these new departments "are in a sense creating a true drug store within the store, as opposed to just another aisle of merchandise," said Neil Stern, partner, McMillan/Doolittle, Chicago. The challenge is "it's not enough to do it in a prototype. Are you going to commit to changing all your stores to this direction so it is something that is noticeable and marketable?" he asked.

Giant Eagle is apparently moving forward with its HBC program. New, smaller stores in Brunswick, Parma and Macedonia, Ohio, have the same graphics package, in addition to some stores in other market areas. Translating the design ideas found in the large prototype to the smaller stores indicates that it can be implemented chainwide if the company chooses, observers said.

The chain is seeing year-to-year increases in HBC sales, Flowers said. "Similar to the Giant Eagle food shopping model, we differentiate our HBC departments from that of competitors by offering an inviting and shopper-friendly department layout, an extensive variety of leading and national brand HBC items paired with value alternative items, competitive prices and the added convenience of in-store pharmacies in the majority of locations," she said.

In Cleveland, as well as other markets Giant Eagle operates in, "competition on both the food and HBC fronts continues to remain fierce as more and more non-traditional retailers enter the food and drug industries. This ongoing trend of new retailers entering new markets and establishing market presence makes it vital that existing retailers continue to differentiate their product and service offering in order to offer customers a unique shopping experience," Flowers said.

Two independents attributed their lack of sales in HBC directly to this environment.

"The competition in this town is very fierce," said Burt Saltzman, president, Dave's Supermarkets, Cleveland, which operates 10 inner-city stores. "You've got the Marc's. You've got the Drug Marts. You've got the Walgreens. We can't be everything and HBC is not one of our great strengths," he said. While he does not compete directly with Wal-Mart at this time, Saltzman noted that city government is trying to entice the giant retailer into building supercenters.

John Zagara, president, Zagara's Marketplace, Cleveland Heights, Ohio, characterized the competition for HBC dollars in the Cleveland marketplace as "strong and lean. We've never been able to sell on a par with the national average in that category. Never. And it's because of the competition Marc's brings into this area."

Other food and drug players in the Cleveland market include Heinen's, Warrensville Heights, Ohio, with 15 upscale stores; the Fred W. Albrecht Grocery Co., which operates 15 Acme supermarkets mostly in its home Akron, Ohio, market; and Medic Drug, Mayfield Heights, Ohio, a 30-unit operator of mainstream drug stores.

"It's a competitive battle for that consumer dollar and the supermarkets are going to do whatever they need to do to be priced right and be convenient to that customer so that dollar is not going somewhere else," said Tom Jackson, president and chief executive officer, Ohio Grocers Association, Columbus, Ohio.

Commenting on Giant Eagle's recent price cuts, he said, "they are trying really hard to capture as many dollars as they can, and they don't want them drifting off to a supercenter, to a drug store, to a dollar store, or even to a little convenience store that's right around the corner."

When it comes to HBC in the Cleveland market, Acosta's Calalesina believes it's all about pricing. "Anybody who enters this marketplace has got to be prepared to be very competitive in health and beauty aids and general merchandise. The consumer has been taught to look at those low prices," he said.

Making the Grade

How the stores were rated. Each department was rated using a 10 point score for each evaluation element. Stores were evaluated on the basis of appearance, merchandising, service, price, promotions and private label. The six scores were added up to arrive at a letter grade: 51 to 60 points = A, 39 to 50 points = B, 26 to 38 points = C; any score below 25 = D or F.

Store: Grade; Score

Discount Drug Mart*: A; (53)

Giant Eagle*: A; (51)

Tops*: B; (49)

Wal-Mart: B; (49)

Target: B; (48)

CVS: B; (46)

Walgreens: B; (46)

Rite Aid: B; (44)

Kmart: B; (41)

Marc's**: C; (33)

* Stores visited of Discount Drug Mart, Giant Eagle and Tops were all opened within one year.

** Marc's lost substantial points in two categories: service and private label.

Pricing Bulletin From The Front Lines

Price comparisons of four popular HBC products in Cleveland-area supermarket, drug and mass merchant stores

Product: Tops; Giant Eagle; Marc's; Discount Drug Mart; Walgreens; CVS; Wal-Mart; Target

Fructis hair care products (13-ounce): $3.49; $3.49; $2.86; $3.19; $3.99; $3.99; $2.72; $2.49

Lubridern Skin Therapy (16-ounce): $8.39; $7.69; $6.37; $6.79; $7.59; $7.99**; $5.67; $6.69

Colgate Simply White Night tooth whitening gel (0.34-ounce): $14.83*; $9.99; $12.78; $12.99; $14.99; $14.99; $9.96; $11.99

Claritin 24-hour allergy tablets (10-pack): $9.99; $12.29; $8.97; $9.99; $9.99; $9.99; $8.93; $9.59

Source: SN research*Buy one, get one free; **$6.99 with card