CHICAGO — While health and beauty care (HBC) and general merchandise are smaller in terms of dollars compared to center-store snacks and candy, packaged beverages or foodservice, they pack a serious profit punch. Profit margins typically start at 40% and rise to 60% or more for many HBC and general merchandise items.
In general merchandise, charting new territory is the theme, with fidget spinners compelling a consumer purchase one year and emoji-embossed ski caps the next. HBC isn’t quite as volatile, more consistently staying the course but also fluid with nuanced innovations.
Both are registering sales growth, too. C-store sales of health-related products rose 4.3% to nearly $2.1 billion in the 52 weeks ending Dec. 29, 2019, according to IRI. Beauty sales rose 1.9% to more than $127 million, although units were off for both segments.
Souvenirs, apparel, electronic accessories and automotive-type SKUs were among general merchandise pacesetters, responsible for the dollar sales growth of 2.8% to reach more than $3.3 billion, while units rose 1.7%, according to IRI.
Here’s a look at how and why retailers and distributors are shining a more intensive light on HBC and general merchandise in 2020 and also seeking sustainable opportunities to drive sales.
A host of new products is sparking greater impulse purchases in HBC and general merchandise. In HBC, retailers and wholesalers are placing a greater emphasis on vitamins—supplement and immunity-building varieties—adding depth to cosmetic and beauty offerings and considering cannabinoid (CBD) product opportunities. In general merchandise, the ever-changing electronics accessory market is keeping the category interesting, and the entry of iconic consumer packaged goods (CPG) brands into merchandise could lead to more robust baskets.
Stop and Go Shell in Bend, Ore., relies on its wholesaler, Core-Mark International, to help curate its set and sort through new items.
“We let our national distributor partner dictate [a percentage] of the category decisions, and when we see something that’s not moving, we get rid of it,” says Kizer Couch, co-owner of Stop and Go Shell, a 3,100-square-foot store. “We also go through a local vendor who can find new items more regional or parochial in nature—hot impulse grabs.” The store sells an abundance of durable gloves year-round to construction workers, with margins reaching 60%.
Erica Ward, marketing director for beverages, health and beauty care/general merchandise for Core-Mark, Westlake, Texas, sees “ingestible” beauty, in the form of supplements and vitamins, as an opportunity for c-stores. Core-Mark supplies a network of 45,000 c-stores, 60% of them chains.
While vitamin brands such as Centrum, Dynatabs and Nature Made have equity, operators can also consider private-label vitamins, which have been growing by double-digit percentages in the past few years, according to data from the Private Label Manufacturers Association.
Around general merchandise, Ward sees potential in broadening a c-store’s automotive portfolio to incorporate more car care products; one recent example is Armor All Original Protectant wipes, which could join standbys such as motor oil and windshield solution.
An emerging trend Ward points out is CPG brands expanding into new novelty and general merchandise categories. AriZona Beverage Co., for example, has found success in expanding its core beverage competency into merchandise such as T-shirts and other apparel and bottle openers.
“As a retailer, you might take a chance on branded merchandise, believing that loyal consumers would likely buy their favorite brand’s bottle openers and apparel,” Ward says.
Temple, Texas-based McLane Co. is also scouting for HBC and general merchandise opportunities that blend the core with more.
“We regularly discuss the types of items we want to offer early in the year and during the designated seasons to showcase them to our customers,” says Jennifer Hutto, manager of merchandising for McLane. This past year, Hutto saw a rapid expansion into novelties and toys across convenience.
“We see quite a few retailers designating more space to it, as it adds incremental sales and high-profit margins,” she says.
When 7-Eleven Inc. introduced its new Simply Me beauty line in early 2018, with a range of more than 40 products for eyes, lips and face, it demonstrated to c-store retailers the potential of embracing cosmetics and beauty merchandising more comprehensively. Simply Me was launched specifically for “millennial working women,” with price points in the $3 to $5 range.
“Traveling businesswomen might have forgotten a small case where they just need to fill some gaps and don’t intend to spend a whole lot,” says Ward, who sees opportunity for other c-store retailers. “We want to get them not to have to visit a local drug chain just for cosmetics and instead rely on a c-store.”
