The Big Squeeze

CHRISTINA VEIDERS

The recessionary squeeze is on in personal care.

As is the case with food consumption, consumers are changing the way they shop — and what they shop for — in hair, skin, and bath and body categories.

While supermarkets are benefiting from a shift in food shopping behavior, with more people cooking at home as a result of the recession, this appears not to be the case when it comes to personal care.

According to Information Resources Inc., Chicago, consumers are being forced to redefine what is absolutely essential. The researcher calls 2009 the year of “reality-ism,” which is putting downward pressure on sales and units.

This is true of most personal care categories that SN examined. Based on IRI sales figures for the 52 weeks ending Jan. 25, 2009, for combined food, drug and mass retailers, six categories — shampoo, hair color, conditioners and styling, hand and body lotions, and bath bubbles/fragrance — all declined in sales and units, with bath products down double digits. Two categories — soap, including bars and liquid washes, and hair spray/spritz — improved in sales, but not in units. Only hair growth products showed a healthy gain of 9.4% in dollars and 1.8% in units, although this was from a small volume base of $72.8 million.

The new reality translates to mean consumers are shopping retailers that offer the best deals, trading down and depleting their own home inventories before they replenish personal care products.

It also means suppliers will have to initiate cost controls and be careful on new product rollouts.

“I do believe that the brands we have come to trust over the years will stand up during these challenging times, as long as they update their value propositions for affordability and uniqueness,” said John Deputato, senior vice president, client solutions, IRI.

“There will be a downward pressure on brands with less equity, as promotion and available space will have a negative impact on them. New launches will continue to be important, but they will be under more scrutiny by retailers and consumers.”

IRI figures do not include Wal-Mart sales, and in these recessionary times Wal-Mart is proving to be a significant factor.

Historically, Wal-Mart has used HBC as a trip frequency generator, Jim Wisner, president of Wisner Marketing, Libertyville, Ill., pointed out. “Over the years, they [Wal-Mart] built a good reputation in HBC. They do price better than everybody else, and that is significant, particularly in the economy right now.”

FIRST CHOICE

BigResearch, Worthington, Ohio, conducts an online monthly Consumer Intentions and Actions Survey of 8,000 respondents. Last month's survey indicated that for 30% of consumers, Wal-Mart was their first choice for health and beauty aids, followed by CVS, 8.5%; Walgreens, 7.9%; and Target, 7.9%.

Traditional supermarkets that got mentioned by HBC shoppers were as follows: Kroger, 1.2%; ShopRite, 0.7%; H.E. Butt Grocery Co., 0.6%; Publix Super Markets, 0.5%; Giant Eagle, 0.5%; Stop & Shop, 0.3%; Fred Meyer, 0.3%; Safeway, 0.3%; Wegmans, 0.3%; and Giant Food, 0.3%. These were unaided, write-in questions, said Pamela Goodfellow, BigResearch senior analyst.

As for reasons why consumers shop specific channels for HBC, an overwhelming percentage (93.4%) go to discounters for price, whereas a high percentage of consumers shop supermarkets (73.8%) and drug stores (80.5%) for location.

First choice by channel for those surveyed in shopping HBC not surprisingly were: discounters, 40.6%; drug stores, 20.2%; and grocery stores, 8.2%.

For those who buy mass market personal care products vs. personal care sold in department stores, price always plays a role, said Goodfellow. For discounters like Wal-Mart selling personal care, buying power counts, and allows them to pass on better prices to consumers, she said.

“Everybody is concerned with price right now and may be willing to sacrifice quality to not put their budgets at risk. We've seen consumers increase coupon usage, check out store brands vs. national brands to save a few dollars,” Goodfellow said.

The price factor in personal care is not lost on some supermarkets. Asked to comment on movement in the personal care aisle, Karen Peterson, a spokeswoman for Salisbury, N.C.-based Food Lion, said, “Customers are paying close attention to promotions and price points when making a decision to purchase beauty products. We are also seeing more consumers move to soap bar purchases vs. body washes. As with other private-label sales trends, we are seeing the sale of private-label beauty products increase. Customers want value, and they are using more coupons, purchasing bonus packs and looking for promotion opportunities. It is our goal to provide to our customers simple convenience and great values.”

But the environment is really challenging supermarkets to maintain their share of the personal care segment. In the nine personal care categories tracked, supermarkets showed gains in just two. Soap sales were up 1.8% to $969 million, and hair growth product sales were up 11% to $11 million.

Health and beauty care categories sold in supermarkets historically have struggled to capture greater market share from drug and mass.

The challenge for supermarkets, according to those who follow the nonfood business, is to break consumers' perception that supermarkets merchandise personal care as a convenience, and thus post higher retails.

