By Sarah Hamaker
After years of lackluster performance, the health and beauty care category posted positive advances in 2011and appears poised to do the same this year. Driven by energy shots, health and beauty care (HBC) surged past general merchandise to capture the number 10 spot on the Top 10 Category Sales for 2011 sorted by gross margin contribution, according to NACS State of the Industry (SOI) data.
"The sales numbers within the health and beauty care category have been explosive since NACS classified energy shots as a sub-segment of HBC," said Tom LaManna, director of marketÂing for Convenience Valet. "Even when excluding the energy data, core HBC items have grown slightly."
Health and beauty care rose 1.35% in gross margin from 2010 (50.17%) to 2011 (51.52%), according to NACS SOI data. "The category is one of the highest gross margin categories for our retailers," said Heather Jarrett, Procter & Gamble convenience and specialty channel leader.
The category has shown growth in other measurements, too. NACS SOI data found that the average gross margin in dollars per store jumped 8.44% from 2010 to 2011 to reach $9,564. These overall numbers point to a healthy 2012 for the category, especially given the persistent strong sales of energy shots and the prolonged allergy season that has triggered more overÂ-the-counter (OTC) allergy and sinus medication purchases. Those increases have manufacturers and retailers alÂready saying sales are up for this year.
Energy shots contribute significantly to the health of HBC, providing 53.98% of the categoryâ€™s gross margin â€" secÂond only to family planning (70.57%), according to NACS SOI data. "Energy shots are selling well," said Miles Oda, executive vice president for the ABC Stores chain based in Honolulu.
David Simendinger, president of Champlain Farms stores in South BurlÂington, Vermont, called the energy shot category "explosive" in terms of sales.
"Clearly the energy/supplements and health and wellness subcategory has outperformed everything else in the catÂegory, and all indications are that they will continue to grow," added LaManna.
Increasingly, convenience stores are becoming identified as the place to purchase energy shots. "Convenience stores are 55% to 60% of 5-Hour EnÂergyâ€™s sales," said spokesperson Elaine Lutz. "5-Hour Energy has a 90% market share in the convenience category, and our sales in c-stores are up over 20% since the beginning of this year." Lutz pointed out that the "quick in-and-out nature of the c-store transaction" suits the character of energy shots. Trends in flavor and packaging also help sustain interest in the products.
A recent Mintel study found that the largest of energy shot buyers are adults age 55 and older, which could mean more sales opportunities for conveÂnience stores.
"The convenience channel will conÂtinue to lead all others in energy shot sales. Because of its focus on single serve, itâ€™s the ideal place to promote trial among consumers and need-based use, such as long drives or running erÂrands," said Lutz.
A milder-than-usual winter spurred sales of OTC allergy and sinus mediÂcines, maintaining that subcategoryâ€™s upward trajectory. "We knew the cold and flu season this year would create strong demand due to the mild winter," said LaManna. According to Quest Diagnostics, the number of allergy sufferÂers has grown 6% since 2005.
From 2010 to 2011, the gross margin of cough and cold remedies jumped 2.27%, bumping ahead of analgesics, which experienced a slight dip in sales last year, according to NACS SOI data. "The allergy season started out at least 60 days earlier than normal, and because itâ€™s also been more severe, we have seen a significant lift in all of our sinus and allergy products," said Paul Rossberger, vice president of sales and marketing for Lilâ€™ Drug Store Products. ABC Storesâ€™ Oda concurred, adding that "sales of our OTC allergy mediÂcines have increased this year."
Lilâ€™ Drug Store worked with reÂtailers to help them capitalize on the trend by providing secondary point-of-purchase displays that focus on alÂlergy and sinus relief. "Convenience stores that normally wouldnâ€™t sell large quantities of these OTC medicaÂtions in a year are selling out in three months," said Rossberger.
Smaller sizes of OTC also remain a trend in this subcategory. "What we are seeing at retail is that single and double dose sales continue to be strong," said LaManna.
Trial sizes still pull in sales, especially for retailers located near tourist desÂtinations and travel centers, such as airports and bus stations. Recently, Lilâ€™ Drug Store has seen a big uptick in its trial size business because of its Easy Bins line, which helps retailers merchandise top-selling travel sizes. Retailers successfully merchandising Easy Bins include Pilot Travel Centers and some Circle K divisions.
Given its Hawaii locations, ABC Stores rack up good sales in trial sizes. "Our stores cater to tourists," said Oda. "Therefore, trial sizes are popular." ABC Stores bestsellers include suntan and skin care products, plus cold medicines.
Manufacturer product outages and a still-recovering economy have intensiÂfied demand for store-brand and private-label HBC products. To fill the void left by the departure of the name brands, Lilâ€™ Drug Store developed alternative, replacement products such as its Lilâ€™ Drug Store-branded pain medicines.
According to Lilâ€™ Drug Store data, convenience store HBC private-label sales soared 11% in 2011, driven by retail brands and other private-label products.
The supplier works with retailers such as 7-Eleven to create their own HBC brands, and also offers Lilâ€™ Drug Store-branded OTC products. "ConÂsumers are still looking for relief, and private-label brands can deliver that at a time when major manuÂfacturers are experiencing producÂtion outages," said Rossberger.
Cosmetics have yet to make inÂroads in the health and beauty care category within convenience stores, but some retailers see poÂtential. ABC Stores has devoted more HBC shelf space to accomÂmodate a larger selection of cosmetics. "We slightly increased our space due to the popularity of name-brand cosmetÂics that Japanese visitors especially like to buy," said Oda. ABC Stores also offer a private-label brand of cosmetics.
The higher margin in cosmetics inÂtrigues Champlain Farmsâ€™ SimendingÂer. "Cosmetics, particularly lipstick, are top-selling items in drug stores," he said. "The convenience stores arenâ€™t getting the female trafÂfic like drug stores are, which of course sell a lot of lipstick â€" [but] we have better locations and betÂter [overall] traffic."
Simendinger has approached suppliers, such as P&G, which owns Cover Girl, about offering conveÂnience stores more in the way of cosmetÂics, but said he hasnâ€™t had any luck. "Thereâ€™s huge potential for our industry to get into cosmetics, but until the wholesalÂers will carry those products, we canâ€™t do much with it," he said.
Vitamin supplements jumped by 10.4% last year, and represent 11% of the health and beauty care category, according to NACS SOI data. The increase has been spurred by more consumer interest in ways to achieve better health.
"In the current economic conditions â€" and with more Americans than ever without health care â€" consumers will increasingly self-medicate," said La-Manna. "In my view, I feel the increase in vitamins and supplements is directly related to this, as people are willing to spend money in the hopes that it will help maintain their good health."
While ABC Stores has experienced a more than 15% advance in vitamin supplement sales, Simendinger hasnâ€™t seen such positive numbers in his stores. "We have bought some vitamin supplement products, such as Vitamin C tablets, but have not had much sucÂcess. Maybe it was just too new to our market," he said.
By all accounts, 2012 is already off to a good start in the health and beauty care category. "The category offers the second-highest gross margin perÂcentage of any category, and fills that immediate need for the consumer who is looking for instant relief and/or that unexpected item that they need," said LaManna.
The HBC category offers retailers a tremendous opportunity for growth. "HBC is a category that can help get consumers from the pump to the cenÂter store to buy more items and inÂcrease a retailerâ€™s market basket," said P&Gâ€™s Jarrett.
Sarah Hamaker is a NACS Magazine and NACS Daily contributing writer. Visit her online at sarahhamaker.com.