Dollars And Scents

Fragrances sold in the grocery channel can be lucrative and exciting, despite the challenges.

The fragrance category — a $6.3 billion pot of gold in U.S. sales — is an elusive prize for mass-market and drug retailers. Most food chains haven't even scratched the surface in this beauty category.

Jeffrey Arnold, SVP, mass selling business unit for Miramar, Fla.-based Elizabeth Arden, puts retail distribution in perspective: Of total fragrance sales in the United States, department stores represent 48 percent of the volume versus only 13 percent in food, drug and mass stores, or "doors," a term beauty executives prefer to use.

Compare that market share to U.S. sales of skin care, an $11.6 billion category. Here, the reverse is true: Department stores capture only 16 percent of skin care volume, while food, drug and mass represent 44 percent.

Chicago-based researcher Euromonitor International reports distribution last year of all fragrances, both prestige and mass-market, sold in various food-selling formats, including supermarkets, represented just 3.2 percent of the total market. Supermarkets took just 1.5 percent of the fragrance market.

Simple conclusion: The fragrance category is "very underdeveloped in mass-market outlets, particularly so in food," Arnold says.

Smell of Success?

Fragrance sales have been falling since the 2008 recession at mass-market outlets. Euromonitor figures show sales in the segment down about 6 percent, from $767.2 million in 2011 to $723.8 million in 2012.

Figures from Chicago-based Information Resources Inc. (IRI) for the 52 weeks ending April 21 show continued sales and unit volume declines. The exceptions are men's and women's body mists, which are showing growth across all mass channels.

Meanwhile, prestige fragrances — those sold at department stores and high-end specialty beauty retailers — are enjoying robust growth.

The NPD Group Inc., based in Port Washington, N.Y., reports women's fragrances priced at $100 and up grew 40 percent in sales for the first quarter of 2013. Overall, prestige dollar sales increased 8 percent. Units were up 3 percent, as was the average price, which rose 5 percent over the same period a year ago.

"Women are spending more on their fragrances than last year, treating themselves to something a little more special," says NPD analyst Karen Grant. "Higher price points are driving the growth in sales."

Despite the numbers and distribution, Arnold says fragrance marketers are slowly making headway into mass channels. He believes there's good potential for the right food accounts to profit from fragrance sales.

San Antonio-based H-E-B Grocery Co. is one such account Elizabeth Arden is working with to develop the fragrance category. "H-E-B is one food retailer very active in fragrances and has a strong business," Arnold says.

One reason that H-E-B may have gotten into fragrances is because of its heavy Hispanic market. Hispanics index high when it comes to buying fragrances, and the population is expected to grow 15.6 percent through 2017, according to a Mintel fragrance report.

Arnold admits fragrance merchandising isn't for every food retailer, however.

"We believe at Arden not every food retailer should be in the fragrance business, and certainly not year-round," he says. "Some retailers like Wegmans should be in it because of their upscale presentation. Others should be in it during holiday periods. In other cases, it makes sense to have a broad program. It's not for everybody."

Arden is also working with Safeway to test a program during the 2013 Christmas season.

Aside from the distribution complexities between prestige and mass-market products, which continue to blur as distribution grows in various channels, mass retailers fear shrink of higher-priced fragrances. "This is a category where shrink is relevant," Arnold notes; theft takes place even at the testing counter.

The No. 1 reason shoppers don't buy fragrances at mass retailers is because they can't test or sample the product regardless of low price, Arnold explains. "We're working very closely with retailers to install testing systems and understand the shrink risk even with testers," he says. "There are various mechanisms we use to ensure products are fixed to fragrance-testing units."

Target has men's and women's tester bars in each planogram, which is relatively new. Walmart, which earlier this year began rolling out a new beauty prototype featuring a large self-serve fragrance area with prestige scents, has testers in front of products on little displays with graphics related to each fragrance brand.

Retailers such as Kroger's Fred Meyer and Meijer have made sure theft deterrents are in place in their fragrance aisles. Fred Meyer uses Checkpoint's Alpha Keepers, clear polycarbonate cases that protect merchandise and allow for an open-sell environment, while Meijer uses clamshell packaging to cut down on theft.

Scent of Celebrity

Similar to the movie business, which has release-date windows for different channels of distribution, celebrity fragrances often start out at prestige counters and then move into mass. This has contributed to the blurring of the lines between the two segments.

Arden will take Nicki Minaj's Pink Friday fragrance, launched last year, into mass-market accounts for Christmas, Arnold says.

Mass retailers have capitalized on celebrity talent by packaging their many licenses together. Last year, Walgreens and Target created special areas for Tayloi Swift branded merchandise, including fragrance. "It's all about celebrity," Arnold notes.

"H-E-B is one food retailer very active in fragrances and has a strong business."

—Jeffrey Arnold, Elizabeth Arden