IN A PINCH

The big-volume health and beauty care products are being squeezed in increments at grocery stores.Although it's not great news for supermarkets, things could be worse, especially when compared with the market-share erosion in the drug channel of the mass market. Supermarket retailers saw their share of the pie shrink in six of the top 10 dollar-volume HBC categories in the grocery channel in 1996.Market

The big-volume health and beauty care products are being squeezed in increments at grocery stores.

Although it's not great news for supermarkets, things could be worse, especially when compared with the market-share erosion in the drug channel of the mass market. Supermarket retailers saw their share of the pie shrink in six of the top 10 dollar-volume HBC categories in the grocery channel in 1996.

Market share was maintained in internal analgesics (35.3%), cough/cold (34.2%), antacids (34.6%) and cosmetics (14.6%), according to InfoScan scanner data supplied by Information Resources Inc., Chicago.

When compared with the drug channel, the grocery picture brightens somewhat since market-share losses were in tenths of a percentage point rather than entire digits. Drug stores, the big losers in these mass market categories, lost share points in all 10 HBC categories and suffered single- and double-digit sales deficits in eight of the top 10.

The winners are the mass discounters. They again grabbed single-digit share points in all 10 of the highest-volume HBC categories tracked at supermarkets. Most of these increases in share points came at the expense of drug stores. Antacids, for example, turned in the biggest gain for mass merchandisers, with a dollar volume leap of 41.6% to $399 million and a share increase of 4.8 points. Although antacids were one of the few categories in which drug stores enjoyed a sales increase -- of 13.7%, the channel lost 4.8 points in market share. This was the exact market share gain posted by the discounters.

Overall, the leading HBC categories turned in a total of $18.2 billion in sales, representing 43.4% of the total $41.9 billion in all 50 HBC categories tracked by IRI in the mass market channels.

Looking at individual product categories, antacids, up 25.1%, and vitamins, up 9.8%, posted the greatest sales growth among all three channels.

Price competition from the mass merchandisers also put the squeeze on supermarket margins in these commodity categories. Many grocery chains are merchandising high-volume HBC products to draw traffic rather than make real profit, given the commodity pricing strategy of the discounters.

What follows is a review of sales results for each of the individual top 10 HBC categories and a look at some of the trends and factors that affected category growth and distribution last year.

ANALGESICS

Annual Volume

$955.8 Million

Market Share

35.3%

% Change

+ 1.3%

Pain relief produced a few headaches for suppliers as well as retailers last year.

Supermarkets were able to maintain their edge as the market-share leader in this highest-volume HBC category tracked in grocery. Drug stores, meanwhile, dropped 19% in sales and gave up 2 share points to mass.

Despite the entry of Actron from Bayer, category sales rose just 1.8% in the $2.7 billion industry.

Industry observers speculated that part of the reason for the small increase was the fierce infighting among leading brands for share points, which again resulted in high-profile ad wars among manufacturers of leading over-the-counter analgesics.

The issue focused on product usage in combination with alcohol consumption, which could result in liver damage, and the adequacy of alcohol-warning labels on manufacturers' products.

All this contention has led some to suggest it has caused consumer confusion and led many to re-evaluate the safety of all pain relievers.

Cannibalization among the competing brands has produced limited sales growth in the category despite the influx of prescription to over-the-counter switches.

Analgesics still remain a cornerstone of supermarkets' HBC departments, but they have become a highly competitive category with price points being driven down due to competition from mass merchandisers.

SANITARY

NAPKINS/TAMPONS

Annual Volume

$823.8 Million

Market Share

48.4%

% Change

- 2%

The commodity nature of feminine protection products, which are heavily promoted at grocery chains, continues to drive dollar volume down.

Grocery chains suffered a decline in this category even though the channel still captured the major portion of market share compared with the other two channels.

As in all 10 categories, mass merchandisers enjoyed a significant increase with a 9.7% jump in sales, at the expense of both supermarkets and drug, which declined 2% and 6.6%, respectively.

Despite a proliferation of stockkeeping units in new styles, designs and materials, the overall feminine protection category remained flat at $1.7 billion.

A new tampon alternative, Instead from Ultrafem, which collects menstrual fluids rather than absorbs, was tested on the market last year. Grocery chains such as Safeway, Albertson's, Lucky and Fred Meyer Inc., were targeted as trial sites. The product offers retailers a 20% plus margin, which is considerably more than retailers are now getting on sales of traditional protection products. Those items are often footballed in price and yield margins in the 4% to 8% range.

