Winning back HBC sales: supermarkets have been on the losing end of HBC for nearly a generation. But grocery retailers can still win this battle, if they are willing to commit to the category.
Now nearly 20 years into this great experiment, many industry officials are wondering what happened to HBC in food stores. Instead of commanding market share in mass market outlets of nearly 50% as many predicted back in the early 1980s, supermarkets are scrambling to hold on to 20% to 25% of category sales.
Meanwhile, the mega-discount chains, such as Wal-Mart and Target, have gobbled up sales and market share. Today, discount stores control nearly 45% to 50% of all HBC sales in mass market outlets, with drugstores and supermarkets registering the remainder of volume. And, perhaps most interestingly, this decline in market share for grocery stores occurs as more chains add pharmacy counters in their stores.
What happened? According to a number of retailers and suppliers, the reasons are varied and complex. They range from discounters doing what supermarkets failed to do--take ownership of the category--to the failure of supermarkets to adopt a proactive stance and shed old business practices, including "pay to play" that has all but eliminated innovation in the category. A number of suppliers say--usually privately--that they have become extremely frustrated trying to get supermarket retailers to stock new items, offer a proper mix and, most importantly, refuse to become involved with companies that will not pay slotting or promotional allowances.
As if this wasn't enough, grocers' continuing struggle with price and perception issues, out-of-stocks and lateness to market with new product introductions has not gone unnoticed by consumers who seem to have lost confidence in supermarket's HBC.
"Honestly, I have sat in my office and discussed this trend for hours with my colleagues," says a vice president of sales for an East Coast oral care manufacturer. "It seems that supermarket buyers have dropped the ball at every juncture, and there is no vision to rebuild the problem."
Dunnan Edell, senior executive vice president for East Rutherford, N.J.-based CCA Industries, manufacturer of a number of HBC items, agrees that supermarkets are losing the perception wars. According to Edell, "Not only do consumers think they are getting a better deal at the discount store on HBC items, but they also have a larger selection to choose from there. Supermarket retailers just don't make the HBC aisle very exciting."
Still, many note that the battle for market share is far from over. With supermarkets still the leader in attracting consumers, many suppliers say that a coordinated effort to build the food store's image with HBC--especially if it is built around the pharmacy counter--can make the retail class a player again in the category. In fact, optimists believe supermarkets could become the dominant player in HBC sales by simply fine-tuning their merchandising and marketing strategies.
The recipe for a successful turnaround begins with retailers fully committing to the HBC category, developing a fair pricing strategy and understanding the full context of what value means to a shopper. To help set the stage for supermarket's improvement in HBC sales and share, retailers also need to pay more attention to new products, aggressively cross-promote the category and, above all, employ solution-selling strategies.
Some grocery retailers are achieving success with HBC by employing this multi-step strategy. Officials at Giant Food, a chain based in Landover, Md., are taking it to a new level by using physical and emotional elements to stimulate consumers and grab their attention. With an equal emphasis on appearance as well as assortment, the company's newest store, which opened in June in Rockville, Md., calls its HBC department, "Relax, Renew, Revive," in an effort to mentally change how shoppers view the department. The section is highlighted with various shades of soothing purple and designed to include nonlinear aisles that set the section apart from others.
The department is flanked by a U.S. Wellness center and full-service pharmacy, which has been relocated to the front of the store. "This is an exciting transformation for us," says Giant's President and CEO Dick Baird, who notes that the company relied on several industry specialists to help mold the new section and create a superior shopping experience. "The store offers shoppers the latest trends in merchandising and customer service. In the short time the store has been open, consumers have really responded to the change."
Courting consumers will always be key, says David McConnell, president of the General Merchandise Distributors Council (GMDC), a trade organization based in Colorado Springs, Cola. He adds that retailers sometimes lose sight of the fact that it can be a full-time job to keep up with the changing needs of consumers. "As a whole, consumers are not only much more value conscious today, how they define value regularly changes," says McConnell. "Retailers that believe consumers are willing to pay just about anything for services and products need to understand that that approach doesn't work anymore."
What these retailers fail to see, experts agree, is that price is only one part of the value equation. Value, notes McConnell, means giving consumers the assortment they need to meet the demands of their lifestyles, whether it's the ease and quickness of shopping, the dedication to new products or regrouping existing products into more meaningful solutions. "So many times we measure success by sales and overlook the imprint we make on consumers," he says. "How we make people feel, what type of impression we cast and the quality of experience consumers have in our stores are the true barometers of success. By plugging in to the consumer at multiple levels, we enrich their experience and increase the value that consumers get from us."
Marsh Supermarkets is an example of a service-oriented retailer that also understands the value equation. When consumers walk into one of the Indianapolis-based chain's new or remodeled stores, they are quickly greeted by a host of activities--from increased service to a host of new featured and promoted HBC products--to stimulate their senses.
