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Drug stores fend off rivals in health, convenience

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It is well known that the Internet and low-cost channels, such as club and dollar, have gained market penetration at the expense of other channels. The good news is that the traditional outlets still hold the highest penetration levels and drug is faring better against the upstart channels than are mass and supercenters.

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Robert Sanders, IRI

Drug, despite losing nearly 6 points of penetration in the last three years, still approaches a penetration level of 71%.

Why is drug hanging on so well? The drug store channel maintains a high level of penetration because this class of trade has been doing a solid job of giving all segments of shoppers what they want and when and where they want it, especially regarding health items.

Health products lead growth

Sales of nonedibles over the last three years have grown modestly at 1.6%, while health products, a segment of non­edibles, grew over two times that rate, or nearly 4%, during the same time period. Clearly, health products are in high ­demand.

While it is true that health products are sold in varying degrees across most all classes of trade and the Internet, such products have always been a mainstay and often a shopper destination for the drug class of trade. IRI believes that this is a key reason why drug has held up better against competing retail channels.

Drug also satisfies the needs of most all shopper segments for their trip purposes and products desired.

cdr-filler-opinion-750Path-to-purchase landscape and purpose-driven shopper

To fully appreciate the complexity of shopping options and the path to purchase in 2015, it is valuable to analyze shopping alternatives going back several decades.

From the country/general store of the 1850s and the large suburban indoor malls of the 1970s to the discount drug and warehouse clubs of the 1990s and the catalogs and Internet of today, it is clear that shopping options have evolved. In addition, the appeal of these options varies by demography and purpose of the shopper. Further, it is highly likely that some segments of the population will remain comfortable with the traditional shopping options that are familiar to them and still meet their needs.

However, tipping points based on key purchase drivers will push more shoppers to try new options. This phenomenon is happening with baby boomers, who shop at drug stores but increasingly on the Internet as well. Similarly, Millennials shop in drug, too, when speed of acquisition, convenience and variety are desired.

As Millennials age, will they keep their propensity to shop via the Internet and dodge brick-and-mortar drug? Possibly, but it is more likely that this group will age into a mode where the drug store offering will continue to play an important role.

Based on recent research, consumers are increasingly buying products from certain retailers and e-tailers based on the purpose of their shopping trip. Drug stores’ mainstay purpose is to meet consumers’ need for a quick trip, followed by fill-in, which actually gained in share of consumer packaged goods sales by 1.4 points compared with a year ago.

IRI CPG Retail Channels Chart

The drug store channel is faring better than mass/supercenters in the face of competition from dollar, club and Internet retailers.

Drug stores remain a highly relevant source of products, particularly health-related items, despite the evolving and variable shopping habits of the overall U.S. population, and dollar stores in particular are on drug’s tail for that quick trip.

The vast majority of consumers are fairly democratic and shop across all types of ­outlets, but there are strong skews of retirees and seniors, who favor drug stores, and Millennials and Gen-Xers, who shop more frequently in mass and larger supercenter formats.

On the flip side, retirees, seniors and older boomers tend to shop less in the bigger boxes, and for a logical reason — those stores and their parking lots are often too big to navigate for the few things they generally need to pick up while out and about.

Otherwise, IRI has observed that the variety of retail formats appeals at different times to all segments of the population, depending on shopping trip purpose and situation.

Millennials and boomers: Serving two masters?

Consumers’ need for health care products will persist and will evolve in a manner coincident with population segment trends.

As today’s Millennials get older and encounter the typical ailments of aging, they will start to need health care products more often, including analgesics, incontinence management items, and vitamins and mineral supplements, just as their boomer counterparts do today. However, the shopping experience Millennials desire may be different from that of today’s boomers and retirees.

Therein lies the challenge for today’s drug stores. The drug class of trade will need to continue to provide a variety of health items in an easy-to-shop environment, but increasingly they may need to offer that experience online with home delivery (again, something that independent drug stores have been doing for ages, but chains less so).

The drug store shopping experience will have to evolve and contemporize in synchronization with the different segments of consumers.

Research into the key need states across five popular shopper segments revealed one clear need state that is important to all segments: health products.

Whether for boomers, who account for 43% of total CPG purchases, or for Millennials, at 22%, health figured foremost as a reason to shop.

The order of priority of the key needs across all consumers is (1) health, (2) convenience, (3) brand trust and value, and (4) customization.

The drug class of trade has always been and continues to be expert at offering shoppers health-related products and services, convenience and variety. Fortunately, this combination appears to be one that will persist as important drivers of purchase across most segments of the population and, in particular, for boomers and Millennials alike.

The challenge for drug will be to keep pace with the evolving needs of all shopper segments. Fortunately, because health care items are universally important across shopper segments, as is convenience, brick-and-mortar drug outlets should fare well, since health and convenience are second nature to this class of trade.

Going forward, it will be important for drug to continually study and deeply understand the motivations and needs of all shopper segments and then target items and promotions appropriately, to compete effectively with the evolving and highly competitive retail ­options.

Robert Sanders is executive vice president and health care practice leader at IRI.


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