Superdrug seeks to put boot into its rival

Superdrug is screening its first TV advertising as its battle with Boots hots up but, as Kay Atwal argues, it has its work cut out for it.

Video diaries from satisfied shoppers are the latest weapon adopted by Superdrug in its effort to steal market share from its main high street rival Boots. The diaries form the nucleus of a 3m advertising campaign which breaks today (Wednesday) – the first television work the Kingfisher-owned retailer has ever produced.

More importantly, it is a signal. After 18 months of change and renewal the health and beauty store is determined to move away from its cheap and cheerful image as a poor man’s Boots, to a more upmarket positioning. It claims to hold a nine per cent share of the total health and beauty market in the UK. But Verdict Research figures for 1995 gave it a 7.2 per cent share compared with Boots’ 32.8 per cent.

The ad campaign, created by Bates Dorland, and intended to identify the company as fun and good value, is the culmination of 18 months of activity. This has involved the opening of 100 in-store pharmacies, the launch of over 1,000 own-label products and an ongoing revamp of its 700 UK stores.

Graham Steele’s arrival as managing director in 1994 is regarded by many as the turning point which gave marketing director Steven Round the freedom to begin the repositioning. But its relatively static profit performance will have also acted as a catalyst. Superdrug had pre-tax profits of 36.4 m in the year ended January 1992 but four years later profits had only risen 12 per cent – just 4.7m – to 41.1m.

While some City sources believe the move “upmarket” is the right strategy many question whether the initiative will allow the company to compete more strongly against Boots. The consumer profiles of Boots and Superdrug shoppers remain very different; the former appealing to the more affluent ABC1s and C2s, whereas Superdrug is still the choice for shoppers a notch below.

However, most City opinion agrees that opening more pharmacies – the core of Superdrug’s future strategy – will benefit the chain. In the past 15 months the company’s in-store pharmacies have grown from five to 100. The theory is it gives shoppers more of a reason to visit the store. But it is more than just a means to an end.

Round refuses to reveal how many more pharmacies are planned but says the company will pursue the strategy vigorously. Superdrug is keenly aware of the growing trend toward self-medication through over-the-counter drugs. Round also recognises the need to cater for the country’s ageing population and this is likely to lead to development of products specifically for older consumers (MW August 9).

However, City analysts say in-store pharmacies will only be an added value feature until there are far more of them. At this point, consumers do not take it for granted that they can expect to buy prescription drugs at Superdrug – Boots has 1,200 pharmacies.

The launch of more than 1,100 own-label products in the past 18 months, three times the number for the previous period, underlines the growing emphasis on own-label. But the company still has a long way to go before it can equal Boots’ ability to develop own-label products.

Boots Contract Manufacturing gives its sister company, the Chemist, the benefit of vertical integration which enables direct access to product pipelines at minimum costs. This in turn contributes to high profit margins on Boots’ own-label products. As a result, says Robert Snaith, retail analyst at Société Générale Strauss Turnbull Securities, Superdrug will not enjoy the kind of margins that Boots has with brands such as No 7.

Over the past three years, Superdrug has embarked on a wholesale redesign of its stores – the result of Round’s vision of making the stores more like women’s magazines through the use of colour and the way product information is presented. Round says women gain health and beauty tips from magazines, most of which address them in a direct manner, using day-to-day language and modern visuals. The spartan look with basic labelling is a thing of the past, to be replaced by colourful displays which would not look out of place at the fragrance and cosmetics counters in Boots stores.

Round says: “Boots is the most successful health and beauty retailer in the world. For us to compete against it is the test and that is what we will be doing. But we will be distinct. Superdrug is now seen as a competitor to Boots but three or four years ago we were seen as a Boots me-too.”

Doubts remain as to whether Superdrug can really challenge Boots’ dominance. Analysts are sceptical because it cannot compete on an equal basis in the crucial own-label area. The territories on which Superdrug has chosen to fight are health and beauty, and pharmacies, the areas currently monopolised by Boots.

Both sides may need medical attention when the battle is over.

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