Tom Furphy

Chain drug stores are facing unprecedented challenges on several fronts today, not the least of which is the need to grow merchandise sales. The continuing trend of mail order prescriptions takes foot traffic from the stores. New nontraditional offerings such as Amazon Pharmacy and Cost Plus Pharmacy, Mark Cuban’s new venture, further threaten to erode a previously captive audience. At the same time, e-commerce is swallowing up volume, led by Amazon, which has claimed at least 6% of the U.S. consumer packaged goods market, depending on the source of the market definition, with other retailers also making inroads into digital retail. And this is all in the face of the most significant inflation of our generation, increasing pressure to offer customers the best value for their dollar.

As a result of these dynamics, the mix of in-store traffic that drug stores have traditionally relied on for merchandise sales has changed. Some retailers are adding wellness services to improve engagement and retain foot traffic, which will certainly help. But these efforts alone may not be enough to support necessary merchandise sales growth.

Bare minimum e-commerce strategies

Many chain drug stores are enhancing their e-commerce capabilities. However, all are struggling to find the right formula for digital engagement with their customers. Mobile apps are great to help customers manage prescriptions and redeem offers but have fallen short at driving sales. Some retailers offer e-commerce via parcel delivery in competition with Amazon. Others offer local delivery or in-store pickup, which today is table stakes to compete with other chain drug stores and formats across mass and grocery. Most chain drug retailers today are partnering with local delivery services such as Postmates, Shipt and Instacart to reach their customers.

While these approaches all have merit, they stop short of solving the problem of diminishing merchandise sales. Parcel delivery cannot compete with the scale, price and delivery speed of Amazon. Local delivery comes with a higher cost to serve and forces reliance on partners, which increases the total cost to the customer. None of these efforts strike the convenience/value equation that customers are looking for. And they certainly don’t leverage any synergies with a customer’s routine engagement with the pharmacy.

Auto-replenishment has arrived and is an answer

Many top retailers, including one of the Big Three U.S. chain drug retailers, have turned to auto-replenishment to deliver the ideal convenience/value equation for their shoppers. Auto-replenishment enables shoppers to set their most regularly used items, across most retail categories, on a digital shopping version of cruise control, eliminating the more mundane and stressful elements of shopping, while helping customers stay in stock on the products they need. This is not a simple product subscription program, but the automation of a large portion of shopping tasks.

Shoppers benefit from machine-learning capabilities of the auto-replenishment platform to help them select the right products for their needs, with recommended replenishment cadence and quantity. Replenishment items that are coming due are grouped into logical orders. Customers are reminded of what’s upcoming prior to fulfillment and have the option to opt out or modify their orders. All of this takes lifestyle or pattern changes into account. As customers add items to auto-replenishment, they are encouraged to add more products based on their purchase tendencies. Product variations, such as counts, flavors and sizes, can be easily adjusted. Usually accompanied by a modest discount, this provides improved convenience and value, which shoppers covet today, while growing their baskets over time.

Auto-replenishment is particularly effective for the many customers who have need states that require regimen purchases of products over time. This could include self-care of all types, medical conditions that can be managed by a combination of pharmacy and retail products, or nutrition regimens for all ages and needs. It also addresses the needs of new mothers, reduces the stresses of elder care, and enables personal care routines as well as covering household, food and beauty needs. Retailers that serve these needs via auto-replenishment for their customers stand to not only retain and grow sales but also improve customer loyalty over time as a trusted partner in solutioning and personalization. In fact, two-thirds of shoppers who have used repeat shopping automation in the past six months said that offering the capability is either ‘Impactful’ or ‘Extremely Impactful’ to their loyalty.

Your customers are ready

Customers want this from their local retailers. In a recent survey conducted by sector-leader Replenium through Kantar Marketplace, 29% of Amazon Prime shoppers that have used automated shopping indicated they would spend $100 or more per month in a program with their local retailer if offered an auto-replenishment option. Specifically, 21% of the total (not a subset) would use auto-replenishment at their local pharmacy retailer if offered.

In further support, Kantar reported in their ShopperScape Evolving Online Landscape Deep Dive report in April 2021 that well-executed subscription programs lead to nearly one-third of shoppers buying a wider variety of that product type and close to half reducing or eliminating category shopping elsewhere. This is further amplified with auto-replenishment. All these indicators point to auto-replenishment as a massive offensive and defensive opportunity to unlock significant growth that retailers cannot afford to miss.

Now is the time

As Amazon and other retailers expand their auto-replenishment capabilities there is a measurable and significant cost of waiting. Given the compounding math of repeat purchases and growing replenishment basket sizes over time, retailers that get in earlier will benefit disproportionately versus those that wait. Conversely, retailers that wait will face a struggle to win back customers that have locked in with their competition. Waiting just a year would cost a retailer approximately a 30% gap in year five versus a retailer that starts today.

When selecting an auto-replenishment partner, retailers should look for one with experience that can provide best practices for digital and in-store marketing as well as a myriad of merchandising and manufacturer support programs, as well as fast implementation, so that you and your customers can quickly and fully realize the value of the program. One such partner, Replenium, enables most retailers to implement in under 60 days with contained involvement from their IT teams. Regardless of the partner you choose, this is a critical functionality today that will be your customers’ expectation tomorrow.

Tom Furphy is chief executive officer and managing director of Consumer Equity Partners. He serves on a number of public and private company boards and speaks on the topics of retail innovation and e-commerce. He can be reached at [email protected].