PP_1170x120_10-25-21

Pull out all the stops to boost traffic in challenging times

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Indrajeet Dixit

2021 was an immensely challenging year for retail pharmacy chains — as pharmacy chains were tasked with the rollout and administration of COVID-19 vaccines. As vaccine-seekers rushed to stores foot traffic and subsequent discretionary purchases increased. There was a 7% increase in discretionary transactions as revenues for major pharmacy chains increased by 6% to $328 billion in 2021.

As of July 2022, nearly 600 million doses of COVID-19 vaccines were administered in the U.S. — nearly 260 million doses of those via the federal retail pharmacy program, a partnership between major pharmacy retail chains and the federal government.

Cassie Ryding

However, times have changed; retail pharmacies now enter an uncertain era as the rush for vaccines and booster shots recedes. Pharmacy foot traffic was 16% lower year on year (January 2021 versus January 2022) . Fear of an impending recession is resulting in declining discretionary spend as consumers planned to reduce spend by six points to 32% (from 38% in September 2021) as inflation increased to 8.6% in May 2022 .

To compound the situation – supply chain issues continue to hurt on-shelf availability. Nielsen reported in 2021 $2.7 billion in lost sales for top-five categories: paper and plastics, pet food, salty snacks, prepared frozen food, and laundry care — all relevant categories for front-end pharmacy retail. Finally, “The Great Resignation” continues to cause store labor issues with wages consistently rising and challenges with worker availability.

John Clear

In the face of this incredibly challenging strategic environment, retail pharmacies must pull out all the stops to increase foot traffic and ensure high conversion during those visits. A combination of age-old fundamentals and more modern digital techniques provide a sound foundation to make it happen.

  • Make every footstep count — With declining store traffic and more price-conscious consumers, retail pharmacies must emphasize converting every customer and building their baskets with sharply priced impulse items.
  • Ensure high-traffic areas and end-caps feature the fastest moving, sharply priced items in the assortment.
  • As supply chains improve, consider increasing in-store inventory levels — even on the significant percentage of SKUs that are slow movers. Retail pharmacies simply cannot chance out-of-stocks and missed sales.
  • Double down on loyalty programs and digital engagement — As foot traffic slows and pharmacy patients migrate to mail order or digital pharmacies, retail pharmacies must increase their emphasis on organic methods to drive traffic. While several large national retail pharmacies have aggressively embraced loyalty programs and digital engagement, many smaller or regional retailers are missing a huge opportunity.
  • CVS experienced a 55% year-on-year increase in Web traffic serving 40 million customers digitally, which provides a massive increase in customers to engage and drive traffic.
  • Loyalty programs have proven highly effective during traffic-challenged periods — 62.1% of respondents to Loyalty Program Report reported that their loyalty program helped keep their customers engaged during the COVID-19 crisis.
  • Train colleagues to act as a retail pharmacies’ salesforce — Many retail pharmacies have overly focused front-of-store and pharmacy colleagues on operationally oriented tasks (e.g., stocking shelves, counting pills) and lost the essence of using the front line to drive customer service and ultimately sales.
  • Instill a “one store” mentality — pharmacists and techs can act as health experts helping customers with over-the-counter medications, improving patient outcomes and driving front-end sales.
  • Rethink store tasks for retail employees and consider building distinct roles around tasking and selling labor.
  • Invest in automation and digitization — Given tight labor markets and a need to focus store associates on customer-facing activities, retail pharmacies need to invest in automation technology that can remove repetitive redundant tasks. Existing technology solutions and groundbreaking innovations on the horizon both require investments and pilots to get moving.
  • Automate age-old repetitive tasks using advanced technologies (e.g., pivot from physically counting zeros or holes to AI/computer vision technological that can rapidly automate the task).
  • Continue to roll out existing self-service technology and other widely adopted automation/digital technology that remain underpenetrated in smaller regional and independent pharmacy chains.

While the pressures driven by decreased traffic, inflation, supply chain issues and tight labor markets are a huge hurdle facing the retail pharmacy industry, chain drug retailers continue to play a critical role in the national health care system. With rapid, bold and thoughtful implementation of trusted fundamentals and a targeted set of new innovations, retail pharmacies can build on their heroic response to COVID-19.

Indrajeet Dixit is a director, Cassie Ryding is a manager and John Clear is a director in Alvarez & Marsal Consumer Retail Group, a global professional services firm specializing in business transformation. They can be reached respectively at [email protected], [email protected] and [email protected]


ECRM-08-202222


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