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Convenience store operators nearly everywhere will admit that chain drugstores are looking and acting more like c-stores every day, with their traffic-grabbing corner locations and beverage-snack-and-cigarette product mixes. So it probably should be no big surprise that drugstores, not to mention supermarkets and mass merchandisers, are taking back some of the HBC business that c-stores had managed to woo.
Since convenience is no longer limited to convenience stores, customers can easily pop into a local CVS or Walgreen's for a stomach remedy, aspirin or other health or beauty item.
"Drugstores are so convenient now with good locations," said Rich Mione, vice president of marketing at Worsley Companies, based in Wilmington, N.C., operator of Scotchman and Youngs Food Stores. "Ten years ago, we were the outlet if a person had a headache at night, but now with the 24-hour drugstores, they have taken away the convenience we offer."
Drugstores, supermarkets and mass merchants stock larger sets, and buy in such enormous quantities, they are able to offer a significant price advantage, especially over the operators of very small chains or single stores. "We are just not getting the bulk pricing they are getting, so it's hard to compete," said Rob Escovedo, general manager at Friendly's Sinclair, a single c-store in Helena, Mont. "People have to be pretty desperate to go into a c-store and pay $11 for a bottle of suntan lotion."
True, perhaps, but aren't convenience operators who opt out of the category, or offer only the smallest selection, missing potential sales, and setting themselves up to disappoint customers?
Greg Moore, director of marketing at Lil' Drug Stores, believes convenience stores must focus on HBC essentials: "With c-stores, you are dealing with immediate consumption purchases, where a customer will use the purchase within 10 to 15 minutes after buying. But your other stores — like drugstores or mass merchants — are less about immediacy, and more about sampling and traveling."
Moore said that if an operator's driving philosophy for the HBC category is "small but necessary," he is on the right track. "I think for the most part c-stores are right on when it comes to HBC," explained Moore. "They need to concentrate on maximizing the selection and getting the right product mix to maximize the assortment without investing a tremendous amount in their inventory." Lil' Drug Stores is a c-store distributor in Cedar Rapids, Iowa.
Procter & Gamble, the Cincinnati-based manufacturer of products such as Scope mouthwash, Secret deodorant and Crest toothpaste urges c-stores to take advantage of their share in HBC. "C-stores have the opportunity to capture their fair share by filling a particular need," said Michelle Tobler, manager for the convenience store channel team at Procter & Gamble. "If a person is sick, on their way home from work and in need fuel, what better place to pick up your cough/cold and analgesics needs? If you are fairly priced and carry the top brands, you can be that consumer's location of choice."
Expansion or Extinction
Competition from across retail channels is a key factor in the HBC challenge, but some retailers say suppliers must address c-stores' specific needs.
"I'm not so sure there are good category managers with manufacturers that are coming up with assistance for our industry, and I think this is needed," said Mione. "To brokers, we are small in their playbook as well."
Some retailers say they would love to expand the category, but it's hard to find access to the products and the expertise they need. Escovedo wanted to do displays in the summer with suntan lotions similar to those found in grocery stores, but said it was not really available to him. "The availability for us is just going away," he noted. "I think suppliers are following the same trend as we are and just backing away, which makes it harder for us when we want to expand our section."
7-Eleven has been successful so far by adding an expanded line of pantyhose, lipstick and other cosmetics aimed at the female shopper, and this is what Procter & Gamble is recommending for c-stores to do. "If you are trying to attract the female shopper, you should consider increasing the space and tying a number of categories together in the space, like pantyhose, feminine care and baby care as an example," said Tobler.
But it seems the major players are the few pulling it off. Others are sticking with what they have, and concentrating on stronger c-store areas like food and beverage. "I've been impressed with the c-store layouts because they have focused on what works, and that is the food and beverage products," said Bill Steele, household products analyst for Bank of America Securities.
The bottom line concerning HBC is whether seeking growth or maintaining status quo, it still remains an important category to c-stores — however, large or small it may be.
A Shrinking Category
Years ago, many a convenience store boasted a section of health and beauty products measuring eight to 12 feet. But today the average c-store HBC set is about 4 feet.
"HBC sets in c-stores have been getting smaller over the years," said Moore. "With foodservice getting bigger, it is taking more room. Also, with the tobacco and gas price issues, c-stores are trying to find new sets in the store and so they are taking space away to make room for new things."
This is what happened at Worsley Cos.' stores. The company is currently sticking with the average four-foot set, but it wasn't always this way. "As we expanded fast food, coffee and snacks, HBC was a category that traditionally showed it was over spaced, so we took away from it," said Mione. Right now he feels there is a need to continue carrying HBC products because the consumer expects it. But it may not be that way in the future.
"The c-store industry has to continue to look at this category and decide to get in or get out, especially with snack items and other categories growing," noted Mione. "The day may come when we are looking for another 4 feet, and the HBC category may go."
Most people agree the category is getting smaller, but not everyone believes it will totally die out. "We've just let the section get smaller and smaller, and fill it with categories that have a quick turnover," said Escovedo. "We have a four-foot section, and I don't foresee us ever dropping less than that. You still have to carry what's needed."
When it comes to pharmaceutical product size, opinions vary on whether it's better for c-stores to carry single-serve or large-size bottles. But the one consistent factor is that both options should be made available to satisfy all customers.
"We do a lot of category management and planograms for large stores, and we advocate a mix between a large size and trial size," said Moore. "If you go with only trial size, you will lose customers. There are two kinds of consumers – one is looking for value and will buy the large size, and the other is looking for immediate relief, and he or she will buy the trial size."
In terms of profit, manufacturers make more money providing the larger sizes, but often retailers put more money in their pockets selling the single-serve sizes. "Most of our growth and volume is in the single-serve packages," explained Mione. "In units we sell more single-serve than the large packages."
However, in order to satisfy everyone, and compete channel wise, most c-stores continue to carry both. "We definitely carry more single serve, but we carry a good assortment of the full-size packages as well," said Escovedo. "You still have to carry what's needed. Plus, I have a Safeway on one side of me and an Albertson's on the other, so I'm full of hypermarket competition."
In addition to these two options, Pfizer stresses the importance of finding a middle ground. The company, manufacturer of Visine, Rolaids, Listerine Pocket Packs and Sudafed, counsels c-stores to also offer a 12-pack to meet the immediate needs as well as future needs.
"A Tylenol tube is a good example because it bridges the gap between the single-serve and the large size," said John Gorman, director of convenience at Pfizer. "Not only is it 12 pieces, which is enough for six doses, but it is a portable package. This will allow the consumer to get through more than one need state."
Pfizer's new group of category captains of several c-store chains will develop category management tools to find best-in-class ways to grow the HBC category in the c-store environment. The company advises meeting as many needs as possible within their HBC space.
"The role of the category should be to meet the widest array of consumer need states within the confines of the space," said Gorman. "You don't need 14 brands of one product type or need state. Only carry one brand or one size per product type."
But overall, Gorman emphasizes the need for c-stores to stay in the HBC business. "Convenience stores own convenience. They are never going to own variety, but there is a role for HBC within this channel."