TOUGH COMPETITION, ALWAYS

STEPHANIE LOUGHRAN

BENTONVILLE, Ark. -- Wal-Mart Stores has the space, the selection and the low prices. In the item-heavy health and beauty care aisles, these factors add up to a formidable competitor that supermarkets are finding difficult to keep up with.

"[HBC] was Wal-Mart's original roots and it specialized on using that as its drawing card," said Peter Sutton, president, Sutton Consulting Group, Orange Park, Fla. "It's always had a tremendous impact on HBC."

While consumers go to the grocery store to buy over-the-counter medications, oral care and skin care needs for convenience, Wal-Mart's wide selection of products, coupled with an average of 10% lower prices, makes it difficult for supermarkets to compete, Sutton said.

In 1996, mass merchandisers including Wal-Mart represented 23% in beauty care sales compared to the supermarket channel's 24% share, according to Kline & Co., a Little Falls, N.J.-based consulting company that focuses on health and beauty care including toiletries, oral care and fragrances.

Fast forward to 2001, and the HBC sales edge switched to mass merchandisers. The mass sector garnered 28% in industry HBC sales, while food stores slipped to 19%.

The trend continues this year. According to ACNielsen's Wal-Mart Channel Service, HBC sales were up nearly 10% for the 52 weeks ending in early September. Meanwhile, supermarkets declined about half a percentage point, according to the Strategic Planner of the Schaumburg, Ill.-based company.

"A shift has taken place and Wal-Mart has played a key role," said Carrie Bonner, project manager for Kline & Co. "They have a very broad selection, shopping convenience and a wide reach," referring to Wal-Mart's goal to target "the middle 90% of America."

Other sources agreed that Wal-Mart's strengths in health and beauty care, such as its low prices, put supermarkets and other retailers in a less-than-beautiful light.

"Sales are flat in the grocery business all across the country, and that's where it's coming from. Wal-Mart has that price and variety image, and the customer believes it's going to be cheaper there," said a supermarket nonfood source who spoke on the condition of anonymity. "If you want to be in the business, you have to be in their price range. They've created the playing field and we have to play with them."

That includes creating excitement through merchandising promotions, said the source. "You're trying to make it easier for the consumer to shop and that's the best way to fight back [at Wal-Mart]," he said.

Emphasis on private-label opportunities also creates a point of differentiation for supermarkets, said Curt Maki, vice president, nonfoods, Topco Associates, Skokie, Ill., a private-label cooperative.

"Wal-Mart has the Equate brand, but they focus on national brands because that's what they're recognized in the market for," he told SN. "Higher profit margins generated by store brands can help our members be more competitive on the national-brand side." With the high profits created by store-brand offerings, supermarkets "can use that money to offset losses on national brands to compete against Wal-Mart."

In addition to the Equate brand, Wal-Mart launched No Boundaries last year, a color cosmetics private-label line that targeted the tween set, ages 8 to 12. The line was ultimately unsuccessful, however, and it was reportedly discontinued, according to Bonner of Kline & Co. "The customer is connected to brands in color cosmetics, it's a lot of SKUs (stockkeeping units) and it's hard to compete if it's not your core business," Bonner said.

Bath and body brands exclusive to particular retailers are gaining ground, especially in drug stores, Bonner said. Rite Aid, Camp Hill, Pa., rolled out expanded offerings earlier this year to its exclusive Soaked in Tickles, Pure Spring and Elsewhere lines, and introduced a new exclusive Spa Swami brand, also geared towards tweens. Aside from the No Boundaries line, Wal-Mart also exclusively carries Mary Kate and Ashley Olsen beauty care products, as previously reported by SN.

"We're no longer seeing the generic 'no frills' products on shelves that we've seen in the past," Bonner said.

Supermarkets can carry a broader selection in both national and private-label products, and push store-brand categories that Wal-Mart does not have, Maki added. "Consumers feel good about saving money, and private label gives them a reason to go back to the grocery store again."

Core categories like cough and cold medications, analgesics and baby items, such as baby wipes and diapers, "do a good job of attracting young mothers," Maki said. Grocery stores are also showing a greater interest in products that come in larger sizes by migrating to larger counts of private-label cough and cold remedies.

The anonymous nonfood source agreed that supermarkets have "the upper hand" when it comes to private-label offerings.

"It's evening out, but we're a little stronger and little more accepted. Private label is better quality in grocery," he said.

Grocery stores pick up impulse HBC sales because of convenience, but consumers make the discount chain a destination for frequently used items, said Sutton. "Wal-Mart has done a better job in the everyday use category of getting people to stock up on products like shampoos, feminine hygiene items and other demand-driven products," he said. "I don't know of a category that Wal-Mart doesn't already dominate."

Bonner agreed that Wal-Mart has the shopping advantage when it comes to toiletries, like deodorant and toothpaste, "where customers will stock up on products that they will eventually use."

However, supermarkets do not always have to match Wal-Mart on price to get consumers in the door.

"They have to be competitively priced, but not necessarily beat them on pricing," Sutton said, "and they have to carry variety and be in stock. Don't give them a reason to wait to go to Wal-Mart."

Maki agreed. "Create better customer service, respond to local needs and have good point-of-purchase materials," he said.

The anonymous nonfood source said, "We have to allocate space and make it easier to shop since [Wal-Mart] has the space and the variety."

However, one anonymous marketing executive for a Southern wholesaler said that supermarkets need to be competitively priced by receiving pricing deals from manufacturers and applying the "80/20 rule." That means offering a product mix where 20% of the product assortment generates 80% of the business, he said.