“The vitamin category [has] developed into pills, gummies and topical oils. There is a lot of upside.”
Core-Mark designed two parallel merchandisers to address this beauty care need: a 6-foot set packed with “external cosmetic” items, and a 6-foot configuration with “ingestible beauty” products such as healthy protein bars, collagen-based offerings and vitamins.
Ward sees a logical fit and greater investments for items such as chewy supplements and vitamins in c-stores for customers eager to combat stress and gain energy. According to IRI, vitamins were the top gainer in the c-store health segment, with dollars up more than 27% and units up more than 6% in the 52 weeks ending Dec. 29, 2019. It was led by brands such as Hemp Bombs and OPMS Gold Kratom products.
“The vitamin category, which was once considered multivitamins and [slotted in the] energy category, has evolved into vitamin offerings, stress relief and immunity builders,” says Hutto of McLane. “We have seen this develop into pills, gummies and topical oils. There is a lot of upside.”
To invite trial in convenience, category managers suggest creating a simple merchandising path to purchase by organizing vitamins and supplements to add clarity, along need states such as bone and joint health, immunity boosting and women’s health.
Filling the Gaps
Travelers who forget to pack items are core HBC and general merchandise customers for Genesee Country Store, a Conoco-branded unit in Golden, Colo., says owner Lorri Alden. While one-quarter of her customers are local folks, the other 75% are tourists. Due to Genesee Country Store’s location in the Rocky Mountains, Alden sells all the traveler staples. Ginger chews are displayed to settle people’s upset stomachs, often experienced at high altitudes. Pedialyte rehydration varieties help restore body fluids, and contact lens solution and lens cases are vital because eyes tend to dry out at high altitudes.
“Travelers also need oxygen when they arrive at 8,000 feet, and in 2019 for the first time we added a ‘no-brainer’ product in Boost oxygen canisters—supplemental oxygen,” Alden says. “But we had not offered it until last year, and it easily could have been part of our core for years.”
There’s fluidity across HBC and general merchandise, and overseeing core and secondary subsegments while paving the way for entirely new items, such as oxygen cans, can become burdensome. Alden relies on her distributor, Core-Mark, to help fill in gaps.
“We perform twice-yearly category resets with our Core-Mark wholesaler and in 2019 added not only the oxygen but new apparel—pink for ladies and camouflage hues for men—and executed a deeper dive into SKU counts on existing HBC items like analgesics and moisturizers,” Alden says.
Genesee Country Store expanded from two analgesic and sinus medications to four SKUs. Alden also stocks a medication merchandiser that’s more robust than others.
“Kids on trips to high altitudes can occasionally get sick, so we have to establish a multitiered approach to medicines,” she says. This means allocating space not only for adult products but also formulations for infants, toddlers and preteens.
The retailer also added a new assortment of souvenirs and larger variety of T-shirts.
“The recent reset saw a standard 4-foot inline merchandiser for both [general merchandise and HBC] doubled to 8 feet,” she says. General merchandise’s overall contribution to store sales rose 5 percentage points from 15% to 20%, while HBC’s contribution rose 4 percentage points.
Then there’s the CBD equation. Many industry stakeholders have integrated CBD gummies, topical oils, creams and more into their HBC sets. Core-Mark in late January partnered with Solari Hemp, a Longmont, Colo.-based farm-to-shelf wellness company offering premium hemp-derived CBD offerings such as tinctures, gummies, soft-gel capsules, pain creams, muscle balms and roll-on gels.
Solari’s line of hemp-derived CBD products, 100% free of psychoactive THC (tetrahydrocannabinol), will be distributed nationally through Core-Mark’s supply chain.
With this much innovation, HBC and general merchandise are punching above their category weight in 2020—but retailers need to stay on top of the trends to maximize the growth opportunity.
“These two categories are small parts of a convenience store but huge profit drivers, so you have to be on top of the trends through insights,” Ward says. “You have to say, ‘I believe in this product,’ and state a case for why shoppers need it.”