SUPPLIERS FEEL IMPACT OF MERGERS
Byline: Kim-Van Dang / Chantal Tode
NEW YORK — The ultimate impact of the recent spate of drugstore mergers on business has yet to be assessed, but beauty executives are working now to secure prime positioning for their brands.
Their mission seems especially challenging at the moment, as many retailers involved remain behind closed doors, poring over legal details with their attorneys and discussing where new corporate headquarters should be.
William McMenemy, executive vice president of marketing at Del Laboratories, put it best when he said: “The chains that are being acquired are trying to conduct business as usual, but there’s an air of uncertainty and a little bit of a feeling of being in limbo for everyone.”
Many manufacturing executives expressed trepidation — off the record — about the possibility that these mergers could make their lives more difficult. Now that several chains have close to national coverage, they have the power to negotiate stricter deals on prices and promotions, just like a few other very large retailers are known to do.
Even if their fears don’t materialize, many agree that they’d rather do business with more retailers instead of fewer.
There is another camp, of course, that sees advantages to a consolidated marketplace.
George Fellows, chief executive officer and president of Revlon Inc., said, “There will be a hiccup from an inventory point of view, but consolidations in the drugstore world will kick up the color category.”
“Retailers are sorting out the pieces, and it may help or hurt certain categories. But, if they keep their eyes on the ball, they will rely more heavily on cosmetics because it is more profitable. We’re geared to help them do that. We can drive traffic in the front of the store. We can bring them incremental volume. You buy a lipstick to refresh your wardrobe, not necessarily because you’ve run out, like toothpaste.”
Kathy Dwyer, president of Revlon Cosmetics USA and senior vice president of Revlon Inc., echoed Fellows’s sentiment.
“Consolidation helps the bigger players because our relationship with retailers is stronger,” she said. “What we want to focus on is how to improve impulse-buying and simplify shopping.”
Joseph Campinell, L’Oreal Retail president, said that his team is likewise studying ways to improve the mass market retail environment. Drugstores account for roughly 45 percent of the company’s doors, he said.
“The recent consolidations are not going to affect us dramatically,” Campinell said. “We have very good business relationships with each of the major accounts. There will probably be some reduction in store count, but I think the country is a little over-stored, anyway. The consumer still has to shop, so it shouldn’t hurt us. I actually see [drugstore consolidation] as a positive. We could have more serious discussions with the headquarters account about how we want to manage the business, how we want to promote, and know that the results will cut across a solid core of stores.”
While the long-term picture seems rosy to some, day-to-day planning in uncertain times has become a chore for others.
At Jane Cosmetics, Howard Katkov, ceo, and Don Petit, president, believe the brand’s position is relatively secure. The full-service line, geared toward teens, is in 7,500 doors now, including Wal-Mart. In 1,500 doors there, Jane commands six feet of real estate.
“When Revco’s concentrating on Thrifty/PayLess, they’re not going to concentrate on the little guys. But I believe that if you have a point of difference, they will work with you, to roll you out slowly. There is no buying being done now, though, no planogram. We’re patient. We’re working it. Consolidation will narrow the number of miles we fly.”
Grant Berry, president of Lord & Berry Ltd., is not wasting any time.
“We’re in 5,000 U.S. doors now and we’re in 30 countries,” he said. “We’re testing with CVS, and we’re already in Eckerd stores. We’re being aggressive in securing space with these accounts. It’s a hurry-up-and-wait game, and it’s frustrating for our national sales manager, but I think that consolidation can benefit us in the long run. We’re in a unique position. We’re slightly more expensive than many mass brands at $2 to $5 per item, and we bring a specialty focus to the market. We have pencils that can do almost anything except brush your teeth. In lips alone, we offer pencils for nine functions. Retailers want that kind of excitement on their floors.”
“It’s been difficult planning out the year,” said McMenemy. “We’d normally have presented and committed to holiday plans by now, but Christmas commitments are still somewhat up in the air because some of the mergers haven’t gone through yet. So there’s some uncertainty in terms of whose responsible for what. When you make plans with a retailer, like a planogram change or long-term promotions, there is a degree of uncertainty when a merger takes place,” he said.
Steve Mistretta, director of business development for Clairol, said the mergers will have less of an impact on the leading brands than for smaller suppliers. The mergers could jeopardize manufacturers with strength at a region level because the buying headquarters may no longer be located in the same region.
“Other than reducing the number of buying points that a supplier would be calling on, I don’t see consolidation as having a major impact. What’s driving this on the retail side is that they are looking to drive efficiencies,” said Mistretta.
The mergers were needed, he noted, because they drive cost out of the system and provide drugstores with a better chance of surviving in the long term. “If the drug chains are merging and they are actually stronger than prior to merging, it allows them a better opportunity to compete,” he said.
Marcia Levis, vice president of marketing at Beiersdorf North America, which makes Nivea, said things are easier with fewer buyers to present product to and with a streamlined distribution process.
On the other hand, the mergers “make things more difficult because as the chains get larger, they want to make promotions different from each other,” according to Levis.
“There are certain accounts that use cosmeticians and others don’t,” she continued. “We have to work hard to make sure we understand their policies and to come up with alternatives to our national program that really work well. These chains want promotions that are tailored for them. With the consolidation, that is easier for us to do.”
Tailored promotions aren’t enough in today’s competitive marketplace, said Levis. “They have to be stronger programs than they were in the past because these stores are right on top of their scanning data and what is selling. There is more of a partnership between retailer and manufacturer now to make sure what they are selling is right for the store and, if its not, how do we make it right. We have to solve problems up front now; we don’t have the luxury of waiting, anymore.”
Jerry Hickey, senior marketing manager at St. Ives, said the stakes of every sales call are that much greater now that the number of headquarters has been cut virtually in half. When two chains merge, he continued, they have two sets of sales data to look at, and “we can leverage the strength in one chain into the other, where they might not have been carrying some specific stockkeeping units of ours.”
The flip side is what will happen to the individual buying power of certain stores, said Hickey. “There are products that may not have a strong appeal nationally, but do on a local level. We tend to have a stronger appeal on the two coasts, so how is that going to affect us overall?” He said this is more of a concern than an actuality at this point.
Drugstores used to be the primary focus of the Kneipp Corporation of America, which distributes premium-priced herbal bath and body products made in Germany, said Greg O’Daniel, director of the company. Kneipp, which is attempting to broaden its U.S. distribution, is shifting its focus to discount stores because of the drugstore consolidation.
“As a young company in this country, these events make it difficult for us to get the numbers we need,” he said. “It is forcing us to take another look at the deep discounters, which means we’ll have to come up with a product that fits their price-point environment.”
He also feels the uncertainty noted by other manufacturers. Kneipp had plans with Thrift Drug to stock six sku’s in the chain’s upscale bath displays, but with the Eckerd’s acquisition, O’Daniel’s not sure if the upscale bath sections will be continued.
“We are going through a lot of changes in the retail environment,” said O’Daniel. “We all just have to work extremely hard, but it puts more pressure on everybody with regard to new products.”