A dose of attention could turn HBC into a destination category.
It may be time for convenience retailers to start taking their medicine more regularly.
Health and beauty care (HBC) is a category that traditionally has vexed some retailers. But many manufacturers contend that, with a little attention, it has the potential to not only cure customers’ ills but also provide healthy doses of bottom-line dollars to supplement critical categories such as tobacco and beverages.
Preliminary numbers from the NACS State of the Industry Report of 2011 Data show HBC as the 11th largest in-store category, averaging $1,538 per store per month with a gross margin of 52%.
As economic pressures force more consumers to self-medicate, over-the-counter (OTC) medications, a robust part of HBC, are on the rise. A study released by the Consumer Healthcare Products Association reports that OTC drugs save time and money: OTC meds are a key factor in avoiding 450 million doctor visits annually.
So why do many c-store operators balk at giving HBC more than a token presence? For Tim Cote, vice president of marketing for Beaverton, Ore.-based Plaid Pantries Inc., it’s his perceived lack of interest from manufacturers about the c-store class of trade. The current cost structure for c-stores to acquire product is too high, he says, and nobody seems to care.
“Until c-stores correct that price gap, it’s going to be difficult for c-stores to close that category,” he says. Despite seeing 30% to 40% growth in the category in his own sales when he expanded his assortment a year ago, Cote remains skeptical about the c-store channel ever becoming a major player in the HBC market.
“For the most part [HBC] is just something I have to have,” he says. “I’d love it to be more than that, but it’s probably unrealistic hope on my part.”
That attitude is shared by many c-store retailers who are going through the motions with their HBC offerings. Vendors, however, are optimistic.
Why HBC Matters
Enthusiastic vendors have perfected their pitch to retailers about why this category matters. Their arguments hit on the “new” c-store—where the store center is bustling, where more women are frequenting, where health and wellness are transformed into a core strategy.
“It’s critical not only for retailers to be in this business, but also to be expanding it,” says Heather Jarrett, convenience and specialty channel leader for Cincinnati-based Procter & Gamble. “It is one of the highest gross-margin categories for our retailers and it’s growing. HBC is a category that can help get consumers from the pump to the center store to buy more items and increase a retailer’s market basket.”
It’s also, says Jarrett, a great way to connect with female shoppers: “HBC categories can be a critical gateway to achieving that goal as long as retailers carry the top-selling items in HBC that will resonate with female shoppers.”
Indeed, two of the top six HBC subcategories are targeted to women: family planning and feminine hygiene products, according to Vince Licari of Johnson & Johnson, New Brunswick, N.J. Those subcategories join analgesic, upper respiratory, digestive and eye care as must-have segments for every store.
As a class of trade, c-stores are not exploiting their indigenous advantages, some say. “The drug channel specializes in multi- and value-sized packs, whereas the convenience channel provides short-term solutions for myriad problems,” says Michelle Sausen of Melrose Park, Ill.- based Convenience Valet, which provides plan-o-grams, pricing and merchandising strategies to help c-stores compete against the drug channel.
Steps to Take
John Gorman of Johnson & Johnson doesn’t mince words. He calls the c-store channel’s HBC category “severely underdeveloped.”
“I think a lot of them are asking themselves: Am I getting my share of gasoline? Am I getting my share of lottery? They get lost in those numbers instead of making sure they stay convenient,” Gorman says. “The question they should be asking themselves is, ‘Am I convenient? Yes or no?’ ”
Part of that convenience, he says, is a quality HBC presence. “There’s a mom who’s got a kid in the back seat with a runny nose. She runs in a c-store and finds that they don’t have a single medication for children’s cough and cold, she’s not going to go into that store anymore,” he says. “The owners and operators have to think like shoppers. We’ll be running better, more productive stores if we do.”
Licari says an important first step is to review your current offer. “You can’t afford to underrepresent one of the 20 segments that make up HBC,” but over-representing segments is equally detrimental, he says. Often, it’s personal-care items that occupy too much space.
“It’s fine to have two deodorants,” Licari says, “but you don’t need four.”
Personal-care items are important, but “if you’re going to get anything right first, it has to be the ailment-driven segments,” he says. “We know that 74% of HBC sales in c-stores fall into the ailment-driven category.”
Once you’ve sorted out your assortment, showcase it; make sure your customers can find it as easily as the coffee bar and fountain area.
“If that was done for HBC—and it doesn’t have to be overblown—then that could go a long way to inviting the opportunity to purchase,” says Licari. “Have a little signage to call [HBC products] out and you might just interrupt their shopping behavior.”
Getting the right product assortment and arrangement can be a tricky task. Enlisting a category-management service is one way to streamline the process.
“What we do is make convenience convenient for you,” says April Elsinger of Cedar Rapids, Iowa-based Lil’ Drug Store Products, distributor of c-store-sized packages of roughly 250 products.
“We know that the HBC category is a difficult category to manage and takes a great deal of time and energy for retailers,” Elsinger says. “We provide solutions to common HBC hurdles.”
One thing Lil’ Drug, Convenience Valet and other category management providers have focused on recently is an increase in private-label offerings. With product recalls in OTC drugs in recent years, having private-label alternatives is a good way to guard against shortages.
“The last thing you want as a retailer is an empty peg,” Elsinger says.
Private labels are also becoming more trusted by consumers. “We know that consumers are becoming more and more comfortable with the quality that is offered,” she says. “Plus, with gas prices going in the direction they’re going, people have less to spend on in-store purchases. It just makes sense to have a value alternative.”
One for All
Sausen of Convenience Valet says c-store leaders in HBC follow the same baseline: They allocate at least 4 feet of space, merchandise the product in a more eye-catching way, and regularly reset their programs to incorporate both the core and new trends.
“Thorntons has recognized the unusually high index of allergy sufferers and has allocated dedicated space to cold/ allergy medication,” she says. “This plan-o-grammed space is prevalent as soon as you enter the store, with ample signage and product variety.”
Vendors aren’t expecting HBC to become the next beverage category. At the same time, virtually all consumers use deodorant, analgesics, mouthwash and more. The question is whether convenience operators are interested in winning that person’s spend and potential market basket.
“Consumers tend to see c-stores as more similar than differentiated from one another,” says Gorman of J&J. “So if the majority of chains and independents show up poorly for HBC, then that seals the perception for the industry.”