Ben Antenore

Over the past year, we’ve been inundated with analyses, blogs, tweets and lectures trying to make sense of the “new normal” caused by the disruptions of the COVID-19 pandemic. For some, the new normal means masks in all public settings. For others, it means lasting concerns about physical contact. In retail, we’ve heard the new normal refer to rocketing e-commerce growth, shoppers’ new expectations about hygiene and sanitation, and a variety of other topics.

With the U.S. almost fully reopened, it’s finally worth considering the long-term effects of COVID’s disruptions on the drug channel and some of the permanent shifts that drug suppliers and retailers should expect and prepare for. Here are some high-level topics driving drug in 2021 and beyond:

New traffic drivers

Major drug players will need to rebuild their central shopping proposition and offer new trip types. Following an initial stock-up phase at the beginning of the pandemic, shoppers consolidated the number of retailers they visited weekly or biweekly and migrated primarily to the mass, grocery and online channels. While the drug channel is seeing increases in trips versus a year ago, the question remains at what level will traffic fully return and what are the primary drivers for those trips.

Prescription fulfillment is the other part of the drug channel’s traffic challenges. Concerned about infection, a significant number of prescription shoppers have switched to mail-order prescriptions and upped their drug supply from 30- to 90-day scripts. These changes have significantly disrupted the drug channel’s most crucial trip driver. While some shoppers may switch back to in-store fulfillment after being vaccinated, others will likely stick with mail order, thus removing that once-important drug store trip from their shopping routines.

With these factors in mind, how can the drug channel convince shoppers to pick up prescriptions in-store like they used to? It will be up to drug retailers and their supplier partners to offer new traffic drivers (or reinvigorate old ones) if they hope to see regular traffic patterns return to the drug channel.

Loyalty

Loyalty will be one of the primary levers major drug players will pull to attract shoppers to the store and encourage them to spend. With Walgreens’ launch of myWalgreens and CVS’ CarePass available nationally, future innovations in loyalty will most likely be in the digital realm. Now that curbside pickup, drive-thru fulfillment, and last-mile delivery are available at most national drug stores, drug retailers will need to tie these services back to their loyalty programs while striking a balance between encouraging online use and driving shoppers to the physical store.

2020 was a profoundly disruptive year for the circular, the channel’s longtime promotional tool. As shoppers migrated away from the drug channel for their primary shopping, CVS and Walgreens reduced investment in the circular. Walgreens even discontinued the physical edition and offered an online circular exclusively for some time. With 2021 already another disruptive year for retail, suppliers will need to work with their drug retailer partners to understand the circular’s role in the channel’s new normal. Digital couponing (à la Target’s Cartwheel program) may finally expand and become standard for drug retailers. Indeed, CVS and Walgreens started piloting such initiatives over two years ago.

Chasing new trends

At Kantar, we’ve described COVID-19 less as a destroyer of prepandemic retail trends and more as an accelerator. This effect certainly applies to the drug channel. Broader topics in proactive care like stress reduction, sleep, immunity and mental health are just as important to shoppers now as they were before the pandemic, and perhaps even more so. Shoppers are thinking about health, and a vaccine or return to a less germ­o­phobic normal are unlikely to diminish its importance.

As drug dispensers and health and wellness destinations, drug retailers are unusually well placed to appeal to increasingly health-minded shoppers and offer compelling products and services. When it comes to proactive care, the good news for suppliers is that almost any brand can play. Products ranging from vitamins and supplements that may boost immunity and improve mental states to confectionaries encouraging shoppers to treat themselves fit under the extensive proactive care umbrella. With the drug channel desperate to differentiate itself from other channels and reinvigorate regular traffic patterns, suppliers should expect shifts in assortment and in-store merchandising that emphasize self-care and help shoppers improve their health. Innovation will be essential. Brands that can speak drug retailers’ language about health and wellness (appealing to the “chief health care officer” in the household, for instance) will have a leg up.

