By Joe Bush, Contributing Editor.
HBC is making a comeback from coast to coast.
The category—from shampoos and skin creams to cough drops and cold remedies—has always had its rightful place in a convenience store—providing a grab-and-go remedy for a variety of ailments. Still, the category has been stigmatized at c-stores as an offering that commands a much higher price than the local drug store or supermarket. But the times have changed. More and more retailers are taking the time to find single-serve and lower-cost solutions that are helping to improve sales.
“HBC is not the ideal category to drive people into the store necessarily, but it’s a category that stores must have so they don’t upset anyone by not carrying what consumers would expect to find at their local convenience store,” said David Bishop, managing partner of Balvor, a retail consulting firm based in Barrington, Ill. “We offer it so we don’t lose credibility with customers.”
But the category can offer so much more. Plaid Pantries Inc. in Oregon and Tedeschi Food Shops in the Northeast have decided over the past 15 months to reinvigorate the category by adjusting partnerships, placement, pricing and philosophy. Those in the trenches are positive that the exciting early returns can and will continue.
“HBC is not only here to stay, it’s a growth category for us” said Mike Turco, category manager for Tedeschi Food Shops. “Our customers come to us for convenience and in times of distress. We’re trying to attract the female consumer and this is a category that appeals to that demographic. As an industry we know that the drug store chains are taking a big bite out of our HBC sales by offering what we offer, but in my opinion we have to do the same. We have to offer what they offer and try to do it as value-based and attractive to the consumer as best we can.”
Tedeschi, based in Rockland, Mass., operates 188 stores throughout New England. After experience double-digit decreases in the category, Turco sprang into action. He partnered with broker TNT Marketing/Crossmark and one of its clients, Bayer, as well as HBC marketing firm Lil’ Drug Store for planogramming. Tedeschi’s distributor Garber Brothers made all the product changes work.
Ten percent of Tedeschi’s stores tested placement changes, such as placing core health items at eye level. The chain also adjusted sets by store, as it has many urban locations, to compete more effectively with drug channel giants CVS and Walgreens.
“Tailoring the size of the section to the demand of the store based on sales history was a key step for us,” Turco said. “Last year you could have walked into one of our stores and would have seen a six-foot HBC display. Today, you might only see three feet, but it’s much more productive. We’ve eliminated the slow-moving SKUs and jettisoned the duplications. We took our national brands—the best of the best—and depending on the subcategory we partnered that with a generic or value brand to make the category more affordable.”
The result is a solid mix of strong brands and value. The private label products—SmartChoice from Garber, for instance—are merchandised side by side with their branded counterparts. Lil’ Drug Store items are typically grouped in a proprietary display.
“It’s been a win-win for us,” said Turco. “Associating yourself with the right manufacturers and also being able to offer value products fills a void for our customers.”
A growing concern for retailers is out-of-stocks stemming from manufacturer production issues. For example, over the past six months Tedeschi was down about 14,000 units in Rolaids, but it was up 16,000 in Tums. “People traded off,” Turco said. “That just shows you that the demand is there if you manage the category effectively.”
HBC is dominated by the health subcategory. Turco estimated that 70% of HBC sales come from skin care and lip balms. The elephant in the room is energy shots, which many retailers still include in HBC accounting. Turco likes to judge HBC without energy shot sales, as does Tim Cote, vice president of marketing for Plaid Pantry.
In the past 10 months, Cote has engineered the revitalization of HBC—what he calls HABA (Health And Beauty Aids) for his 105-store chain, based in Beaverton, Ore. The moves he has made have resulted in a 38% increase in sales, and without energy shots, he estimated the boost is as high as 60%.
“That’s good growth, but honestly that’s below our target,” said Cote. “We really thought we could double the business, and we still expect we can. It is only about 2% of total sales, but the thing is you’re always looking around your stores for categories to grow volume. This category has been so beat down that its just waiting for someone to pick it up.”
Cote will know more once the reset endures a full cold and flu season, but it has already handled the approval process from Plaid Pantry’s
executive branch. Cote had to convince his bosses that sacrificing margin to drive volume and please customers was the right move.
“One of the challenges is pricing,” admitted Cote. “It’s hard to get vendor assistance working with you to drive pricing lower. It’s hard to get chainwide acceptance from management on, ‘OK, we’re going to lower our margins 20 points in the category, but trust me we’ll make more money.’”
Cote said the chain’s message to its customers traditionally has been one of value, but HBC failed to reflect that. “We redid our pricing structure,” he said. “This industry seems to think as a whole that HABA should be a 40-50% margin category. We went back and did some price shopping with local drug chains and we’re reasonably competitive with the local drug chains now. In general our biggest competition is other c-stores, but you have to protect yourself against the people nibbling away at you.”
Cote hopes he will get more vendor participation as the reset proves itself, but lauds broker Advantage Sales and Marketing and GlaxoSmithKline for their assistance in making the changes work. The partnerships changed shelving to cut down on theft, reversed an 85-15 ratio of pegged product to shelved product and mixes in private label items from marketer Convenience Valet and Core Mark. It also changed its philosophy on package size from
single-serve to multi-dose.
“Generally, if a customer is going to buy something, they want more than one serving of something like medicine,” Cote said. “If you’ve got a really bad headache or if you have a cold, rarely does one dose cure whatever’s bothering you, so multi-dose
packaging made more sense.”