Commodity hair care dilemma not easy to untangle

Drug Store News, Sept 27, 1993 by Barbara White

When they do look at the category, drug chains are finding a middle ground between two schools of thought--cutting specialty products with slower turns to give more room to the brands that produce the most volume, or specializing in niche products to give them an edge against mass and food/drug channels.

Retailers continue to bemoan their fate when it comes to commodity hair care. Their margins are flat. Mass merchants and discounters continue to squeeze them on price. The department is over-SKU'd. It's an old story and it's not getting easier to solve.

When they do look at the category, drug chains are finding a middle ground between two schools of thought--cutting specialty products with slower turns to give more room to the brands that produce the most volume, or specializing in niche products to give them an edge against mass and food/drug channels.

Chain drug buyers know that several brands are producing the best turns. The problem is that those top brands are so price-competitive, their margins are mired at 10 percent and below, buyers report.

What's more, chain drug market share for those products is eroding. The drug share of the Suave business is 9.4 percent, according to Nielsen Marketing Research, while the mass merchants command a 12.9 percent share and the food/drug combos hold a 17.4 percent share of the brand's business.

"We can't compete on price," says a buyer at one of the top-five drug chains. "There is no way we can promote a commodity brand every day. We are trying to build brands, not play a numbers game."

Pricing concerns

"We are trying to promote at a low price, but with Wal-Mart low-balling, we can't compete. Wal-Mart does a small percentage of its business in hair care and can afford to give product away. We do 60 percent of our business in the HBA/OTC area and we can't afford to match them," says Jerry Zlotnick, buyer at Cleveland-based Medic Discount Drug.

One buyer says he still places top commodity brands on ad five times a year, but he will not price below 89 cents.

Another buyer at a top retail drug chain says he refuses to drop to 79 cents on promotion and prices at 99 cents every day on brands such as Sauve and White Rain. Zlotnick sees 99 cents as the magic number and won't go below that price, even on ad.

Steve Rubin, buyer at Keltsch Brothers, has taken a radical approach and lowered prices on all commodity hair care products six months ago to drive business. "We are going to promote all the time," he says. "It really helps drive the business."

There is something to be said about that approach.

In Keltsch's departments, which average 20 feet, Rubin sees department-wide increases when he promotes one of the top brands.

A similar strategy is underway at North Carolina's Crown Drugs. Buyer William Ammonds is pricing commodity brands at 99 cents across the board and using those value brands to drive his business.

The 80/20 rule

"We are using the value brands as a lure to draw customers into the store in the hopes they will also pick up products with higher margins," says Rubin.

He has found that the approach benefits his entire department. "Promotions help the entire category, including styling aids," he says. He's devoting an end-cap to a major brand four times a year.

Says another retailer: "When you run an ad on Colgate, it boosts the entire oral care category. When you promote a specialty brand, it boosts that brand."

Helene Curtis, a proponent of the approach and the manufacturer of some of the top-selling brands, believes that the leading manufacturers offer "global support" to the category.

"It's the 80/20 rule. The larger manufacturers offer the most support, and that doesn't mean just ads and FSIs," says Sharon Rossi, assistant manager of information management and analysis at Helene Curtis.

"It means help in planogramming, the willingness to pull slow-moving products from a planogram to make room for an innovative new product, and the research behind new products to assure that the product has a market."

Still, retailers aren't jumping to increase facings of those top-selling commodity brands at the expense of smaller, niche brands that they view as a way to stay competitive against the mass merchants and food/drug combos. [TABULAR DATA OMITTED]

"I'm considering cutting down the department to only the fastest-moving SKUs to give that space to more profitable products," says Zlotnick, describing Medic's 28-foot section.

Keltsch's Rubin is experimenting with his department by cutting facings of products, such as Flex, to increase the facings of White Rain and Suave in the interest of increasing turns.

Other retailers aren't so sure. "The best-selling brands want multiple facings, but we can't do that; 95 percent of the brands we carry only have one facing," says one retailer who operates within a small format. This retailer says his department showed 15 percent growth monthly, and that growth was fueled by premium niche brands.

Says another retailer: "A drug store has to maintain an assortment."