List price change vs. retailer margin

Glen Davis

The economy continues to be the single largest influencer in the growth of the health, beauty and wellness industry. The annual inflation rate has averaged just more than 2% during the past five years. More than ever, consumers are focused on living well with less and are making every effort to save money. Manufacturers are struggling to manage the ever-increasing cost of goods sold, and retailers are under tremendous pressure to increase profits in a very competitive environment.

A recent study of list price changes over the past five years found that most HBW categories (19-of-34) saw average annual increases above the 2% inflation rate, although six categories actually experienced a decrease in list price. While the average annual percent change ranged from a high of +5.24% for foot preparations to a low of -2.64% for sun care, the HBW industry average increase in list price was 1.82%. 

The lowest average annual list price increase during the past five years occurred in 2010 (+0.86%) as the U.S. economy struggled to recover from the recession that began two years earlier. Ironically, the most significant single-year increases occurred in 2008 (+2.62%) just as the recession began and was driven by home health care/sickroom (+27.14%), cosmetic makeup (+7.84%), home remedies (+5.75%) and toothpaste (+5.41%). The study further revealed that the categories with more competitors were not as likely to take price increases as high as those in less crowded categories. Examples include external analgesics (+1.04%), internal analgesics (-0.13%), internal cough-cold (+1.44%), vitamins (+0.62%) and weight control/nutritional foods (+1.14%).

Despite the economy, several categories were able to take double-digit list price increases at various times during the past five years; although in most cases, the increases were followed by decreases. In 2008, for instance, the home health care/sickroom category saw a 27.14% increase. That was followed by four consecutive years of average list price reductions. Similarly, the home remedies category showed an average increase of 16.5% in list prices in 2011 followed by a 1.45% decrease in 2012. By contrast, the laxatives/diarrheals and foot preparations categories saw double-digit increases of 13.2% and 11.11% in 2008 and 2011, respectively, and experienced list price increases in each of the following years as well. The family planning and weight control/nutritional foods categories have each shown average list price increases of 13.31% and 11.53%, respectively, during the past 12 months.

Interestingly, there were several categories that showed increases and decreases in list price during a given 12-month period that resulted in no net change (0.00%), including laxatives/diarrheals in 2008, toothpaste in 2009, cosmetic/makeup in 2010 and 2011, internal analgesics in 2010 and 2011, bath products in 2010, denture products in 2011, men’s and women’s toiletries in 2011 and 2012, and sun care in 2012.

Hair care, oral care, internal cough-cold and vitamins, the highest-volume categories across all classes of trade, had average list prices of $6.31, $4.57, $6.26 and $7.14, respectively. The categories with the highest average list prices were home health care/sickroom, home remedies, laxatives/diarrheals and baby products at $15.05, $13.54, $8.26 and $7.59, respectively. On the other hand, the categories with the lowest average list prices were deodorant, cosmetics/makeup, bath products and hair styling at $2.96, $3.17, $3.34 and $3.48, respectively. 

At the same time manufacturers are looking to increase list prices, retailers are looking to maximize their margin across all channels. In general, drug retailers have been able to consistently generate the highest retailer margin. For example, the average retailer margin for the vitamin category in the drug channel is +41.7% compared to +37.9% in food and +34.5% in mass. This pattern holds true across all categories. The categories generating the highest retailer margin across food, drug and mass were foot preparations, family planning, home health care/sickroom and first aid. Conversely, the categories generating the lowest retailer margin across all channels were toothpaste, baby products, shaving products and home remedies.

The study also attempted to determine if categories with higher average list prices resulted in higher retailer margin. This was not the case as retailer margin varied greatly regardless of the average category list price in all channels. 

As manufacturers attempt to increase list price and retailers seek to maximize gross profit margins, both must be cognizant of the consumer in this still struggling economy. Those manufacturers considering a price increase in 2013 will want to carefully consider the historical list price trends for the competitive brands and products in their categories, the average retailer margin they might expect in each channel and the impact the new everyday retail price will have on consumer purchasing behavior.

To view the study in its entirety — including the list price versus retailer margin analysis for the food and mass channels — visit and click on the “News” section.

Glen Davis is president and CEO of Competitive Promotion Report. CPR is a leading provider of competitive intelligence, analytics and insights. For more information, email Davis at, or call 770-565-0735 x106.

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