Staying in the HBC business

HBC sales are struggling at grocery stores. But is this the right time to get out of the business?

By Seth Mendelson

The age-old debate continues. Should supermarkets be in the health and beauty care business? And, if the answer is yes, the next question is what do retailers need to do to maximize the sales potential of the HBC category?

Make no mistake about it, HBC still adds up to big dollars at the grocery store. Industry officials estimate that supermarkets garner between 20% and 22% of total HBC sales in mass market outlets and while this is way off the highs of more than 30% of two decades ago, it is still not bad.

The problem, of course, is that most supermarket executives still do not get the HBC category or, as one industry official notes, they do not want to get the HBC category. “Many just want to get out of the HBC business,” he says. “They would prefer to put their resources and store space to other uses, primarily uses that do not include nonfoods and especially health and beauty care.”

The other side of this story is that HBC brings in lots of money for grocery retailers. Industry figures show that the HBC aisle accounts for as much as 12% of a typical supermarket’s profits and margins in the category can range up to 40% to 55%. The pharmacy also adds a bit to the category. Not only does the addition of a pharmacy counter bring more people in for prescriptions, it also helps to create greater volume in the HBC section.

So for those willing to stay the course with HBC, it is very important that they develop a merchandising strategy that combines the most popular items with product introductions that generate the greatest buzz in the industry. A case in point was Gillette. The company’s Mach3 cartridges showed a nearly 8% drop in dollar volume in the year while its newer Fusion cartridges registered a solid 19.6% increase in dollar sales.

As can be seen from the charts provided by Chicago-based Information Resources, Inc., HBC brands struggled in grocery stores over the past year. None of the five largest brands showed any dollar or unit sales increases and only four of the top 10 (Depend adult incontinence products, Dove bar soap, Nature’s Bounty minerals and Nature Made minerals) produced any type of positive growth numbers in the tracked period.

Vitamins, in particular, were a good story to tell in the last year. A number of vitamin brands produced healthY sales growth in the tracked period, a performance one category executive says is due to aging baby boomers and new information that vitamins actually do work.

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