Price check on aisle 5: grocery's new HBC pricing strategy

Drug Store News,  April 19, 2004  by Molly Prior

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BERGEN COUNTY, N.J. -- Grocery retailers are using health and beauty products to appear more attractive to shoppers. Given that every other retail channel seems to be dabbling in the food business right now, albeit to varying degrees, several grocery chains are looking to health and beauty care to entice shoppers into their stores and encourage higher basket rings.

The problem is that just as grocery chains are using HBC as a loss leader, other retail channels have added food to their offerings to generate non-food item sales, and not to make profit.

"For retailers which have food as their primary focus, competing against others who require a low return on investment on food makes for very formidable competition," wrote Lehman Brothers analyst Meredith Adler in a recent research report.

HBC offers attractive profit margins to grocery chains, but several have traded those margins for aggressive promotional programs surrounding the HBC department.

To determine which stores across the food, drug and mass channels in Bergen County, N.J., are getting the most aggressive with HBC pricing, Drug Store News conducted a market basket study comparing the prices of 16 HBC items, ranging from Olay s Regenerist to Listerine mouthwash, at Pathmark, ShopRite, Shop & Shop, Walgreens and Wal-Mart stores.

Wal-Mart beat out its closest competitor on price by about $30. ShopRite and Pathmark, both of which have launched aggressive EDLP programs for HBC, came in at second and third, respectively. Technically, because two items on the Store News shopping list are not part of the mix at Stop & Shop, it finished last, with Walgreens in fourth.

Pathmark is the latest grocery player to step into the EDLP ring that WalMart dominates. Late February, the supermarket chain reduced prices on more than 6,000 HBC items in an attempt to stave off competition in the four states in which it operates: New Jersey, New York, Pennsylvania and Delaware. The supermarkets new everyday-low-price program will make the 144-store chain more competitive with other supermarkets, chain drug stores, discount stores and club stores, said company spokesman Rich Savner.

The chain wants to add value for existing customers and use the EDLP program to attract new customers to Pathmark's HBC department, which consists of three to four aisles and roughly 4,000 square feet of selling space. Pathmark spent six months developing the program, which was based in part on feedback from consumer focus groups and customer comment cards.

The retailer introduced the program to consumers in a newspaper roto, which dropped Feb. 27, on the home page of its Web site and through radio spots. Pathmark is reinforcing those efforts in its stores with EDLP signage in storefront windows, and signage and shelf tags throughout the HBC department.

The ad prompted Pathmark's staunch competitor ShopRite to drop a roto the following week, reminding consumers the chain is "still the everyday health and beauty care low-price leader." The ad challenges consumers to compare its prices with those of other supermarkets and drug stores. In Drug Store News' price study, ShopRite had edged out Pathmark on price by a little less than $2.

Inside its River Street store located in Hackensack, N.J., ShopRite calls out its everyday-low-price strategy on headers along the perimeter of its HBC department--a bold move considering the true EDLP leader, namely Wal-Mart, is located five miles clown the road.

While Pathmark and ShopRite duke it out for the title of EDLP leader in the grocery channel, Walgreens seems content with a pricing structure built on convenience. Shoppers may pay about $5 more to shop at Walgreens for the items on the Drug Store News shopping list, but they are likely to save a good deal of time in the process. What's more, should they need help finding Crest Whitestrips Premium, they are more likely to find an associate nearby, rather then having to run the length of a grocery store in search of an employee who is not staffing a register.

                                     SUPER
Products                           STOP SHOP   Pathmark    SHOPRITE

Maybelline Volum' Express           $6.49        $6.89       $5.85
Olay Regenerist                     19.99 (1)    17.99       17.99
Crest Whitestrips                   24.99 *      26.96 *     24.99 (6)
Garnier Fructis shampoo              3.99         3.49        3.49
Nivea For Men                          NA         5.57        5.79
Crest SpinBrush                        NA         4.97        4.99 (7)
Listerine Citrus 50.7 ounce          6.99         5.98        5.95
L'Oreal Preference                   6.99         8.98        8.99
Edge shave gel 7 ounce               2.39         2.19        2.19
Advil caplets 50 count               5.29 (2)     4.99        4.78
Dove Deep Moisture 24 fluid ounce    6.59         5.99        6.99
J&J Baby Shampoo 15 ounce            3.28 (3)     2.99        2.84
Tampax Pearl                         4.99         4.54        4.49
Opti-Free Express 12 ounce           8.99 (4)     7.49        7.53
Centrum 130 tablets                 10.49 (5)     8.99        9.37
Schick Quattro razor                 8.99 (5)     7.99        7.99
Total                              123.45       126.00      124.22

Products                            WAL*MART    Walgreens

Maybelline Volum' Express             $3.84       $6.19
Olay Regenerist                       16.42       18.99
Crest Whitestrips                      8.36 *     24.99
Garnier Fructis shampoo                2.86        3.99
Nivea For Men                          4.94        5.99
Crest SpinBrush                        3.88        5.49
Listerine Citrus 50.7 ounce            5.87        6.29
L'Oreal Preference                     8.94        9.49
Edge shave gel 7 ounce                 2.14        1.99
Advil caplets 50 count                 5.32        6.49
Dove Deep Moisture 24 fluid ounce      4.92        7.29
J&J Baby Shampoo 15 ounce                NA        3.99
Tampax Pearl                           3.76        4.99
Opti-Free Express 12 ounce             7.42        7.19
Centrum 130 tablets                    8.36 *      7.99
Schick Quattro razor                   7.84        8.99
Total                                 94.87      130.64

* Out of stock-advertised price

Stop & Shop (1) $15.99 with Stop & Shop savings card
(2) $4.99 with card (3) $2.50 with card (4) $7.99 with
card (5) $7.99 ShopRite (6) $22.99 ShopRite Price Plus
card (7) $3.99 with card

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