In general, supermarkets are using feminine protection as a traffic builder by heavily promoting and featuring the category in ad circulars and in-store specials.

TOOTHPASTE

Annual Volume

$706.6 Million

Market Share

48%

% Change

- 1.9%

Toothpaste lost some of its brightening power in 1996 even though 48% of its total dollar volume is generated at food stores.

Overall toothpaste volume remained flat at $1.4 billion. Mass merchandisers enjoyed the most sales growth, at 8.5%, while drug dropped 4.8%.

The category remained flat despite the testing of multicare products such as Procter & Gamble's Crest MultiCare and the expansion of the specialty segment with brands such as Arm & Hammer Dental Care Extra-Whitening and Sensitive Formula and Colgate Baking Soda & Peroxide Whitening, which was introduced at a price point on par with regular Colgate.

Line pricing of specialty type products has caused food retailers some angst in the past because they believe they can earn higher margins if price points are increased.

COUGH/COLD

Annual Volume

$663.1 Million

Market Share

34.2%

% Change

- 5.7%

Cough/cold is like the weather, with performance depending on the unpredictable ups and downs of the epidemic seasons.

The 1996 season appeared to be a mild one for cough/cold. Grocery chains posted sales losses equal to the $1.9 billion category's overall decline of 5.5%.

Yet many food chains have been aggressive in using cough/cold as a seasonal volume builder. The category is characterized as a high-impulse buy and unplanned purchase for most consumers. Drug stores remain the dominant share holder in the cough/cold category with a 42.8% share of dollar volume. However, sales within the channel sank 9.7%. Mass merchandisers posted a modest sales gain of 3.8%

This year, Nasalcrom was introduced by McNeil Consumer Products for allergy sufferers. It remains unclear how this new nasal spray will affect retailers' cough/cold departments. Many chains are merchandising the spray in their cough/cold sections. It also is being sold at the high price point of $9 or $15 for either a 13-ml or 26-ml bottle. However, IRI said it will probably track the product under the $306 million nasal spray category.

Another interesting development last year was the phenomenal sales of zinc lozenges, which received a lot of media attention as a "cure" for the common cold. The remedy is supposed to dramatically alleviate the severity and duration of the common cold.

deodorant

Annual Volume

$589.5 Million

Market Share

40.7%

% Change

- 1.6%

Deodorants have become a mature and flat category.

Food stores experienced sales declines in this department, indicating there is a great deal of pressure to remain competitively priced with the mass merchandisers. However, grocery chains still hold the dollar-volume leadership position.

Meanwhile, mass merchandisers picked up 3.3 share points last year, with their deodorant sales increasing 7.7%. Drug store sales declined 5.7%.

The $1.4 billion category is made up of many competing brands that are fragmented into sub-segments. Consumers tend to be very brand loyal, said industry observers. Retailers, therefore, are obliged to offer their customers a broad selection of products and maintain the many SKUs in the category.

Although sticks comprise the majority of sales, 57%, the clear gel antiperspirant/deodorant segment has established a foothold in the category and now comprises about 14% of the U.S. market, according to research reports.

The movement to clear has penetrated the stick segment, with clear sticks launched last year in the Gillette series and Right Guard line. Colgate also introduced Lady Speed Stick Invisible Dry earlier last year

shampoo

Annual Volume

$578 Million

Market Share

39.3%

% Change

- 1.3%

Lackluster and flat are the words describing 1996 sales in the $1.47 billion shampoo category.

As total category sales were off by 0.8%, food-store sales declined 1.3% and ran neck and neck in market share with the mass merchandisers.

The bottom again fell out of shampoo sales at drug stores, which were down 10.8%. The channel gave up 3.2 share points to mass.

According to a report on the hair care market published by Datamonitor, a company that analyzes various consumer product segments, the focus in the shampoo segment has been on healthy hair. Led by Procter & Gamble's Pantene Pro-V, an entire range of products containing added-value hair health-enhancing ingredients has emerged.

Standard shampoos accounted for 57% of the category in terms of value in 1996, a share that has fallen from 64% in 1992. Much of the movement in the category has come from one-step shampoos, representing over 30% of the category last year. Two-in-one shampoos and conditioners continued strong.

