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Private label manufacturers: Are they getting the message?

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As drug stores remake themselves under the banner of health and wellness, they are taking a second look at anything that may strike consumers as off-brand. In this regard, one major loose end continues to be the center of the store, packed as it is with potato chips, soft drinks, candy and other items widely seen as unhealthy. This discordant note will only get louder as brick-and-mortar pharmacies start to look and function more like holistic health care centers.

Todd Maute

So how can drug stores balance an appeal to the current elder consumer (value- and convenience-oriented shoppers who, in many cases, are looking for bread, cereal and other basics) with the need to attract newer and younger consumers? The latter group, after all, is less brand loyal, seeks a healthier lifestyle and likes having holistic store-brand experiences.

Fortunately, the answer is already within reach. Taken together, the top chains operate some 20,000 stores across North America. That means they have the scope and scale to forge strategic alliances with manufacturers in pursuit of a common goal — developing, innovating and leveraging powerful store brands in the health and wellness space. By aggressively pursuing store brands that speak to health-conscious audiences, drug stores stand to acquire these valuable customers for a lifetime.

It is a change that needs to happen. From a private label perspective, the convenience-oriented part of the store — sandwiched as it is between beauty, pharmacy and an explosion of new medical and quasi-medical services — remains relatively unsophisticated. To be sure, chains have made some progress (CVS Health, for one, now offers the likes of Gold Emblem Abound Dried Organic Pineapple). But by and large the national chains are still taking an old-school approach to private label, one built around a typical price-value message.

With greater commitment to healthy store brands, drug stores could drive enough demand to satisfy large manufacturers’ minimum-volume requirements — and perhaps spur the rapid growth of niche specialty manufacturers focused on meeting (or creating) that demand as well. Some might think of Whole Foods Market or Sprouts Farmers Market as having scope and scale, but combined they operate only about 800 stores. Strategic partnerships with manufacturers would, with time, grow and develop the entire supply chain infrastructure needed to maximize “better for you” store brands at national drug store chains.

Remember, the opportunities here are enormous. Organics are only part of the picture. Today’s consumers are looking for products that are “free from” pesticides, yes, but also gluten, animal products, sugar, genetically modified ingredients, high-fructose corn syrup, BPA, exploited labor and much more. There is broad potential to introduce not just new pricing tiers but also innovative approaches to sustainable packaging of food and nonfood items. We are already seeing the next wave in consumer packaged goods packaging — call it the War on Plastic — and it is bound to gather momentum. The health of the planet affects human health, and it may become increasingly important for shoppers and patients.

Store brands are or should be an extension of the retailer’s brand purpose. They are marketing tools, not mere margin-enhancers. They allow drug stores to set themselves apart, reinforce their brand’s purpose, cement shopper loyalty, improve price perception, boost the bottom line through higher gross margins and tell their customers a holistic wellness story.

In leveraging their enormous portfolios and great locations, chain drug stores could mainstream private label health and wellness products on a grand scale. This would create some serious competition for specialty grocers. However, drug stores will need store-brand manufacturers as partners. To the extent that drug stores embrace fresh convenience and grab-and-go food (as is happening in much of the c-store sector), they will also need access to fresh, cold supply chains. The time is now to start leveraging scale, rebuilding the logistics side of the business, developing products that are “better for you” and making lasting commitments to brand-right private label strategies.

By forging new relationships, not just with customers and joint venture partners but also with manufacturers and suppliers, the national chain drug stores stand to drive traffic, sales and loyalty for the health-focused future that is already emerging.

Todd Maute is a partner at CBX, the New York-based brand agency and retail environments consultancy. He can be reached at tmaute@cbx.com.


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