There is a growing trend in the North American retail landscape that is opening new doors for retailers previously stifled by supercentre competition, along with new growth opportunities for CPG and healthcare companies, according to a report from Information Resources.
For years, the company reports, drug stores have struggled to protect and grow front-end sales in the face of intense price competition from supercentres. But those years of struggle may be over according to the company's 'Times & Trends: Channel Migration 2007 report.
Competitive strategies
"As the supercentre format matures, competing retailer differentiation strategies have taken hold," explained IRI's chief marketing officer, Andrew Salzman. "We're seeing remarkable gains within the drug store channel, as drug store retailers leverage core strengths in health and beauty to bring consumers into their stores and drive incremental purchases. The battle for consumer trips is in full swing as time constrained shoppers look to accomplish more in less time, and drug stores are clearly stepping up to the challenge."
The study found that, while consumers have steadily decreased their total number of shopping trips during the past five years - and consolidating trips in response to high fuel prices and a greater ability to get more of what they need in a single stop - drug stores have seen increased shopping frequency. And consumers are not only visiting drug stores more often, but are actually spending more when they are there. The average drug store basket increased by 6.9% in 2007 compared to 2006, which is nearly three times the industry average increase across all CPG outlets.
Factors driving success
So what are the drug stores doing right, and what strategic aims can be translated to other sectors? The report highlights a number of factors specifically driving drug store success.
For example, healthcare-based trip-building strategies appear to be working. Drug stores are implementing programmes, such as Medicare Part D educational outreach to seniors and expansion of in-store health clinic availability, that are driving store traffic. These programmes offer distinct new growth opportunities for manufacturers of products with disease management benefits, including food and beverages as well as prescription and over-the-counter remedies, through tie-in promotions and cross marketing.
Leading drug store retailers have also invested in marketing, merchandising and private label development to establish stores as beauty care destinations.
Gains across categories and segments
The study shows that drug stores captured a half-point share gain in total CPG spending during the past year - a sizable increase considering the fact that drug store total share is only 5.6%. This was the largest increase of any channel, including supercentres.
According to the report, the channel either maintained or increased share across all CPG departments, with a full two-point share gain in health and beauty care products, largely at the expense of the mass merchandise and grocery channels. However, drug stores also attracted market share from supercentres in some categories (such as internal analgesics and razor blades).
Marketing power
According to Salzman, the drug stores' ability to strengthen their position in health and beauty within such an incredibly competitive marketplace illustrates the power of the right product assortment and of targeted marketing: "Supercentres remain formidable competitors, but many retailers have now developed effective positioning strategies vis--vis supercentres that are enabling them to thrive."
Drug stores' success can also be attributed to growing appeal across consumer segments. The report reflects that the channel increased share of CPG spending across all major consumer lifestage segments, with the largest gain among young singles and young couples - segments in which the channel has historically been less developed.
Other key findings
The study explores channel migration trends across major CPG channels in aggregate and across categories and consumer segments. Among its findings:
- The revenue flow from grocery stores to supercentres evident during the past several years has moderated considerably: Supercentres only gained 0.2 share points this past year, as grocers lost 0.2 share points.
- While total CPG share shifts were modest compared to historical averages, there were large shifts at the category level, where the new cross-channel battles are played out. Major swings in channel share occurred in ready-to-drink tea/coffee, hot cereal, shampoo, hair conditioner and toothpaste, for example.
- Most major channels, including grocery stores, drug stores and supercentres, earned share increases among their heaviest shoppers that far surpassed their all-household share gains - a testament to efforts, including loyalty marketing and relevant assortment, aimed at protecting and growing share among core consumers.
- Value channels, including supercentres, club stores and dollar stores, lost household penetration as consumers increasingly seek out shopping experiences that meet a range of needs beyond price.
- Small-format, express stores are most likely be the "movers and shakers" of the future, filling a market gap that exists today in addressing consumer needs on quick trips for fresh foods and prepared meals.
The report has been made available directly from IRI - click here (free registration required).
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