Demand Grows for HBC

HBCFrom single-serve cold medicines to hair care products, the health and beauty category is attracting new customers of all ages.

By Howard Riell, Associate Editor.

With healthcare capturing so many headlines these days, the health and beauty category (HBC) has taken on added importance in the c-store set. Fueling much of the growth: smaller package sizes that save shoppers money and stimulate impulse sales.

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. 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.

Within these subsets, Packaged Facts research firm predicts that consumers will continue their quest for natural products. “The U.S. consumer market for natural and organic skincare, hair care and makeup—which during 2005 to 2010 boomed 61% to $7.7 billion—could top $11 billion as of 2016,” Packaged Facts reported.

Mixing Up the Planogram
The opportunity to add smaller packages of over-the-counter medications has allowed many stores to expand offerings in a minimal space.

Kera Smith, merchandising specialist for Emmaus, Pa.-based Top Star Express convenience stores, said her company’s overall HBC sales have increased 10% from last year. She explains that the growth has come from deploying trial sizes rather than full-sized products.

“Though our full-size OTC products are flat in sales, trial-size sales increased by 16%,” Smith said. “We feel price is a contributing factor to flat full-size sales.”

Top Star’s category strategy at its more than 30 stores, “is to stock the top full-size SKU’s to satisfy the customer who looks for the larger quantity while also offering an even broader variety in our trial size products,” Smith said, adding that the company views this strategy as a key to continued growth.

But smaller-size products are not the answer for every store. At the Stop and Go Mini Mart in Bend, Ore., Owner Kent Couch has returned to selling full-size bottles of tablets, such as Advil, after briefly offering the same products in single-dose packets at 99-cents each.

“We lost a lot of volume when we did that,” said Couch, whose health-and-beauty sales dropped 23% with the single-dose packets. “It was a surprise to us. So we’ve gone from selling a single allergy-relief pill for 99 cents and returned to the 16-count and 24-count bottles. When we went back to the bottles, we got our growth back pretty quick. And we’re making a lot more money on $5 bottles.”

Customer Convenience
7-Eleven discovered an innovative way to fulfill busy customers’ personal needs. In 2012, the chain added a new line of health-and-beauty products, all sized to satisfy travel requirements of the Transportation Security Administration. The brand-name items range from Scope and Colgate toothpastes to Dep hair styling gel, Coppertone sunscreen and Mennen Speed Stick deodorant. The mini-packages are priced at $1.99 each or two for $3 and have been particularly popular at stores in tourist areas.

“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 dominated by the health subcategory. Tim Cote, vice president of marketing for Plaid Pantry, 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.

Cote likes to judge HBC without energy shot sales. 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 it’s 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 team. 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.”

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