"Prices are sharply competitive so that consumers are encouraged to make their purchases there rather than going elsewhere," says McConnell. "If we were to empower category managers to be change agents and gatekeepers, they would have less of a perfunctory role by switching their focus from margin pricing to being the consumers' eyes and ears. Innovative retailers demonstrate to customers that they know their shoppers better than their competitor."
George Fiscus, vice president, general merchandise for Bashas' Inc., a supermarket chain based in Chandler, Ariz., says the decision to become true category managers and develop a distinctive mix for each unique customer base has been instrumental in the company's attempt to recapture nonfoods sales. In part, this perspective stems from the belief that each customer base has different desires and needs that cannot be serviced by one mix. "Supermarkets still have the customer's attention more frequently than any other channel, yet declining industry market share in HBC reflects a shift in customer buying habits to other formats. Our long-term goal is to change that perception and swing HBC buying habits back to the grocery shopping trip," he says.
Fiscus says that Bashas' is focusing on each category and carefully analyzing what it can offer its customer that is both distinctive and appealing. To this end, company officials are digging deeper into their scan-based sales to better understand customers. "Our goal is to understand what the customer's requirements are for each section and then provide those items at reasonable prices," according to Fiscus. "When combined with the supermarket's established convenience, we will see sales increase in health and beauty care items."
Paying close attention to trends and new products has been a critical part of the turnaround, according to Fiscus. He says incorporating a variety of "trendy" items in nonfoods categories has, without exception, generated strong same store sales growth with sustained momentum. "Our customers' desires and their buying habits drove the change," he says. "We have also elevated the quality and retail 'envelope' in seasonal goods and introduced many items outside of the perceived grocery store mix with great success."
Retailers like Bashas' understand the need to change the role of the category manager and the importance of leveraging assortment as a strategy for differentiation, but many retailers still believe category management means studying other measured markets to judge their performance. "Retailers can no longer differentiate themselves using old metrics and measures," notes Bill Bishop, president of Willard Bishop Consulting, based in Barrington, Ill. That way of thinking, he says, fails to take into account some of the hottest retail channels today that are doing well in HBC. "Viewing the partial compared to the total picture is akin to shifting deck chairs on the Titanic."
Given that other retailers' performance has raised the bar and offered consumers a higher set of expectations, the time for action in the supermarket is now, suggests Bishop. "Supermarkets need to increase their focus on stores through merchandising and recognize that the value of the shopping experience combined with price, variety and promotion is critical," he says. "A few years ago, we would have considered elements such as environment nice to have but not necessary, and that's just not the case anymore. You need to make consumers feel as though they are in a different place."
For their part, suppliers have been working to supermarket operators make the category more top of mind with consumers. Partnership efforts are focusing on speed to market of new products and increasing sampling, clip strip programs and cross-merchandising opportunities to highlight existing products. Peter Thompson, senior trade development manager for Schering-Plough Healthcare Products based in Berkeley Heights, N.J., believes there are endless and inexpensive possibilities awaiting supermarkets looking to salvage HBC sales. "Retailers should begin by taking a long hard look at where their market share has gone and why. When they understand the 'why,' they can focus on leveraging the traffic they and stressing value, which is far more than just price," he says.
This message is clearer to some retailers than others, notes Thompson. "The best food retailers, from an HBC perspective, have gotten into in a big way and treat it like any category of value to them," he says. "They have a clear idea of who shops in their stores, target them and drive more items of value to the shopper. If it's important, you will advertise it, display it and tell people from your actions you are into it"
John Altenberg, vice president of marketing for Leiner Health, a nutritional supplement company based in Carson, Calif., believes there is an opportunity for retailers to improve HBC sales and share, and is guardedly optimistic that the industry can affect change. "Haven't these been the same issues and opportunities we've been discussing for five or 10 years?" he says. "For all the talk of wanting to be in the game, supermarkets still fail to leverage convenience to attract the HBC customer and further compound it by using ineffective promotions like TPRs and bonus buys, which just train shoppers to wait for price drops to stock up. Supermarkets would do themselves a favor by switching to everyday low pricing [EDLP]. Those who have gone to EDLP in vitamins find it gives the category a lift and the 35% to 40% margins they want."
Altenberg points to the prospect for supermarkets to leverage their interest and knowledge in wellness with food, but acknowledges the inherent challenge. "There is no doubt supermarkets have an opportunity with the growing acceptance of food as wellness--there is a synergy here that no other retail channel can match. The issue is are they up for the challenge? Look at the potential of marketing diabetes-related products as an example. Imagine the solution-selling opportunity supermarkets would have if they set up a display with a meal and beverage of the day designed to appeal to diabetics, as well as HBC items that help diabetics cope with blood sugar management. If supermarkets can do this for seasonal selling opportunities like July Fourth or Labor Day, why can't they do it for healthy lifestyles? If they did more to capture value and impulse like warehouse clubs and dollar stores have done, I believe supermarkets would get the lift in sales and share they want."
