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Private Eye Looks at HBC Aisle

August 11, 2011
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Industry experts sat down with PLBuyer at two ECRM spring conferences to discuss how 2011 is shaping up for private label. They were upbeat, read why.
 
Editor’s Note: PLBuyer reached out to attendees at two recent events held by ECRM (Efficient Collaborative Retail Marketing) to discuss current issues in the private label world. What follows are edited transcripts of those two industry roundtables, one held at an ECRM event in April targeted at the food segment and the other at a May ECRM event targeted at the health and beauty care segment. The HBC roundtable discussion starts here, see page 10 for the food discussion.
 


PL Looks Heathly in the Health & Beauty Aisle

Industry experts sat down with PLBuyer at two ECRM spring conferences to discuss how 2011 is shaping up for private label. They were upbeat, read why.
 
Editor’s Note: PLBuyer reached out to attendees at two recent events held by ECRM (Efficient Collaborative Retail Marketing) to discuss current issues in the private label world. What follows are edited transcripts of those two industry roundtables, one held at an ECRM event in April targeted at the food segment and the other at a May ECRM event targeted at the health and beauty care segment. The HBC roundtable discussion starts here, see page 10 for the food discussion.
 
PLBuyer: How would you assess the health of private label health and beauty care as we finish the first third of 2011? Is private label health and beauty care holding on to market gains it realized in the recession? Is it dropping share as national brands step up their promotional activity?
 
Jim Devine: I think it’s very healthy except you have to break it out a little bit, especially in the health areas with all the Johnson & Johnson recalls that have taken place. There, you still have quite a surge of the cough and cold-type products, Tylenol-type products, children’s products that are way above the normal curves.
 
Laureen Schroeder: We’ve been tracking with some data to closely monitor whether, after the recession, consumers will switch back to national brands, and all the data right now suggests that, particularly in OTC, once they’ve tried a store brand, they’re sticking with it. Now what we expect is a lot of national brands to not only come back with strong pricing, but also innovation in terms of packaging to try win  consumers back.
 
Lou Helfrich: I’m going to echo what Jim had said but adding one piece that private label is making gains even in areas where Tylenol was not short-shipping. Our basic Premiere Value brand non-aspirin is up 50-plus percent, so it’s riding on the coattails of that even though the Tylenol is on the shelf. [Brand recalls] helped the private label world. It helped the acceptance of it and it’s carried over into other areas. I don’t see the economy, quite frankly, improving or not improving. I don’t really see it having a major effect on what’s happening with private label. It’s the quality of the suppliers and the quality of the products that the consumers are comparing now where they’re only seeing private label on the shelf and they’re not seeing national brands on the shelf anymore. That’s driven more the acceptance than the economy has.
 
Tony Harrington: We have a pretty positive view that, particularly on healthcare products where consumers feel that some level of regulation or some FDA or some safety in those products for them, that they’re going to be taking a view that they’re buying these products is smart. Even after the economy improves, we don’t expect to lose a lot of the share gains. We see a little more concern for the branded companies in the level of marketing they’re doing on personal care products. The phenomenon we’ve been talking about a lot lately has been the impact that the P&G brandSavers [weekly newspaper coupon inserts] are having every week on sales and the pressure that’s putting on private label.
 
Fernando Garza Borrego: We just had a very positive quarter for private label, a lot of growth. And our customers are very aware of the price. We’re working on quality with our suppliers to assure that customers find that good price point and good value for what they’re buying. So we’re very positive for the year to come.
 
PL Buyer: A recent survey from BrandSpark International and Better Homes & Gardens found that only four in 10 consumers believe private label beauty products are as good as brand name products compared to six in 10 who believe the same for private label OTC products. Do you think that’s accurate?
 
 PL Buyer: What can private label health and beauty care suppliers do to improve their image?
 
Helfrich: I believe it’s absolutely accurate. I don’t think there’s anybody in here that’s going to tell you that their shampoos, conditioners, deodorants and things of that nature come anywhere near the share gains that they have on the OTC side of the business. Now on the other hand, medicated products do. Medicated products, at least within our drugstore arena, medicated products like a Head & Shoulders NBE and the Scalpicin NBE, those all still do exceptionally well. But when you start getting into the Pantenes, the Doves, the Fructis, all of those areas where quite frankly there’s not only millions upon millions of marketing dollars spent by those national brand suppliers on those brands but they’re changing those brands every year just to keep up and, no sooner do we get the new formulation on the shelf, they’ve already changed it one generation or two generations more so. The branded companies have done a great job in staying one step ahead and they made sure that the consumer was aware of that. The acceptance on that particular side of the business [for private label] has been very challenging.
 
