COVID has set the stage for drug stores’ next evolution

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Matt Katz

Matt Katz

A rethink on the front of pharmacy came about when drug stores took note that people coming in to fill prescriptions had some time on their hands and that time and spending power could be put to great use by offering other items those shoppers might need to pick up.

Over the years, this basket of extras expanded from household staples such as paper towels, detergents and magazines to a wide array of beauty products, food and soft drinks, even decent gift and card sections — think convenience store in a pharmacy. We take it for granted now, but it’s not so long ago that a can of tuna would have seemed an oddity in a drug store. More recently, some pharmacies have featured wide selections of fresh food, private label brands and even cosmetics counters with a similar look and feel to those in department stores or at a beauty retailer. Now, over a year into a pandemic that has precluded many shoppers’ in-store visits, another rethink is in order, as chain drug stores once again have to transform around new challenges and ­opportunities.

Chris Ventry

Chris Ventry

We’d like to posit that in their next stage of evolution, by understanding the new, pandemic-accelerated ways consumers shop, drug store chains will need to expand fulfillment operations while streamlining operations, and still have the ability to quickly identify key changes in buying behavior. Drug stores are, in the present moment, a sought-after center to distribute/receive vaccines; there’s a unique opportunity to put this new foot traffic to use, making that store visit a memorable experience and recultivating the shopping habit while simultaneously developing online “muscle.” And for the latter, it’s one thing to have a robust, well-functioning, attractive website on the front end, and fulfillment capabilities to deliver purchases to customers, but it’s quite another to understand the full value of the data drug stores have access to, whether their own internal data or from a vendor, and to act on it in a timely way. More on that later.

Nick Kramer

Nick Kramer

When people stopped coming into pharmacies because of COVID, chain drug retailers needed to find solutions that took them beyond the convenience store paradigm. While they had already been making inroads into offering medical services, the pandemic supercharged these efforts and led a sprint to digital, with services and delivery going omnichannel in a fraction of the anticipated time it would normally have taken. In addition to taking on a central role in the vaccination rollout, Walgreens and CVS have both expanded their medical service offerings, including telehealth platforms. CVS aims to become an extension of the doctor’s office, encouraging its customers to come in for a well health visit with nurse practitioners, have their blood pressure tested, and similar low-impact medical services. Walgreens, in partnering with VillageMD, is breaking into the primary care clinic arena as of this coming summer; another huge step forward in delivery capabilities has manifested in its recent signing on with Instacart.

Taking cues from the transformation in online grocery

What additional routes can drug stores take? The chain drug store industry can learn a lot from the mass migration of shoppers to online grocery, where after over a decade of inching forward, supermarkets sprinted to online. This massive, perhaps once-in-a-lifetime adoption of online grocery demonstrated how consumers could behave in new ways, even after professing for years that they wanted to pick out their own fresh vegetables. It turns out that the hired in-store shoppers did just as well or even better at that. So that category, previously the slowest to move online, suddenly became the quickest to evolve. At the same time, grocers embraced the necessary digital transformation strategies to quickly develop the capabilities needed for diverse fulfillment channels, from delivery to BOPIS and curbside pickup.

There’s a parallel here with chain drug stores. Grocers had to reenvision their back-of-house technologies in order to effect all those customer-facing changes. Also they needed to understand their data in terms of supply and demand. The new circumstances called for a more dynamic approach to category management, one that aligned with the new shopping patterns. BOPIS will continue to thrive at stores where pickup and delivery is quick and easy. Post-pandemic, it will need to be an either/and prospect, no longer an either/or one. This requires a whole reworking of channels that will allow chain drug stores to meet shoppers where they want to engage, whether through the physical or the virtual door of the store. In other words, it requires digital to be seamlessly integrated with physical.

Can the drug store become the digital boutique pharmacy?

There’s a potential play here for chain drug stores to go beyond the aforementioned convenience store model. Call it the boutique pharmacy concept, with curated, personalized offerings. The boutique concept is aligned with specialization and selection. For example, a customer who’s getting a monthly prescription filled might be a great candidate for a selection of other items curated especially for them. A broader understanding of that customer will reveal some of those propensities, and data that lends an understanding of how that customer behaves outside of your own four walls will provide plenty of clues about which regular, habitual purchases that consumer is making. Personalization holds out great opportunity here — think shaving cream, toothpaste, mouthwash or other items that might be delivered alongside the monthly prescription. It’s a concept that can extend to include skin care, batteries, paper goods … whatever shows up in a monthly, repetitive buying cycle. Key to this is using data to help predict what the combination should be, and correctly curating it.

Chain drug stores need to be moving toward a level of data maturity where they can develop these hyper-personalized products and experiences, born out of customer insights. With the right approach to the data — namely, valuing it and using only “clean” data from the outset — and the technology to make use of it, they’ll be able to bring new concepts to market more quickly, leading the race to digital rather than picking up the leftovers.

Personalize iteratively. Chain drug stores need to get on board with all the new ways consumers are ready to engage, and how they want to get their purchases delivered: Subscriptions and curbside are just two ways. Instacart has turned delivery into table stakes; BOPIS is another must-have; and subscriptions, promotions and other loyalty plays are where pharmacies can differentiate themselves. Connecting the dots in more innovative and personalized ways requires that sprint toward digital transformation, involving gathering data and analyzing it quickly enough to keep up with fast-changing habits.

To succeed through these intense times and beyond, drug store retailers need to understand their customers, their spending patterns within the competitive landscape and how to optimize inventory throughout the omnichannel. Having the data accessible enough and being able to view it in a format that makes it easy to view and unlock insights from it is essential. Whether you call it Pharmacy as Boutique or by some other name, all of this requires following the new, digitally enhanced shopping habit for clues on how to personalize. As the digital and physical worlds mesh, and newly discovered conveniences to consumers outweigh the old way of shopping, chain drug retailers must be equipped to understand and meet these constantly changing demands — and be ready to deliver a seamless, delightful shopping experience across the converging physical and online channels.

Matt Katz is managing partner, Chris Ventry is vice president in the consumer and retail practice and Nick Kramer is vice president and practice leader for digital transformation and advanced analytics at SSA & Co., a global firm advising companies and their C-suites on strategic execution. They can be reached respectively at mkatz@ssaandco.com, cventry@ssaandco.com and nkramer@ssaandco.com.


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