The Best Medicine
HBC offers great opportunity to prop up profits as other categories mature
MILFORD, CONN. -- As the share of profits from cigarettes and fuel face imminent declines, and major in-store categories mature, it's a great time to focus on growing "secondary" categories, such as health and beauty care (HBC). This was the message in a recent CSPNetwork CyberConference, "Spring Into Opportunity & Profit in HBC," led by representatives from Johnson & Johnson, New Brunswick, N.J. [To view an OnDemand replay of this CyberConference,click here (free download; retailers and wholesalers only).]
"[image-nocss] We don't think it's a destination category, we don't think it's 10% of your sales," said Vince Licari, convenience business analyst for Johnson & Johnson, during the CyberConference. "But we do think...at some point, through good, best-in-class methodology, this category can be a really good profit generator for your store."
Licari cited HBC's average 40% to 42% gross margin and a strong penny profit per unit for the category's particular appeal. He also pointed to 2008 research from Information Resources Inc. showing that HBC items typically make it into the basket for the 65% of c-store visits that involve five purchases or less.
Meanwhile, Johnson & Johnson's own research reveals that the c-store channel is not giving the HBC category its due attention. Consumers who participated in the company's 2008 study commented that, based on the HBC section's less prominent location and sometimes poor upkeep, c-stores clearly don't "care about" or "stand for" the category.
"They would like to see it cater to them, just like their coffee bar," said Licari. "That's the trick for us, that's the rub, if you will: to find the linkage of converting that shopper behavior into thinking and coming to believe that convenience can serve their headache and stomach remedies as well, and not just their coffee bar."
Based on consumer feedback, the Johnson & Johnson study suggests increasing the section's visibility through placement and signage, and pricing products "fairly," or within 10% of drug-store prices.
The company also has developed a category-management methodology that centers on four basics: examining consumer insights and focusing on SKU assortment, shelf layouts and merchandising. For example, because 16 major brands supply 70% of a c-store's HBC business, Johnson & Johnson and its broker, Sell-Thru Services, work with retailers on identifying the top-tier brands within each segment, and finding gaps in the offering by examining a retailer's POS data and comparing it to IRI data.
"This structure allows us to hone in on market share and match it to consumer demand," said Licari. "This really optimizes the changes we make. At the end of the day, you really have no room for error in a 3- or 4-foot setyou've got to get the right brands right the first time."
Mike Maslen, vice president of sales and marketing with airport retailer Hudson News, East Rutherford, N.J., shared how his company was able to grow sales by practicing this methodology. Hudson focused on adjacencies, bringing the right brands into its sets and getting a jump on new items. The retailer also developed custom counter displays to grab more impulse sales. A new Dramamine display, for example, increased sales two-fold for the product alone.
"We try to utilize the impulse side to the front of our stores and where we have the category merchandised in the back so we can take advantage of both ends and make sure we're maximizing the sales potential," said Maslen.
A new product focus is especially relevant as Johnson & Johnson begins shipping a new three-count convenience pack of its Zyrtec allergy medication, which previously had been available in a five-count version. The price point on the larger package size stymied sales, but the three-count makes it a much more price per pill, even at the highest margin.
"It's really important to make customers feel good about purchases and not feel that they've been completely been ripped off when they walk out of the store," said co-presenter Dona DiCaro, a customer business manager for the convenience channel at Johnson & Johnson. "In this case, the customer can walk away feeling good about the purchase, and will come back when they run out again."