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A third opportunity: natural HBC.

While the natural pet care and scrapbooking categories represent two extremes on the opportunity curve, perhaps a more typical opportunity is that represented by the emerging natural sector in the health and beauty care area. Here, the picture is more mixed--there's some real opportunity, but perhaps not as much as the hype artists would suggest--and the opportunity brings with it some specific baggage and obligations.

The natural HBC sector has become quite large over the past five years, growing 11 percent annually to $5 billion in 2004, according to New York-based research firm Packaged Facts. This growth has come in all four of the major HBC sectors: skin care, hair care, oral care, and cosmetics, with all but cosmetics growing 10 percent or better per year. And it's anticipated that this growth rate will continue, at least for the next few years. Packaged Facts estimates that the market will increase about 8 percent annually through 2010, growing the sector to almost $8 billion.

But this growth doesn't come out of thin air. While there are a few bohemian types who only began brushing their teeth when natural toothpaste became available, the vast majority of the growth in natural HBC is coming from the traditional HBC categories, according to some recent IRI data. And to compound matters, this growth is occurring in new classes of trade, in specialty stores like the Body Shop and Bath and Body Works, and in natural food megastores like Whole Foods Market and Wild Oats, so the net effect on traditional retailers--food, drug, and mass--is actually marginally negative, the data suggests.

Some traditional retailers have put in small natural HBC sections, but these have only allowed traditional retailers to keep up, not to grow, according to the data.

What's more, the classification itself is murky, Packaged Facts says. Certain mainstream CPG brands, like Neutrogena, have a natural halo, even though they're not actually natural, while other pure-form natural brands, like Tom's of Maine, add fluoride to some SKUs of their toothpaste, to meet consumer demand. Still other brands, like Ivory bar soap, aren't marketed as or perceived as all-natural, but just happen to be made that way, the report notes. I'd disagree with that last assertion: Ivory has always been presented as pure soap with natural ingredients.

Indeed, what really is or isn't a natural HBC product has been the subject of significant--and sometimes acrimonious--debate. This is because the definition of what's natural isn't regulated by the government.

Additionally, the growth created by the emergence of the natural HBC section isn't growth in units, but in dollars from sales of higher-priced goods. That is to say, the entire HBC category has grown a bit (about 2 percent per year) because of the emergence of the natural sector, but the growth is derived from selling $4 Burt's Bees lip balm instead of 69-cent ChapStick.

Perhaps it's a more appropriate analysis to view natural HBC as a part of the significant trend toward luxury HBC. The big idea appears not to be natural HBC per se, but rather that marketers understand that consumers are willing to pay high prices for products that deliver significant benefits. For some people those benefits include natural ingredients, but for others improved performance is the key. Some consumers are willing to pay $6 for Tom's of Maine Toothpaste vs. $4 for Crest, while others are willing to pay $40 for Oil of Olay Regenerist Night Cream vs. $10 for Lubriderm.

My sense of this market is that the big issue is consumers' willingness to pay for luxury, no matter how that's defined. For some, luxury is avoiding harmful chemicals, for others luxury is high-tech formulations, and for still others it's the latest, hottest color. The important commonality is that if consumers genuinely want something, they're willing to pay more for it, and to pay much more than previously imagined.

To see this in action, I only need to look in the mirror. Ten years ago coffee cost 75 cents and I never bought a cup, while today I gladly fork over $5 for my beloved Iced Vente Latte at Starbucks. If you had asked me in 1995 if I would ever be willing to pay $6 for a cup of coffee, I would have laughed you out of my office, but Starbucks has created an experience so superior to the old version that I'm glad to pay for it--and maybe buy a CD, too, while I'm there.

So the challenge for supermarket operators becomes a hard one: how to convince consumers that the supermarket is a good place to find new, superior products. Stocking these products is a good first step, but merchandising them appropriately is just as important. Artisan bread at $6 per loaf will sell, but only if it's merchandised and sampled, only if consumers can see, smell, feel, and taste what a superior product it is.

Similarly, superpremium HBC (and natural HBC as a segment of it), can be a huge opportunity for grocers if they truly get behind it, support it, merchandise it (with sampling and display, not reduced price, which isn't the point at all), and make it an integral part of the store's mission.

Supermarket operators have to choose among three courses here. They can ignore natural and superpremium HBC, and watch their HBC sales shrink. They can stock the latest and greatest SKUs, but not actively support the category, and probably hold dollar volume on lower unit volume. Or they can embrace natural and superpremium HBC, and enjoy the benefits of a dynamic, growing set of categories.
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Title Annotation:SUPERMARKET Nonfoods BUSINESS; health & beauty care
Comment:A third opportunity: natural HBC.(SUPERMARKET Nonfoods BUSINESS)(health & beauty care )
Publication:Progressive Grocer
Geographic Code:1USA
Date:Sep 1, 2005
Previous Article:A tale of two opportunities: if supermarket executives look beyond the obvious, they can find true prospects for incremental growth.
Next Article:Destination: nonfoods: general merchandise and HBC have gone from grocery's stepchildren to leading players in Stop & Shop's prototype format.

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