In the large conference room at our headquarters in Westport, Conn., there is an erasable whiteboard that gets an awful lot of use capturing ideas for companies across a spectrum of industries. While those ideas get written, used and erased frequently, there is always a quote at the top of the board that tends to hang around until someone posts a new one. For several months before the COVID-19 outbreak, the quote that stood unchallenged was William Gibson’s: “The future is already here, it is just not very evenly distributed.”
As we watched the pandemic unfold here in the U.S., demand for several of the services that chain drug offers surged, transforming them from niche offerings into primary ones. Home delivery, off-premise purchases via drive-through windows, curbside pickups and telemedicine grew as consumers looked for ways to responsibly socially distance. In fact, at the same time, some of the newer store formats designed to expand face-to-face clinic services were challenged as people were discouraged from being within six feet of others.
As we weigh the longer-term impact and look across the industries we work in regularly, we offer three predictions for chain drug operators to win in the new normal. It’s important to note that while COVID-19 accelerates these trends for chain drug, they were already here — they just hadn’t been distributed to chain drug as fully as other places yet.
Off-premise will grow dramatically — embrace it: While we all hope that people feel comfortable shopping in stores filled with people again, we know that some will continue to fill more of their requirements through less personal interactions. We have seen this not only across categories like books and staple household products, but also across the fast-casual restaurant category, where both take-out and delivery continue to account for a greater share of those businesses. In fact, according to Technomic, a leading research company in the food industry, total off-premise now accounts for 44% of all sales and is growing at about 6%, double the rate of total sales. Delivery, while currently about 10% of total sales, is increasing at three times the rate of total sales, and third-party delivery is exceeding 35% growth year on year. All of this was happening before COVID-19 when restaurants and apps began waiving delivery fees and increased the number of people having delivery at their fingertips through apps.
Virtual visits will also grow, creating a large opportunity for multiple health and beauty segments benefits. Even before COVID-19, several chains were experimenting with telemedicine access both through in-store kiosks and through their loyalty apps. Couple this with near-term innovations like in-home virtual eye exams, multiple wearables, and continuing improvement in phone cameras and broadband, and patient’s virtual video interactions with HCPs will continue to expand. However, we believe that this improvement in one-to-one video quality also offers chains who capitalize on it a major opportunity in health and beauty as well. As you continue to optimize your Web presence and apps, take a page from TASTY, the video cooking platform owned by Buzzfeed. What TASTY has done for cooking food we believe chain drug could do for health and beauty. Imagine tele-beauty consultations supported by quick and easy-to-understand demo videos. Before COVID-19, TASTY was exceeding 1 billion views a month and generating income from sponsored video and advertising. Imagine a fraction of that traffic but with the ability to complete the sale.
Use the freedom of interacting virtually with your customers to increase your assortment. Physical stores will continue to be critical to the growth of chain drug. However, as consumers have the freedom to explore multiple shopping options from home in less time than physically moving from store to store, it will be increasingly important to capture their engagement and loyalty with unique experiences and products or product categories. The good news is that these products do not have to be available in the physical store. The opportunity here is to develop and offer an increased variety of unique brands without having to carry store-level, physical inventory. Further, it offers the opportunity to test and learn with targeted consumers before making the products available broadly. Unlike traditional store brand private label, which carries the equity of the chain, the opportunity exists to push further than that equity might effectively stretch. Once again, we take a page from third-party restaurant delivery, where we see investment in “ghost kitchens,” a single commercial kitchen that creates meals and cuisines from multiple brands through a delivery platform. This approach enables on-trend innovation without many of the cost barriers associated with starting a traditional restaurant brand.
While we hope that things will continue to improve and ultimately get back to normal, it is unlikely that they will return to the same as before. They were already changing, just at a slower, less distributed rate. We believe that chain drug is well positioned to lead the way to the new normal.
Steven Robins is managing partner and principal at the New England Consulting Group.