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NONFOODS: Wake-up Call: Uncharted Territory

One of the primary complaints I hear from retailers and manufacturers is how difficult it is to grow in a highly competitive market. While I don't dispute the essential truth of this sentiment, it's a weak excuse. There's a lot of low-hanging fruit in the market that could provide supermarket operators with precisely the growth they need, if only they'd look in the right places.

Nowhere is this more acute than in the health and beauty care category. I've recently spent a great deal of time in some of the lesser-traveled parts of the HBC world, and what I've found there is a series of extremely profitable brands and products that enjoy virtually no distribution in supermarkets.

These overlooked products share some important attributes:

--They're high-ticket items, at around $20 or $30, generally speaking;

--They offer high margins of at least 30 percent, and often up to 50 percent, to retailers;

--They're most often small and light;

--They move relatively slowly, at a turn rate of only one or two units per store per week; and

--Small companies, not global CPG behemoths, manufacture them.

Here are few examples:

Zanfel (Zanfel Laboratories, Peoria, Ill.): A treatment for poison ivy that works much better than calamine lotion and sells at $35 per one-ounce tube.

Scarguard (Red Rock Laboratories, LLC, Great Neck, N.Y.): A treatment for scars, which is painted on like nail polish. The price point is $30 for a 0.5-ounce bottle. (Full disclosure: Scarguard has been a client of mine.)

Beano (GlaxoSmithKline, Paramus, N.J.): This food supplement, in its liquid form, helps eliminate the flatulence produced by eating certain foods. It sells for approximately $10 per .25-ounce bottle.

MSM (methyl sulfonyl methane): A sulphur-based nutritional supplement developed to reduce joint pain and marketed bya variety of supplement manufacturers. The typical suggested retail price is $15 for 100 tablets.

Wartner (Li'l Drug Store Products, Inc., Cedar Rapids, Iowa): A home treatment product used to freeze off warts. It sells at $25 for a one-use package.

SnoreStop Spray (Green Pharmaceuticals, Inc., Westlake Village, Calif.): An aerosol spray that stops snoring. The product retails at $19 per 12-use package.

Sea-Band Sickness Wrist Band (Sea-Band International, Newport, R.I.): Acupressure relief for the discomfort of motion sickness, morning sickness, post-operative nausea, and nausea associated with chemotherapy. It can be bought at retail for approximately $8.

Digestive Advantage for Crohn's and Colitis (Ganeden Biotech, Inc., Mayfield Heights, Ohio): A dietary management product that helps normalize the digestive system. It sells for $16.99 for 32 capsules.

Tortoise and hare

To illustrate my point, let's look at the economics of a fictional product. At a $30 ring and a 50 percent margin, it delivers $15 per week per store in profit by moving just one unit per week.

Compare this with an item selling for $1.99, with a 20 percent margin. Even if the second item sells a case of 12 per week, it only contributes $4.80 in gross margin, and that $4.80 uses more shelf space, more stocking time, more shipping weight, and more checkout time than the one unit at $15.

Given the challenge many grocers have in finding profitable growth, it would seem that the time-honored approach of evaluating products by unit movement is deeply flawed. Still, low turns are doubtless what prevent supermarket HBC strategists from seriously looking at these products.

The kind of items I'm describing may not move fast, but they're so highly profitable, both from a dollar and a margin standpoint, that they can genuinely help a supermarket's bottom line.

Aversion to low turns isn't the only thing keeping many supermarkets from stocking these items. Just as important, most supermarket HBC buyers don't even know these product options exist. We live in a world of perpetually swamped HBC buyers who simply don't have the time to venture far from the office -- to visit competitors, scour trade shows, sit in on seminars -- and thus learn about less obvious new products. Rather, they look at what's brought to them, and then make snap judgments to save time.

But this isn't smart retailing. We need to empower buyers to seek out unusual SKUs anyplace they can find them, and not limit themselves to what's offered by the top 25 vendors. Buyers must be given the time to find the items -- not just by surveying obvious competitors, but also by looking at other classes of trade and other industries.

Case study: scar care

One subcategory in which I've done significant work is scar care. In this subcategory, there are three main products, each tied to a method of delivery -- cream, film, and patch. All three meet specific consumer needs. Yet the one manufactured by Pfizer has virtually universal distribution in supermarkets, while the other two, which are marketed by smaller companies, are rarely seen in the channel. This isn't necessarily because the Pfizer product is better; it's because the Pfizer product is being pushed by Pfizer.

This is just the tip of the iceberg. The list of opportunities goes on and on. Some of these products are stocked in a few supermarkets, but for most of them the grocery store is virgin territory.

The phenomenon isn't limited to nutritional supplements or natural alternative treatments; rather, it pops up everywhere one looks in HBC. The same can be said for selective products in general merchandise. That's one of the reasons that drug store margins continue to hold up as supermarket margins dip.

Take action!

The key for grocers is to take action, to empower HBC and GM buyers to think -- and get -- out of the box. First, allow buyers flexibility in managing the "rules" of product movement. The objective is to make more money, so allow buyers to bend product movement requirements if dollar margin goals are exceeded. Don't "rank" buyers by any measure other than improvement or decline in category profitability. After all, that is the objective.

Second, charge them with visiting stores in other classes of trade. Send them to the natural foods trade shows, encourage them to buy from new vendors, and allow them to broaden their categories. Make sure they read industry publications, which can often bring such unique products to light. Similarly, educate them on the various online resources that can help in the search for unique products.

Even consider -- heaven forbid -- increasing your staff, to allow HBC and GM buyers the capability of functioning as true buyers, not just managers. Give them the time they need to move beyond the current reactive-only model and become the proactive merchandisers they need to be.

David Diamond is an independent consultant focused on marketing and strategy, and was most recently chief vision officer for Catalina Marketing.
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