The face of retail pharmacy looks very different today from a few years ago, and front-of-shop retailing is a major driver of growth, according to a presentation on True Growth in the Front Shop: Retail Trends in Pharmacy by Scott Cameron, principal at McKinsey and Company.
By Heather Kent
Cameron described the Canadian food and drug retail environment as “tougher than ever” against the backdrop of a slow and uneven economic recovery, challenging competition from mergers and new entrants to the marketplace. This makes the front-of-store increasingly important, he said. In addition, drugstore treatment sales will soon represent less than 50% of total sales, and the average price of prescription medications continues to fall, resulting in increasing challenges for back-of-store growth.
These trends are driving food and drug retailing:
Trend #1 Understand the changing consumer
Seventy per cent of growth over the next decade will come from customers with diverse ethnic backgrounds, especially in cities like Toronto, Vancouver and Calgary. By 2021, 33% of Canada’s population will be over 55 years old. And the 64% of two-income Canadian families are choosing efficient shopping options to accommodate their time-pressed lifestyles.
Technological trends include a projected 10% growth in online retail sales over the next five years. Smartphones and other mobile devices are opening up new ways for consumers to shop online: 55% of users search for shopping opportunities daily, 58% of consumers are interested in receiving personalized promotions from stores, and their shopping pattern data can be analyzed rapidly.
Creating a health hub at your store, using patients’ mobile phones and other devices, can help retain this kind of customer. Walgreens has seen a six-fold increase in spending by shoppers using online and mobile device options.
Trend #2 Become a solutions provider
Half a billion to $1 billion in consumer packaged goods (CPG) profit is “up for grabs,” said Cameron. To capture some of this profitability, 50% of new stores opening within the next five years will be “value-format” businesses.
To increase front-of-store sales, “retailers need to think in terms of providing customers with solutions: simplifying their busy lives, catering to new needs and making healthy living easier.” Stores need to be “ubiquitously convenient,” and creating a destination store provides customers with a desire to linger longer. Offering something unique and finding new ways to give value are also important.
Consumer data should be used to build profiles: for instance, if a customer is buying medication for diabetes, consider complementary, front-of-store products such as foot care remedies. This kind of data can then be used for promotion, store layout and location.
Understanding customers’ shopping behaviour is also important, said Cameron, giving the example of stomach remedies. Sales of stomach remedies for patients experiencing acute stomach problems are growing faster than total drugstore sales, according to Cameron. However, patients for whom the condition becomes chronic, who need to take the medication frequently, shop around for the cheapest option. They will not necessarily continue to buy from the drugstore they used when their condition was acute. Therefore pharmacies need to understand this kind of customer behaviour to avoid losing patients – and sales.
Trend #3 Offer value
Cameron suggested finding new ways to give customers credit for value. In the UK, Sainsbury grocery chain’s Brand Match program scans customers’ receipts and gives out coupons if a higher price was paid than found at a competitor. Sainsbury’s achieved 40 basis points of market share gains within two years of introducing this program
Creating a destination store offering a unique shopping experience will encourage customers to linger and potentially spend more, said Cameron. The UK’s Tesco with its Giraffe outlets is an example of this growing trend.
Cameron cited Starbucks as a business that has capitalized well on customer behaviour. Consumers can pre-order with their mobile devices, pick up healthier options and unique seasonal drinks, and find local stores with cloud-connected technology that creates valuable customer profile data. As a result, Starbucks is enjoying a 7% global growth rate in its stores.