The color shampoo segment also has been active, due to the growth of the $996 million hair-color market, which was up 3.6% last year.

The hair repair segment holds promise for the entire hair care category. Progaine shampoo was launched last year in conjunction with Rogaine by Pharmacia & Upjohn. Consort introduced Hair Regrowth for Men, a minoxidil product, as well as a Concentrated Daily Cleansing Hair and Scalp Shampoo for Men, formulated to enhance hair regrowth.

vitamins

Annual Volume

$507.3 Million

Market Share

24%

% Change

+ 6.9%

It's been an energizing year for vitamins in all three channels of trade. Last year the vitamin category turned in one of the healthiest performances of the 10 volume products. Sales in the $2.1 billion category rose 9.8%.

Drug stores controlled the majority of the dollar volume with nearly a 50% market share. Sales in the channel went up 3.9%. Food stores enjoyed a 6.9% increase. However, sales at mass merchandisers zoomed 25.6%, indicating an important shift in category distribution.

As dietary supplements have become more mainstream, pricing becomes an increasingly important selling point. Mass merchants have been able to gain share in the category by carrying branded lines and pricing them more competitively than health-food stores, analysts pointed out. The steady introduction of innovative products is a primary marketing trend in the industry. Well over 800 products were launched in the first 10 months of 1996, according to a Packaged Facts report. Melatonin and DHEA became hot new products last year and generated a lot of media coverage.

antacids

Annual Volume

$463.3 Million

Market Share

34.6%

% Change

+ 25.6%

The stomach-remedy category climbed from 10th to eighth place in HBC last year at food stores. In terms of sales growth this proved to be the most robust of all the 50 categories tracked by IRI. Total sales skyrocketed 25.1% to $1.34 billion.

Food stores held comparable market-share positions as drug stores, a 34.6% and 35.6% share, respectively. All three channels posted strong growth -- up 41.6% for mass merchandisers, 25.6% for supermarkets and 13.7% for drug. Despite this activity, mass merchandisers were able to gain 4.8 share points from drug.

All this growth has been the result of the emergence of the H2 antagonist segment, with Pepcid AC from Johnson & Johnson/Merck and Tagamet HB from SmithKline Beecham going over-the-counter in 1995.

Zantac 75 from Warner Wellcome Consumer Products and Axid from American Home Products entered the market in 1996. Mylanta AR from Johnson & Johnson/Merck entered the H2 antagonist arena earlier last year. Children's Mylanta also debuted last year. As the sales numbers indicate, mass retailers have made sure the products were in stores on time and have been aggressive in their promotional support.

razors

Annual Volume

$430.7 Million

Market Share

37.4%

% Change

+ 3%

Supermarkets held on to a razor-thin margin in the battle for market share in the razor field.

Mass merchandisers outpaced food and drug stores in razor sales, jumping 14% in sales and increasing market share by 3.5 points over the previous year. Supermarkets, meanwhile, held on to a slim dominant market-share position with 37.4% of sales volume. Drug stores declined 2.3% in the category.

Overall, the $1.1 billion razor market posted good sales growth at 5.2%. This was aided by strong advertising support by brand leaders and sampling programs.

The market leader, Gillette, continued to boost dollar volume with the introduction of the Sensor Excel for Women. Approximately 30% of the women using the Sensor Excel traded up from Sensor and approximately 60% were previously disposables users, according to a research report put out by Salomon Bros.

Gillette is hoping to lure male users of disposables to the higher-priced shaving systems through a new marketing campaign that demonstrated a much smoother shave with the Sensor Excel.

cosmetics

Annual Volume

$425.9 Million

Market Share

14.6%

% Change

+ 4.6%

Technology has driven the $2.9 billion cosmetics industry with innovative formulations. Among some of the innovations are products that are long-lasting, vitamin-enriched and/or natural, and formulations for sensitive skins and those that provide some form of protection.

Although share within the food channel remained small at 14.6%, dollars grew to 4.6%. Chains such as Pathmark, Randalls, Vons and Wegmans have been aggressive in developing this category. A problem has been the high number of SKUs and the few turns per year.

Sales at mass merchandisers, which rose 5.5%, reflected the resurgence in cosmetics sold at discounters over the last few years. More upscale destination departments have emerged, emulating the department stores in look and presentation.

Drug stores, while holding on to their market-share leadership position, lost 14% in dollar volume last year.