Drugstores seem to be doing things right these days, according to a recently released IRI study, Channel Migration 2007: A New Cross-Channel Battleground Emerges. The channel is apparently proving itself better than food or mass when it comes to attracting customers, increasing product sales, and building transaction size.
The jury is still out, however, on whether drugstores can sustain this level of performance relative to supermarkets and mass merchandisers. In a recent store opening blitz, Target has just rolled out some new merchandising concepts in core drug store areas such as beauty, personal care and seasonal. Wal-Mart, too, is hardly a sleeping giant. In the supermarket arena, a number of innovative formats have been rolled out or are in the pipeline including H.E.B. plus!, Publix GreenWise, Giant Eagle's Express and Tesco's Fresh & Easy.
According to the IRI study, consumers have been steadily decreasing their total number of shopping trips over the last five years as the effects of higher gas prices and other factors have taken a toll. For example, the growing attractiveness of one-stop shopping at sparkling new retail outlets has contributed to the reduction in trips. Indeed, according to IRI, the all-outlet decline in average trips per shopper per month was –3.1 percent in the rolling 52-weeks ended May 13, 2007, the biggest drop in the past four years. Drugstores, on the other hand, were able to increase shopping trips by 1.2 percent in the same period. Compare that to the –2.8 percent falloff in supermarket trips and the –4.4 percent of mass. Even Wal-Mart experienced a decline (-0.8 percent).
Drugstores have also been able to enlarge the average basket at a rate triple that of other channels' combined average. All channels (with the exception of clubs) increased dollar sales per purchase year-over-year in 2007, but the drug store gain was truly outstanding at 6.9 percent, or nearly $16 in absolute terms. In contrast, the average for all channels was a 2.4 percent gain. Wal-Mart showed a 3.8 percent increase while grocery managed a sub-average 1.9 percent increment.
According to the report, drug store increases were broad and deep and included nine of the top ten non-foods categories with the largest share shifts. In addition, said IRI, the gains appeared to flow from an emphasis on health and beauty care, as well as private label development. Drugstores have apparently been able to leverage pharmacy to the benefit of the whole store. Some of the key categories with major drug store share growth included cold/allergy/sinus, in which 2.2 share points were garnered at the expense of grocery, and internal analgesics with a 3.1 share point increment, here at the expense of both grocery and mass. In beauty/personal care, drug, in part due to the halo effect of drug store additions of upscale European beauty lines, grabbed 5.9 share points in hair conditioners, taking them from grocery, mass and supercenters as well, while in shampoos, drugstores gained 4.5 share points.
Discussion Questions: What do you see as the major factors in drugstores' success? What strategies and tactics could be adopted by grocery and mass to offset the current advantages of drugstore competitors? What other strategies could drugstores activate to stay competitive, in addition to health, beauty and private label?