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- RESEARCH & AWARDS
Last year’s Top 35 Private Label Retailers list included the top three drug store chains in the United States: CVS, Walgreens and Rite Aid. CVS took the highest position at No. 4, with estimated 2012 private label sales of $21.4 billion. Walgreens followed right behind, with $15.7 billion in estimated private label sales. And Rite Aid took the No. 19 slot, with an estimated $4.8 billion in private label sales. In all, the three exemplify private label strength in terms of the scope and intensity of their store brand lines.
According to Kantar Retail’s 2014 “Top 100 Retailers” rankings, all three of these drug retailers likewise hit the top 20, with Walgreens at No. 6, CVS at No. 7 and Rite Aid at No. 18. While numerous other retailers across the grocery, mass merchandise, warehouse/club and discount channels play in the Personal Care, OTC/Healthcare and Cosmetics categories that form the backbone of the drug channel, these three have the benefit of owning a significant percentage of the prescription drug business in the United States (collectively estimated at about 40 percent for the three retailers in 2012 by Fitch Ratings)—a reality that gets a significant number of shoppers in the door on a very regular basis who often seek to fill their baskets while they fill their prescriptions.
Like we have seen in other retail channels, consolidation and vertical business orientation continues to factor into chain drug store strategies. In July, CVS made a notable move in acquiring Florida-based Hispanic-community stalwart Navarro Discount Pharmacy, owner of the strong Vida Mia store brand. This strategic decision could add significant Hispanic muscle to CVS throughout its network, particularly through potential incorporation of the Vida Mia brand throughout targeted CVS stores nationwide.
Walgreens likewise made an impact on its future direction when it purchased a 45 percent stake in Alliance Boots in 2012, with the goal of eventual merger by 2015. This gave Walgreens an international presence (the company is currently considering relocating its global headquarters from suburban Chicago to Switzerland, likely as part of this deal), and added new private brands to its stable, including Boots No7 products, which cross into Personal Care and Cosmetics. Laureen Schroeder, director and team lead in health, beauty and baby for Daymon Worldwide noted that Walgreens’ launch of its Boots beauty products was a strong move. “The product selection and the marketing were executed with excellence,” she said. “In particular, the flagship store versions were straight from the best of Britain’s Boots stores.”
Walgreens likewise brought some strong brands into its network through its 2010 acquisition of Duane Reade—and some of those brands diversify Walgreens’ business into historically nontraditional drug channel products categories like national-brand-better (NBB) Frozen Foods and snacks—a tactic that CVS is following suit on with its new private label food lines.
As noted by Schroeder, the two non-pharmacy aspects of the drug store channel that are most instrumental to their success today are Cosmetics and OTC/Healthcare, including both nonprescription drugs and vitamins and supplements. “Each of these areas brings different consumer segments into drug stores for different reasons and serve to help drive traffic to the store while increasing market basket size,” she said.
Store brands play a pivotal role, noted Schroeder. “Store brands can create differentiation for a retailer and drive loyalty in the process,” she said. “This ultimately leads to a higher-margin business. Consumers believe that store brand OTC and vitamin products deliver the same efficacy and quality as national brands, but are more affordable. In beauty, the decision to buy store brands is very much an individual choice. To connect emotionally with a beauty consumer, the beauty product must offer multiple benefits and provide something unique that solves a beauty problem. The quest for new is very real in beauty, and many retailers are offering first-to-market beauty solutions in their exclusive beauty brands. One of the multiple benefits is a quality product that is a great value.”
This “quest for new” directly translates into an ongoing need for innovation. In beauty, noted Schroeder, the growth of the letter creams (BB/CC/DD creams, which stand for “beauty balm,” “color correcting” and “dynamic do-all”) has been incremental in beauty. “It has engaged younger women into the traditional foundation business without the feeling that they are using foundation,” she said. “Initially, there was a fear that these products may cannibalize the business—but fortunately, they did not.”
Schroeder also pointed toward Rite Aid’s Oil Essentials line as a leading store brand initiative. “This high-quality ‘masstige’ beauty line builds on a macro trend of health and wellness,” she said, noting that it has been “customized to the specific needs of beauty consumers” while remaining affordable.
“The next emerging category will be affordable beauty devices,” said Schroeder. “We are already seeing this in the United Kingdom and in other beauty distribution channels; expect drug stores to jump on this high-margin growth category.” Beauty devices include handheld gadgets designed to improve skin quality (exfoliating, cleansing, etc.), as well as perform hair removal.
Schroeder noted that OTC drugs and vitamins have the highest private brand penetration in drug stores. CVS recently took a “natural” approach to a new line of vitamins and dietary supplements with its premium Radiance Platinum line. It consists of 44 vitamin and supplement products, and formulation and marketing tenets focused on preservative-free, certified non-GMO, gluten-free and certified-organic; the line also includes products specific to people following vegan and vegetarian diets.
CVS also recently ventured into probiotics in January—a line Schroeder noted was “first to market” and includes products targeted to both children and adults. “The extensive line was supported with in store signage and displays helping consumers choose the best formula for their needs.”
Given the fact that drug stores are a primary needs destination for a significant swath of shopper demographics, expanding the selection of store brand grocery items, including shelf-stable, frozen and refrigerated foods, has been a natural path toward fostering growth.
Walgreens has significantly expanded its range of edible store brands in recent years, with many national-brand-better (NBB) products hitting shelves. Product areas include Good & Delish frozen pizzas, ice cream, novelties, appetizers, entrées and more. It has also created a significant snacks set, including multiple Nice! and Good & Delish nut and jerky products, with the latter range featuring a Nice! Bacon Jerky.
New shelf-stable store brand products are also hitting the drug channel. Peanut butter is an anchor of the private label spreads category, with unit sales up 8.98 percent for the 52 weeks ending May 18, 2014 per IRI. CVS recently released a new grocery brand, Gold Emblem Abound, a line centered squarely on health-and-wellness, and included a peanut butter in the mix. On-label messaging for this no-stir creamy peanut butter includes “good source of protein,” “free from artificial preservatives and flavors” and “low sodium.” The Abound line also features a significant number of innovative snacks, including Superfruit Baobab Bites, Blueberry Almond Rice Pop Clusters and Blueberry & Pomegranate Superfruit Snack Bars.
Core non-food grocery items help round-out the grocery selection at drug stores today. Rite Aid’s Home line includes a wide range of non-food grocery items, including coffee filters, aluminum foil, plastic wrap, wipes, food storage and sandwich bags and trash bags.
As we have seen in some other channels of late, drug stores have improved the quality, innovation and promotional focus on their private brands, noted Schroeder. “Drug store brands have gained credibility and consumer trust that their brand will deliver quality and great value,” she said, pointing to three specific examples from the top three chains:
• Rite Aid—its Wellness Card marketing programs focus on offers and education related to its store brands, driving awareness and trial
• CVS—its Mix and Match promotions offer shoppers discounts on CVS store brands across the entire store
• Walgreens—its “Answers at Walgreens” educational brochures mix education and offers that include both national brands and private label
Drug stores often serve as influential educational springboards for shoppers looking to prevent or treat prevailing health conditions, and retailers can do much to drive their private label business by aligning these efforts with their store brand lines, and vice versa. Store brand lines—whether OTC/Healthcare, Cosmetics or within myriad logical food categories—positioned along typical health-and-wellness tenets important to shoppers today will likely continue to perform well in the drug store channel.