“Most supermarkets don't have a realistic view of what margins are in these categories, and they still carry them like convenience categories,” said Wisner.

These personal care products are tough from a competitive standpoint for supermarkets, and they have done well in drug and mass, said Paul Weitzel, managing partner, Willard Bishop, Barrington, Ill. Those food chains that have done well — H-E-B, Giant Eagle and Publix, among others — have adjusted their retails to suit local market demand, he noted.

Weitzel, who expects the recession to last several years, predicts a shakeout will occur in the next three months in the personal care aisles of grocery stores. A re-evaluation will take place, he said, as retailers closely monitor the economics of their personal care aisles. “Retailers will begin to question inventory on the shelf and variety. You might start to see a tightening of variety, even though it costs to get products off the shelf.”

IRI's Deputato points to a dramatic change in consumer shopping for beauty products. He noted that shoppers are extending product usage; looking for multiple-use products and selecting product alternatives; sharing products at home; and using in-home beauty treatments to save money. He told SN that retail price is only one component of the total value equation for today's shopper. As supermarkets lose personal care sales to supercenters and club stores, “supermarkets must look to the advantages these outlets now display, whether it is price, assortment range or unique items,” Deputato said.

Joe Jacober, chief executive officer, Innovative Brands, Phoenix, which markets Pert Plus and Sure antiperspirants and deodorants — which it bought from Procter & Gamble in 2006 — said that for supermarkets to win in the present environment, it is a matter of strategic focus. He believes the timing is perfect for supermarkets to grab share from competitors in categories like shampoo. “With the number of shopping trips down, supermarkets have the opportunity more than anybody to take advantage, because they offer the full array of products. By taking these categories out of convenience and making them strategic, food retailers can start to see nice growth.”

SUPPLY-SIDE PRESSURES

The squeeze is also on from the supply side, with retailers facing higher product costs in personal care. Recent reports indicate higher supplier prices aren't going to come down anytime soon for retailers, especially with drops in consumer demand. Some food retailers reportedly have put up resistance, but to little avail.

Consumer products companies, meanwhile, are under pressure to cut operational costs and evaluate their portfolios. This could lead to selling off underperforming brands to such companies as Innovative Brands, which takes a brand's equity and tries to relaunch nationally with fresher logos and packaging. In some cases, such brands have become retail exclusives. Classic examples are P&G's White Cloud bath tissue and diapers to Wal-Mart, and Bristol-Meyers Squibb's Nuprin to CVS.

The recession may also curtail new product introductions and line extensions, which are often introduced to protect brand market share besides growing category sales.

“Looking at the product launch numbers, it's probably not much of a surprise that sales in many of these [personal care] categories in supermarkets are down, because product launches are down in several areas, and some of these areas have been excitement-challenged of late,” said Tom Vierhile, director, ProductScan Online/Product Launch Analytics, Datamonitor, Canandaigua, N.Y.

According to Datamonitor statistics, in 2008, product launches were down in hair color, hair styling and men's personal care products. New introductions in shampoos and conditioners took a dive: 686 SKUs, vs. 809 SKUs in 2007. New product SKUs remained flat for body, facial and hand care skin products. Introductions on soap and bath and shower products were up slightly.

Vierhile noted some trends to watch in personal care.

In men's toiletries, the clear trend of where most of the new product activity is taking place is higher-end products sold in specialty stores or department stores. In mass market, however, last month P&G continued to roll out its Gillette brand across other personal care categories with its Style for men line. Late last year Unilever launched Axe Hair and Vaseline Men, daily lotion for dry and rough skin. Dial came out with Dial for Men 3-D body wash and bar soap last year with an odor-defense formula.

According to Vierhile and others, the “natural” trend is alive and well in personal care. It is doing especially well in bath and shower products, soap and skin care (body, facial and hand care), Vierhile said. “In all three of these areas, the percentage of launches making ‘natural’ claims is up,” said Vierhile.

Some unique products contain natural ingredients like pomegranate coffeeberry (Treat Beauty) or probiotics (SK1N Probiotics Systems).

“On balance, the [natural] trend appears to be strong. Some trendy products illustrate the direction things are headed. In particular, the Pantene Pro-V Nature Fusion product is on-trend, as are the Dial Yogurt Nourishing Body Wash, Method Body Marine Naturals and Dr. Andrew Weil for Origins products,” he added.

As for major product launches within the last year, the biggest launches in hair care were Unilever's Axe and Sunsilk and P&G's Gillette hair care line.

In hair coloring, the speed with which products work appears to be the major focus, such as L'Oréal Paris Excellence To-Go 10 Minute Crème Colorant and Clairol Perfect 10 by Nice 'n Easy Hair Color.
— Additional reporting by Amy Sung