THE VALUE CHALLENGE IN HBC

Dan Alaimo

In a tight economy, with dollar stores and mass merchandisers like Wal-Mart Stores setting price perceptions ever lower, "value" has become the current marketing buzzword. This is true in all categories, but particularly in health and beauty care.

But what is value? To some, it is competing with dollar-priced merchandise. To many, it is private label. While to others, it is finding a way to give the customer more for their money while maintaining price integrity. The right answer, as in many cases, is all of the above.

"Supermarket operators need to understand who their HBC competition is -- dollar stores, mass, drug, club, etc. -- and act accordingly, but not react," said Doug Schwab, corporate director, wholesale health and beauty care, Supervalu, Eden Prairie, Minn. "Pricing and promotional strategies need to be executed to convince the customer the supermarkets are in the HBC business and not just a convenience trip. Differentiation needs to be the battle cry."

Value, said Schwab, represents the "ability to meet the ever-changing consumers' demands. We need to give our customers the options and the perceived extras whether that is in value-added packages or programs with bonus packs, store demos, added departments, and services like grocery, gas, movies for rental and sale, or lottery tickets. The measurement in whether or not we achieved this goal is customer count and same-store sales," he said.

"We try to provide customers convenience and value by offering products that meet key, consistent consumer needs," said Jeff Lowrance, spokesman, Food Lion, Salisbury, N.C. "Consumers seem to want larger-sized packages at a value price. At the same time, there are opportunities for private-label products to attract value-focused shoppers."

According to research released this summer by WSL Strategic Retail, New York, 10% to 25% of shoppers (depending on category and gender) reported switching to a lower-priced brand in the past six months. This is especially true in over-the-counter medications, which had the highest percentage of shoppers trading down in price, 28% of women and 24% overall. Even cosmetics, a brand-intensive category, has seen 16% of women trading down, said the WSL report. "The supermarket industry has to understand that at the moment, no products, including health and beauty care and OTCs, are immune from the consumer's cautiousness when it comes to where and how they spend their money," said Wendy Liebmann, president of WSL. Even 13% of consumers with incomes over $100,000 said they were considering lower-priced brands or generics, or had switched in the last six months, she said.

More and better private label is a key to effectively addressing this trend. "There is opportunity for supermarkets to see growth in their own brand category, if it is well marketed and well presented. This is not about no-names. This is about a private-label brand where the consumers really have trust in the store name," Liebmann said.

The HBC categories drive frequency of shopping trips and, especially private label, they can be high margin. "The opportunity is for retailers' use of those well-defined categories to begin to separate themselves from the pack," she said.

HBC represents the next major growth area for private label, said Brian Sharoff, president, Private Label Manufacturers Association, New York. Overall, private label is about 20% of sales in supermarkets, and a similar number for drug and mass, he said. "I think HBC is what gets it to 30%."

Those retailers who try to compete with Wal-Mart just on price can't win, he said. "If you are attempting to battle Wal-Mart on pricing, that is a very difficult way to go, especially in HBC," he said.

"Those who have created a good private-label image and can carry it over into HBC are in a much better position to be successful than the supermarket retailer who decides to compete with Wal-Mart on price. That is a losing strategy," Sharoff said.

"I truly believe that the value concept has got to be dovetailed with the way in which you bring your stores to market," said Roy White, vice president, education, General Merchandise Distributors Council's Educational Foundation, New York. "It's got to fit in with your philosophy, your objectives and how you do business. Otherwise, I don't think it is going to be successful. You just can't put out several value products in a section without having it relate to the rest of what you do and make it work," he said.

Supermarkets need to start evaluating how they can create "signature values" within each category in the store, said Jim Wisner, president, Wisner Marketing Group, Libertyville, Ill. "No one is going to be the cheapest or the best at everything. However, if a chain can identify one or two customer groups within each category for which it can carve out a superior proposition, it has the opportunity of winning back more customers," he said.

"HBC represents one of the few genuine growth opportunities, and one of the few areas in which supermarkets can win back truly incremental business. Since HBC has been used as a competitive weapon to pull trips away from supermarkets, it's time to start pulling these customers back," Wisner said.