Health & Beauty Feels the Pinch of Product Shortages & Inflation
As challenges linger around the category, some consumers are turning to larger packages for better value.
NATIONAL REPORT — A Pounding Headache or stuffy head cold cannot wait, making health and beauty care (HBC) the second most profitable convenience store category after ice. However, despite its "immediate need" nature, supply shortages and inflation are hitting HBC harder than other product categories. This is prompting some retailers and suppliers to seek alternative resources and keep tight reins on inventory.
Subcategories most affected by out-of-stocks include over-the-counter (OTC) pain relief, one of the biggest segments, as well as feminine hygiene. While overall c-store transactions and store traffic have improved, the HBC business is still feeling the fallout of COVID-19 related manufacturing shortages. On the pricing end, average retails across HBC increased 7.4 percent vs. last year, according to Nielsen. And in some segments, the increases were in the double digits.
"You can't talk HBC without talking supply chain," said Cameron Baer, center store category manager for York, Pa.-based convenience store chain Rutter's. "It hit HBC really hard; subcategories are still affected, requiring constant item changes. Other categories are closer to normal, but HBC has had a harder time recovering. We have pivoted many times, switching suppliers and switching back when inventory becomes available. It's essential we offer what consumers are looking for."
For most c-stores, HBC represents just 1 percent or less of in-store sales. But average gross margins in the category are significant, rising from 50.8 percent in 2021 to 51.95 percent in 2022, according to NACS data. HBC's destination nature furthers its value.
"High margins make it important to retailers. It's also crucial to shoppers, who must satisfy a need now. They might be on the road and have a headache or they forgot something. It's important to be in stock, whether it's analgesics or contraceptives," said Don Stuart, managing partner at Cadent Consulting Group, headquartered in Wilton, Conn.
Favoring Food, Drug & Mass
With some ingredients in short supply, HBC vendors are favoring food, drug and mass accounts, which comprise the majority of their business and involve larger package sizes.
C-stores, in contrast, favor small packages merchandised in inline sections of about four feet, along with clip strip packets of OTC drugs and vitamins merchandised behind the register. Clip strip packaging is made specifically for convenience stores.
"Suppliers are focusing on large packages, which is generally what you don't find in c-stores," said Baer.
One component that has been difficult to procure is the Mylar-type film that lines single dose clip strip OTC packets. Ron Andrews, national sales manager at Elk Grove, Ill.-based Modern Aids Inc., explained that many packaging components come from overseas, namely China. While the pills are produced by major suppliers, Modern Aids makes its own clip strip packets. It also supplies c-stores with nail clippers and small packages of razors, shampoo and diapers.
The situation has become a huge headache as trial sizes of OTC pain, stomach and upper respiratory medicines comprise 73 percent of convenience channel HBC unit share and 51 percent of dollar share, according to Nielsen figures.
In feminine hygiene, certain tampon applicators have been hard to procure, said Michelle Ridder, director of category management at Lil' Drug Store Products, an HBC supplier based in Cedar Rapids, Iowa. Consequently, Tampax's percentage of the c-store segment dropped 9 points to 40 percent during the first half of the year, Nielsen data shows, while Playtex's share increased from 8 percent to 12 percent, and Stayfree doubled its share to 8 percent.
"[This is] an example of how an immediate-need item is more important than brand," Ridder pointed out. "I heard problems will persist into 2024."
Baer echoed that it has been "hard to acquire" single-use and small multipacks of tampons. When it comes to brand, he reiterated Ridder's thoughts: "Whether it's changing a brand or having a different SKU, some product is better than none."
No doubt, inflation is impacting spending. In c-store HBC, skincare has taken the hardest pricing hit (up 12.9 percent), driven by double-digit increases for Old Spice, Secret, Axe and Degree, said Nielsen. Feminine hygiene is a close second (up 12.6 percent), with the prices of eight top SKUs up double digits. Ridder reported that she has also seen steep condom price increases. "One major retailer increased them by $1.50," she shared.
In OTC medications, inflation has driven single dose demand. "When the SRP [suggested retail price] rises, people just buy two pills to get the job done," said Andrews. "The days of larger purchases are past. Price increases have changed many things."
However, at Valparaiso, Ind.-based Family Express Corp., the opposite is sometimes true. "As costs have increased for one- and two-dose packages, many consumers are turning to larger packages for better value," said Ryan Fasel, director of marketing for the convenience store chain. "Depending on need, a package of five to 10 doses costs less than double the cost of a one- to two-dose package."
Still, single doses dominate. "Take-home packages are growing and have the highest ring, but single doses remain the majority of unit sales," Fasel added. "The biggest challenge is finding the balance between single dose and take home to maximize dollars without sacrificing unit sales."
While retailers and suppliers must profit, raising prices is tricky. They must carefully analyze what the market will bear. "It's all about price elasticity," said Andrew Csicsila, North American leader of the consumer products practice at AlixPartners in New York.
Price acceptance does vary by retail channel. For instance, while big-box shoppers think about prices for planned market basket purchasing, c-store consumers often want one or two immediate-need items, even if the products are more expensive than elsewhere.
Despite the higher prices and shortages, there are some opportunities in the c-store HBC business. Depending on the retailer and market, these can include supplements (both traditional and "trendy"), private label and larger assortments.
During the pandemic, c-store vitamin and supplement sales skyrocketed. While growth has slowed, Mason Vitamins Senior Vice President of Sales and Business Development Chuck Tacl believes there is room for growth in clip strip or peggable small packages.
"We think there's a void, with strong household penetration after COVID," he said. "Key areas people are looking for are immunity, sleep and stress relief. There's maybe three to five items that would resonate."
Innovation in a category dominated by basics tends to grab attention. "Whenever retailers offer innovative items in new flavors and formats, it allows them to stand out against [their] competition," said Kristen Thaler, category manager of the Center for Category Innovation at Temple, Texas-based distribution company McLane Co. Inc.
Tacl pointed out that retailers need to learn which products are reliable. Both packaging and ingredients are concerns. "The distributor, retailer, supplier and consumer need to be educated on what products are efficacious and which ones you should question. ... I've seen gummy supplements in clear plastic. They need more stable, foil type packaging so the sun doesn't break down effectiveness," he said. "There's opportunities in c-stores for reliable supplements."
Most HBC products stocked at c-stores are from branded suppliers that consumers trust. "Sets are mainly comprised of national brands that consumers recognize," Fasel added. "There's more skepticism around fad and quick-fix products because they lack brand recognition."
Rutter's Baer avoids fad products. "How do you gain trial?" he said. "How do you make sure it's going to stick? It's a fad. We're in the business of providing consumers with what they're looking for."
Private label HBC products, on the other hand, are not a fad. They have been proven to enable c-stores to generate even bigger margins while controlling package size and appearance.
The HBC category's small size, though, makes private label only viable for large chains. 7-Eleven Inc. rolled out 24/7 LIFE about three years ago. The line, which encompasses several nonfood categories, includes OTC drugs, toiletries and other HBC items.
McLane offers a private label alternative under its Consumer Value Products (CVP) banner. CVP spans multiple categories. HBC items include bath tissue, ibuprofen, baby wipes, deodorant and OTC stomach relief. "It's a great option for smaller retailers who want to incorporate private label into their strategy, but can't offer a line of their own," said Thaler.