The future of Rx shoppers

As mentioned earlier, COVID-19 significantly disrupted prescription patterns, long a reliable and core profit engine and traffic driver for the drug channel. Besides the effects of a shift to mail-order fulfillment and longer refills, Rx growth has become unreliable because many shoppers have postponed elective medical procedures. As a result, most script growth in the past year has come from prescriptions for chronic illnesses. With many Americans now vaccinated, shoppers are going through with whatever procedures they may have postponed. The question for the drug channel is at what rate and through what channels will they decide to fulfill those ­prescriptions.

Besides these macro trends, the other thing affecting prescriptions in the drug channel is a certain online retailer based in Seattle. After much preparation and rumbling following the acquisition of online pharmacy start-up PillPack, Amazon finally launched Amazon Pharmacy in late 2020. While Amazon Pharmacy is currently a simple mail-order pharmacy with some features borrowed from prescription savings company GoodRx, Amazon is always a disruptive force and will be an additional pressure point for the major drug retailers.

Food and convenience in the drug channel

One of the primary reasons that shoppers have migrated to other channels during the pandemic has been a perception that drug retailers aren’t one-stop-shop experiences. Why is that?

Considering the breadth of categories and products that the drug and grocery channel (one of the primary benefactors of drug’s traffic leakage) share, food is one category in which drug is weak. With shoppers seeking fresh food, the drug channel doesn’t hold a candle to mass and grocery. Outside of the Kroger Express pilots, the drug channel doesn’t sell fresh food. How can major drug players improve their food offering and boost their overall standing as a one-stop-shop with shoppers?

Understanding omnichannel

COVID-19 forced the drug channel to upgrade its digital capabilities finally. In response to shopper concerns about physical infection at the pandemic’s height, each major drug player expanded partnerships with third-party delivery services, improved basic delivery, launched some form of curbside pickup and began offering full-store fulfillment via the drive-thru. The new CVS Pharmacy president (Neela Montgomery, former Crate & Barrel chief executive officer) and chief customer officer (Michelle Peluso, former IBM digital sales executive, and chief marketing officer), as well as the new Walgreens CEO (Rosalind Brewer, former CEO of Starbucks and Sam’s Club), suggest that omnichannel will be top of mind across the channel. Expect significant overhauls of the shopping experience at both CVS.com and Walgreens.com.

Suppliers will need to consider the numerous points of contact that drug retailers now have with their shoppers. As outlined above, brands will need to remain ahead of the curve and ensure inclusion in new in-store merchandising solutions. They will also need to improve their digital shelf and overall online presentation to shoppers.

The future of flu

2020 marked the mildest flu season in recent memory. With most people already deeply concerned about COVID-19, many shoppers got their flu vaccines early. They also avoided the kind of physical contact and travel that could lead to catching the seasonal flu. As a result, the drug channel took a noticeable hit when one of its yearly events (flu season) turned into a nonevent.

What’s the future of the flu season in an age of more virus-minded shoppers? If shoppers continue to act smart and avoid many factors that cause seasonal flu infection, the drug channel may lose one of the essential parts of its yearly calendar.

Acquisitions resume

After a year spent responding to COVID-19, the drug channel’s major players are on the hunt for acquisitions. With cash on hand from the sale of its Alliance business, Walgreens is interested in purchasing anything that can improve its digital infrastructure, particularly the pharmacy’s back end. CVS is monitoring the landscape for opportunistic acquisitions. In October 2020, Rite Aid purchased Bartell Drugs, and it may seek to expand its regional presence this year with so many small urban pharmacies badly affected by COVID’s disruption.

2021 has already been a fascinating year for the channel. Between new directions spurred on by changes in management, retailers moving beyond COVID and disruption introduced by an evolving health care landscape, it’s unlikely that drug will slow down anytime soon.

Ben Antenore is an analyst at Kantar.