In the face of a difficult situation with rising material prices and a slowing economy manufacturers were faced with some very difficult decisions relative to pricing in 2008. The spike in oil prices affected not only raw materials but the cost of transportation. This led to a great many price increases throughout 2008 in the HBC market.

CPR tracked data in three groups; OTC Meds that contained 17 categories, Personal Care that encompassed 8 categories, and Oral Care that contained 3 and Baby.
Competitive Promotion Report tracked 35 HBC categories and the top brands in each category (usually the top 10) excluding Color Cosmetics, Toiletries and Hair Care Accessories. Major brands in 30 of the 33 categories tracked increased prices. Only the Dental Product, Denture and Hair Color categories showed no price increases by major brands.

To put it in context the consumer price index was up .1% for the year while prices for major HBC brands increased 5.46%. The CPI reflected a late drop in oil prices. The inflation rate was 3.85% for 2008 so the HBC market surpassed the overall inflation rate. The inflation rate dipped to 1.61% in the 4th quarter. (Figure 1) Although the economy slowed dramatically in the 4th quarter, price increases maintained a similar percentage to the first 3 quarters of the year.

The total increases were driven by Oral Care above 6% with Personal Care and Baby just below and OTC at about 5% (Figure 2).

Hair Care Men’s showed the largest price increases at close to 12% followed by Toothpaste at about 7% (figure 3)

The largest number of price increases occurred in the first half of 2008 by a slight margin (Figure 4).

 The largest percentage increases occurred in the third quarter except for Baby where the second quarter showed the largest increases (Figure 5).

OTC Medicines

This group showed increases by major brands in all 17 categories tracked. The price increases trailed the other categories. 53% of the increases occurred in the first half of the year with 43% of the total in the second quarter while only 10% occurred in the first. These first quarter increases were the least in number of any group tracked. Interestingly the highest percentage increases for OTC occurred in the first quarter. Foot Preps, Eye/Ear and Vitamins had the highest price increases while Analgesic External, Topical Preps and Home Remedies took the lowest (Figure 6).

Personal Care

Eight of the nine personal care categories indicated price increases. Cosmetics, Toiletries and Hair Care Accessories were not included in the tracking. There were no price increases in the Hair Color category by major brands. The Personal Care category overall had the highest average price increase of any of the groups tracked. It averaged 6.52% for the year. The largest increase came from the Men’s Hair Care category with increases averaging more than 11% (Figure 7).    
One-third of all increases occurred in the first quarter closely followed by the second quarter with 1/4. Price increase percentages were largest in the second and third quarters.

Oral Care and Baby

 There were no price increases in Denture and Dental Products. The Oral Care group averaged just below 5%. This was the only group below the 5% level.  Baby was just above 6% and just below personal care. Toothpaste increased just above the 6.5% level while Oral hygiene was at 6% at the same level as Baby (Figure 8). More than a third of the Oral Care increases occurred in the first and last quarters of 2008 while the Baby increases were spread throughout the first 3 quarters, The largest oral care increase occurred in the third quarter while the second quarter showed the largest for Baby. 

Implications
2008 had more price increases than previous years with manufacturers no longer able to absorb raw material and transportation costs and retailers seemed to accept them more easily than in the past, understanding the rising costs. With the major drop off in sales by retailers in the 4th quarter it will be interesting to see what holds true for 2009. Please let us know your comments and thoughts by replying to  http://www.competitivepromotion.com/comment.html

For more specific information, please contact Larry Kagel at Larryk@competitivepromotion.com. You may visit our website at www.competitivepromotion.com.