Why HBC Is Viable and Profitable
There is no “one size fits all” when it comes to health and beauty care (HBC) space or assortment within the c-store. Like people, c-stores come in all shapes and sizes. We’ve seen HBC sets as large as 8 feet, but the typical set size is either 3 or 4 feet wide and 54 inches high. If you are over 50, you remember 8-foot health and beauty aid sets (HABA) as the norm. Of course, that was at a time when there were 4-foot baby sections (baby food and diapers), 8-foot grocery sections, 8-foot paper sections, 8-foot detergent sections—you get the picture. If you are younger than 35, you are no more familiar with these size categories than you are with phones and cords tethered to the wall.
Regardless of your age, you should know this: HBC has actually weathered the storm and kept a greater presence than all of those other categories. Why? Simply stated, the introduction of single- and double-dose medications has kept this category viable.
Several years ago, I was a category manager for a large national c-store chain that performed analyses of gross margin dollar per square foot on the 31 center-of-store subcategories. HBC ranked No. 3, right behind other tobacco and gum and mints, and ahead of candy, meat snacks, salty snacks, packaged bakery and the remaining subcategories. Before you reread the last sentence, understand that the measurement used was gross profit dollars per square foot, and the HBC section was 4 feet wide.
Size and Assortment
There is a three-pronged approach to maximizing the HBC category—and for that matter, almost any category—on some metric of space to sales (or gross profit dollars):
- Get the size of the section right. Are space changes warranted?
- Determine which subcategories make up the section (e.g., does the section incorporate family planning?).
- Optimize the assortment. Which subcategories are under- or over-performing, and what SKU changes are required within each subcategory?.
Using syndicated data, we have demonstrated that a 50/50 ratio of the single-and double-dose OTC and other peg items to the larger-dose OTC and other shelf items optimizes sales and profits for the entire HBC category. There is a “law of diminishing returns” in increasing the SKUs and the size of any category. Know what your slower-moving SKUs are and determine if you can afford to have them take up valuable retail selling space. (The physical amount of space a product takes up is space that cannot be used to sell another item.) It is a fact that larger-size products drive higher activity-based costs.
Having said this, additional space beyond the 4 feet would best be used to optimize profits on other growing subcategories within HBC. For example, a recent report showed vitamins were growing 10.1% based on year-end sales through December 2011. Health, wellness and energy show a positive trend that continues to grow, which provides opportunity for known brands.
Understand your HBC customer. With the exception of regional favorites, they prefer national brands, and these will be the core on which to build. Structure plan-o-grams from the core out and group products by brands and subcategories so that you block by segment and by brand to increase purchases of related sales and for an inviting, visually pleasing appearance. Not having a subsegment represented can lend itself to a lost sale for the retailer due to customer dissatisfaction.
HBC opportunities certainly exist. In the current economic conditions and with more Americans than ever without health care, consumers will increasingly self-medicate. Leverage the profitability and the inherent space efficiencies of the smaller-size single- and double-dose OTC medications and trial-size items to increase variety so that you can take care of the majority of your customers’ needs.