Schroeder: I think what we’ll see is suppliers looking to improve the sophistication of their packaging…I think we’ll start to see more exclusive beauty brands being launched by our retailers and this is something that, globally, other countries are looking further ahead than the United States. So as an example in Canada, you see quite a few exclusive beauty brands that are Shoppers Drug Mart brands or Loblaws that are doing quite well and [have] become a true consumer choice.
 
Patti Hirsch: We’re seeing the opposite…that private label is increasing sales much faster than branded primarily I think because we don’t try to do national brand equivalents at all, we come out with our own formulations on natural and organic.
 
PL Buyer: Was talk about a new consumer and frugality overdone? Studies already are coming out saying that consumers are growing tired of worrying about price. What will this mean for private label sales?
 
Helfrich: I think that consumers are still going to continue to look for the best value on the shelf. In private label, that spells good news for private brands and private label because most retailers are always going to go into the position that has the best value on the shelf, keeping that 25 or 30 percent margin or price differential against national brands. It will only spell good news for private label but that’s only as long as the quality of product is maintained.
 
Scott Kauffman: I look at weekly numbers by SKUs all the time. The longer we’re in at a price point of only 20 percent difference, we [would] start to lose sales. I’m finding that to your point, [consumers are] tired of looking at price. Twenty percent no longer seems to be a gold standard on price on HBC. I think you will eventually start losing sales again from the national brand if you’re only 20 percent cheaper.

PL Buyer: What do you think will be the three most important developments in private label health and beauty care this year and also this decade?
 
Helfrich: I’ll put a twist to that. Not so much developments but the [main] challenge facing us today is manufacturing capacity. The pluses to the Johnson & Johnson going down is that it created an inroad for consumers to go into private label. But the minuses around that is there’s just surely not enough manufacturing capacity in the United States today to take up the hole or that gap that the Johnson & Johnson debacle has created.

Many [processors] in the area are doing everything within their power and their capacity to get product out and its not enough. It’s just absolutely not enough.

With the FDA breathing down everybody’s back, nobody is going to cut a corner. Nobody is going to shave anything, particularly on the private label side of the business, that’s going to cause any issues with the FDA. They are going to dot every I, cross every T and make sure they go over and above what the FDA is requiring because they don’t want a Johnson & Johnson debacle within their companies.
 
Devine: In certain categories, we just don’t have enough suppliers, period, to sustain all the business that’s available out there. Recently, a suppository company kind of went under and I think we’re all hurting for suppositories these days. It’s just not enough capacity.
 
Colleen McMillan: I was going to say that it opens the door for a lot of contract manufacturers to start considering going in and trying to do a direct relationship.
 
Hirsch: I think the trend as far as the beauty care line is more demand for natural products, not necessarily organic but especially in baby lines and children’s for safety reasons. They’re learning more and more about how what we put on the baby’s skin actually gets absorbed into their bodies.
 
PL Buyer: Which categories within health and beauty care will be private label’s fastest growing categories this year?
 
Harrington: Allergy.
 
Devine: Allergy. And just in general, cough and cold. There’s been a lot of new submissions in that area.
 
Harrington: I’d say for us probably GI [gastrointestinal]. I think one of the things we’ve seen now is major new items coming. Last year, there also was a lot of activity in GI. Several items in that category create a lot of opportunity to grow. They’re such powerful items when they come in and we’re able to really launch private label versions at a closer time with the brand today. We’re getting share within the first year, we’re getting store brand share to 40 percent range. There’s a big pipeline of items that will continue that momentum. We’ll see a migration from allergy to GI to cough and colds. I think the common thing is its all in those healthcare categories where there’s a lot of volume. There’s a lot of margin opportunity. There’s a high confidence level by the consumer. And there are some good high quality suppliers in that segment.
 
Participants in PLBuyer’s HBC Roundtable
 
• Scott Kauffman, business manager, Daymon Worldwide/Harris Teeter
• Laureen Schroeder, director of health and beauty, Daymon Worldwide
• Kim Leach, business manager, Daymon Worldwide/ShopKo
• Colleen McMillan, vice president of marketing, McCaughey Consumers Products
• Laurie House, vice president of sales, McCaughey Consumer Products
• Lou Helfrich, vice president of purchasing, Chain Drug Consortium, LLC
• Patti Hirsch, private label product manager, Pharmaca Integrative Pharmacy
• Jim Devine, president, Chain Drug Marketing Association (CDMA)
• Fernando Garza Borrego, own brand manager – non-foods, H-E-B Mexico
• Tony Harrington, director, HBC, Topco Associates LLC
• Tom Tessier, purchasing director, Canada, CLT International
Moderator: Lynn Celmer, managing editor, PLBuyer

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