NEW YORK — A catalyst for customer traffic and purchases, the front end continues to gain prominence in drug chains.
Revenue from outside the pharmacy contributed more than a third of industry sales last year (35.6%), up dramatically from 28.2% just three years earlier, according to research by Racher Press Inc., the publisher of Chain Drug Review.
The change in drug store merchandise mix has not been accidental. With prescription reimbursement rates continuing to drop, retailers have spent significant time and effort to make the higher-profit front end more successful.
Enhancements to such categories as over-the-counter medications, personal care products, and cosmetics and fragrances have helped boost sales and have generated more consumer traffic.
But perhaps the most visible and successful of the recent changes to drug chains’ front ends have been in the consumables area, making these products the second-largest contributor to front-end sales, behind O-T-C drugs. The gap between the two categories has narrowed to less than a percentage point, with O-T-Cs contributing 11.1% of sales last year and food and beverages 10.2%.
Chains large and small have shone a spotlight on consumables and other front-end categories. CVS/pharmacy, for one, is increasing its number of urban cluster stores with expanded grocery offerings and the addition of fresh and on-the-go food items, as well as self-service checkouts. By year-end the chain had 420 urban cluster units, and 50 more are planned for 2012.
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The urban cluster initiative is a response, in part, to the lack of inner-city supermarkets. The outlets in the cluster can be viewed as general stores with limited food competition.
“The results have been impressive, as our sales went up 8% and our profits went up 9%,” CVS/pharmacy president Mark Cosby said last year of the urban outlets.
For its part, Walgreen Co. has brought a groundbreaking approach to the front end with its Duane Reade unit at 40 Wall Street in Lower Manhattan and a Walgreens outlet in Chicago’s Loop.
The latter, at State and Randolph streets, features an Upmarket Café staffed by a barista, a bakery, a juice bar serving smoothies, a sushi bar, an assortment of fresh food, a wine and liquor shop with more than 700 fine wines, and a Walgreens classic — the chocolate malted milkshake invented by a Walgreens soda fountain manager 90 years ago.
The store also has one of the company’s first Look Boutiques outside of New York. Besides offering dozens of prestige and niche cosmetics, skin care and hair care brands, the boutique has a nail bar, an eyebrow bar and a virtual makeover kiosk.
“This unique urban retailing concept raises the bar for drug store retailing and sets us apart in our industry,” said Walgreens president of daily living products and solutions Joe Magnacca.
Rite Aid Corp., meanwhile, has rolled out the “wellness store” format with hundreds of new health and wellness products, including dedicated and enlarged sections for organic and gluten-free food and beverages, homeopathic medicine and personal care products, home health care items, light fitness gear, wellness periodicals, and pet vitamins.
Rite Aid also has some 50 “value” stores, which offer lower front-end prices, a more focused SKU selection, a “wall of values” and a larger dollar section. The format is deployed in markets where price serves as the main differentiator.
“It has things that really show the consumer value inside the store,” president and chief executive officer John Standley said in an interview earlier this year. “It’s in a different price structure and is priced lower across the format; it brings a different offering to the table.”
Among regional chains, Bartell Drugs has unveiled its “next generation” store in Seattle with a broadened mix, bright new displays, decor accents and other improvements designed to enhance the total shopping experience. The unit is divided into five new product areas set off with lighting, signage and furnishings: Fresh Beauty, Urban Market, Sweets & Snacks, Wellness Courtyard and Creative Print Studio.
Fresh Beauty, which includes natural and organic product lines, is showcased with soft lighting and signage coupled with new seating and counters for product sampling. The Urban Market highlights unique and locally produced products, including Washington state wines, and an assortment of teas and coffees. Adjacent to the pharmacy, the Wellness Courtyard features vitamins, supplements and healthful beverages.