RELATED ARTICLS: HELP IS ON THE WAY
While on the surface it may seem as though a big cloud of gloom is eternally hovering over the HBC category in supermarkets, there are several things retailers can do to turn things around. For one, they can step up efforts with over-the-counter (OTC) products, which have long been the mainstay of the HBC category. Typically backed by heavy promotional dollars, OTCs carry attractive margins and most customers are comfortable and familiar with them even before they hit the stores.
In a just-released study, "Introducing and Merchandising New OTC Whole Health Products," The General Merchandise Distributors Council (GMDC), based in Colorado Springs, Colo., has taken on the task of reminding retailers just how important OTCs can be to HBC, both in terms of increasing foot traffic and margins. "There is a growing awareness with consumers that a self-reliant approach to health can help prevent serious illness and vastly improve quality of life," says Roy White, vice president of GMDC's educational foundation, which spearheaded the study. "OTCs are very much a part of the whole-health concept, which brands the store as a destination for products that enhance one's health," he adds.
According to the GMDC study, three out of four consumers purchased OTCs in an effort to lead a healthy lifestyle. The study found that retailers that fail to offer an extensive OTC program will struggle to be involved in whole health in any meaningful way.
One retailer becoming a leader in whole health and OTC promotion is Jewel-Osco, based in Melrose Park. Ill. The chain has an integrated strategy for health and OTC that includes unique whole-health signage and shelf merchandising, storewide cross-merchandising and new OTC product merchandising, in addition to regularly holding educational events and programs--all based around solution selling. OTC products are integrated with grocery items in some stores.
Jewel-Osco also uses the area around the pharmacy to promote OTC items in their cold and flu center and includes many other related items such as soup, facial tissues, aspirin, cough drops and nasal spray. This strategy takes into account consumers who may not travel down the HBC aisle during a regular or fill-in visit to the supermarket. By making shopping convenient, the chain has been able to post significant increases in incremental sales.
In the HBC aisle, the chain also highlights trial size and new OTC products with perpendicular shelf signs, trial-size packaging, pharmacy topper displays and end caps to foster customer excitement and enthusiasm. Jewel-Osco also merchandises new OTC drug products in countertop displays at the pharmacy. In addition to introducing information at a convenient time during consumers' shopping trips, placement at the pharmacy implicitly endorses the product, which according to the GMDC study significantly drove awareness and sales.
GMDC identified four areas where retailers can enhance OTC/whole health offerings: including personal counseling services, providing information and content services such as kiosks, featuring low-risk introductory products and highlighting items through permanent new product sections. To support information-rich departments, it is crucial to have trained associates and to expand the consultative role of the pharmacist. Certified nutritionists, dieticians or disease-management experts can provide weekly consultations or host occasional events.
PHARMACY CONTINUES TO GROW AT GROCERY
Grocery retailers may be struggling with the HBC category, but the same cannot be said for pharmacy, the department many consider the linchpin for overall HBC success. For the fifth straight year, prescription sales (as a percentage of total store sales) and volume increased despite operating fewer hours, according to the Washington, D.C.-based Food Marketing Institute's Report from the 2002 Supermarket Pharmacy Survey.
In-store pharmacies also continue to increase market basket share in terms of total store sales and nonfoods sales, the study noted. When asked about the effect of a pharmacy department on total store sales, all survey participants noted store sales increased. Half experienced increases of less than 6%, while one-third said they saw an increase of at least 10% of in-store sales. HBC fared a bit better with half of participants seeing an increase between 1% and 10% in HBC sales, with four in 10 experiencing an increase in HBC sales of more than 20%.
Perhaps the biggest news concerns prescription volume movement. According to the study, supermarket pharmacies recorded the largest gain in prescription volume between 2000 and 2001, surpassing all other retail pharmacy outlets. In all, supermarkets filled 418 million prescriptions in 2001, up from 389 million the previous year. The median average weekly prescription sales per super market was $39,017, an increase of almost $1,000 from 2000.
Not only were sales and volume up, there was an 18% increase the number of supermarket pharmacies in operation, which went 8,800 in 2000 to nearly 9,300 in 2201, noted the FMI report. Mich Del Toro Jaketic, research manager for FMI, says the data demonstrates that pharmacies remain an essential component of food retailing operations and supports pharmacy's ability to attract customers by providing them with the convenience of shopping for food while fulfilling their health needs.
On the downside, despite industry recruiting efforts, the pharmacist shortage continued to worsen in 2001. The leading pharmacy trade group, the National Association of Chain Drug Stores, reported 7,744 unfilled pharmacist positions in the United States, an increase of more than 1,000 openings from the previous year. As a result, about 40% of respondents said they are cutting pharmacy hours to cope with the pharmacist shortage and more are relying on central fill, the Internet and automated telephone answering or interactive voice response services to assist with information, taking orders and filling scripts
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|Date:||Sep 1, 2002|
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