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Discounters gain more ground in H&BC – health and beauty care products

Discounters gain more ground in H&BC – health and beauty care products – The DSN Productivity Report

One Source is the name of a specialty nutritional supplement store being tested within Wal-Mart stores in Bedford, Texas, and St. Louis. Both units were opened this year to further capitalize on several years of dramatic nutritional supplement sales growth. Wal-Mart plans more of the store-within-a-store units, with Florida mentioned as one state slated for expansion. Wal-Mart spokesman Dale Ingram said the One Source stores are a test, and the ultimate rate of expansion will be determined by the success of the initial stores. The prototype is named after Wal-Mart’s highly successful nutritional supplement, which was introduced this year. According to Wal-Mart executives at the annual shareholders meeting in June, One Source, a proprietary formula, was responsible for $12 million in profit, roughly twice the volume of the leading national brand.

The driving forces in the nutritional supplements marketplace continue to be greater flexibility in making product claims and the extensive mass media publicity received by vitamins and herbs. Stories on the benefits of nutritional supplementation routinely appear on local and national television programs and in high profile publications such as lime and Newsweek. Herbs are the fastest growing part of the market, but their usage in the United States is still nowhere near the penetration rate found in many European and Asian countries.

To improve its in-stock position in the sku intensive H&BC department, Wal-Mart is relying on more prepackaged shelf displays from manufacturers. The tactic also minimizes the time store associates spend restocking shelves. It’s particularly effective with travel-size products since each item doesn’t have to be handled when restocking a display; an associate simply cuts open the display.

H&BC products are getting a lot more exposure these days at Kmart under the Big K high-frequency format rolling out to stores. With the new store layout, Kmart’s H&BC department is located close to the famed Pantry department of consumables and commodity items, which is attracting increased traffic in the store.

Kmart also should be able to post a profit boost from H&BC now that its offerings include a fully developed and consistently executed private label program under its still growing American Fare label. The 90’s may be remembered as the decade of the Rx-to-OTC switch, but lately the pace of prescription drug conversion has come to a standstill. The most notable switches recently have been the anti-allergy product Nasalcrom and the antifungal Vagistat 1. During late 1995 and through 1996, the FDA granted marketing clearance for a dozen products to be sold without a prescription. Some products, such as Pepcid AC, Zantac 75, Rogaine and Nicoderm CQ, have become household names. Other products, such as Orudis KT, Actron and Axid AR, have floundered.

Industry insiders are forecasting the next Rx-to-OTC products may be nail fungal infection treatments and, eventually, some of today’s most popular non-sedating anti-histamines. Those categories represent new growth opportunities as opposed to switch products, which do nothing to expand category sales and simply steal share from older brands.

It remains unclear what role retailers that sell OTC products will play in a health care system becoming more reliant on the use of non-prescription drugs. OTCs are often cheaper than prescription products, and they can help patients avoid a costly trip to the doctor. Those factors, along with the increased number of products previously available only by prescription, mean a growing number of HMOs are relying on OTCs as a first line of therapy. By 1998, 78% of HMOs will include OTCs in what are known as step-care protocols. That’s a significant increase from 1995 when 40% of HMOs promoted the use of OTCs. The findings come from the fifth annual trends and forecast report from Novartis, the name adopted by CibaGeneva and Sandoz Pharmaceuticals following their merger last year.

Decliners exceeded gainers on 1996’s store brand H&BC scorecard. Information Resources Inc. sales data for 44 categories indicates unit volume declined in 22 categories and increased in 20. Since store brands are generally less expensive than national brands, unit volume is regarded as the best indicator of store brand performance. The biggest gainers: incontinence, 6%; contact lens care, 3.8%; first aid treatments, 4.8%; laxatives, 5.3%. The biggest decliners: cotton balls, -12.4%; moist towelettes, -2.5%: vitamins, -5.6%. Most other declining store brand categories dropped less than one percentage point.

H&BC Productivity

Department size 2,594 sq. ft.

Sales per sq. ft. $426.75

Turns 4.4

Initial markup 22.57%

Gross margin 20.42%

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COPYRIGHT 2004 Gale Group