Expert's Opinion

The New Frontier for Drug Stores...from Brow Bars to Beer on Tap!

By Karen Doskow, Kline Consumer Products | November 14, 2011

Kline's Karen Doskow on the evolution of this important channel.

Much like Madonna in her heyday, the drug store channel has once again reinvented itself. But this time, with a new approach to the beauty business and the recent data from our newly-released report on the market for beauty retailing, the latest tactics are really paying off.

Let’s face it; relevancy has been a formidable challenge for drug stores for quite some time. Virtually every product they sell can now be purchased through multiple channels—be it your nearby Target to the neighborhood supermarket. In the late 1990s and early 2000s, the channel banked on customers’ demand for convenience, launching itself out of the strip mall and into freestanding stores to add drive-thru prescription pickup practically discouraging consumers from walking into the store.

Then, as big box retailers began ramping up their own pharmacy roll out, drug stores once again revamped, this time beefing up front-of-store product offerings to draw customers back in. Household products, toys, and packaged foods are now commonplace on store shelves and elaborate sales flyers tout coupons and rebates on these products to entice the masses to come in and shop. Some stores are even adding fresh foods to the lineup. And can you believe it… Duane Reade’s new Williamsburg, Brooklyn location now offers a beer bar with nine brews on tap.

Pseudo-medical services like in-store flu shots and retail health clinics have also been added to lure customers back into the store.

With prescription drug sales continuing to decline (down 4% from 2005), it seems beauty has emerged as a promising new frontier! In fact, drug store sales of beauty products are up 3.5% for 2010 compared with 2005—nearly double the overall market growth in the same period. Major chains like Walgreens are already counting on the upward trend to continue capitalizing on the opportunity by investing in innovative sales tactics.

One of the most interesting concepts we’ve seen hit the drug store retail floors is the addition of assisted-shopping experiences featuring high-end brands, à la the department store model. The most notable example is the Duane Reade Look Boutique, which now falls under the Walgreens’ umbrella. Offering premium brands and imported lines, along with dedicated sales associates, the Boutiques are being watched closely by Walgreens for the promise of possible expansion to other urban Walgreens flagship stores.

Across the board, other chains have expanded beauty product shelf space and widened the range of price points to appeal to a broader consumer profile. On one end of the spectrum, exclusive brand programs and assisted-sell options appeal to the more luxury-oriented consumer. Meanwhile, private-label sales are also growing by nearly 10% a year, appealing to the price-conscious customers. Additionally, all three of the largest drug chains offer loyalty programs to help keep beauty customers coming back to the store.

Only time will tell if this latest reinvention of the drug stores channel will give it a sustainable edge, but as we all know, innovation is the lifeblood of the beauty business. Consumers want new products AND new experiences! Retailers need to deliver in order to succeed. With this in mind, I suspect the evolution will continue.

About the Author
Based in Kline's Parsippany, NJ office, Karen is an industry manager in the consumer products practice of Kline’s market research group worldwide.

During her 15 years with Kline, Karen has been responsible for numerous syndicated market research reports including Home Fragrances USA, Beauty Retailing USA, and Professional Skin Care Global and Natural Personal Care Products. She oversees the launch of several first-ever reports for the industry including The Market for At-Home Skin Care Devices and Global Beauty Retailing.

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