Drugstores find own-label cure
Deregulation and supermarket expansion have shaken up the sector, with drugstores and own-label performing strongly. By Anthony Irwin. Anthony Irwin is research manager at Euromonitor
Though pharmacies still account for 88 per cent of sales between pharmacies and drugstores, drugstores have experienced strong growth during the course of recent years.
Pharmacies can sell both over-the-counter (otc) remedies and prescription drugs, but drugstores can only sell otc cures.
In 1994 this sector accounted for 12.3 per cent of all sales through pharmacy and drugstores, compared with 10.4 per cent in 1990. Much of this growth can be attributed to the changes in the regulation of medicine, which have helped broaden the range of products sold in drugstores.
Most of the recent growth in pharmacy and drugstore sales has been through the latter. Sales through drugstores grew by 43 per cent between 1990 and 1994. In 1994 alone drugstore growth was 6.5 per cent, more than twice the growth of pharmacy sales. This growth should, however, be seen in the context of the comparatively small size of the drugstore sector.
Pharmacies continue to be the predominant store type in this sector, accounting for 92 per cent of outlets. This represents a decline since 1990, when 94 per cent of outlets were pharmacies, and the bulk of this fall is due to the growing number of drugstores. Between 1990 and 1994, the number of drugstores rose by 29 per cent, mainly as a result of the expansion of the large chains.
Pharmacies, and to a lesser extent drugstores, have developed in a professional rather than retail culture. However, like other retail outlets, pharmacies and drugstores have experienced a great deal of change. New technology and changing consumer shopping habits have forced the sector to modernise its activities. In particular, there has been a rise in own-label products, out-of-town shopping and an increasing adoption of electronic point of sale (EPOS) systems.
The principal reason for this has been the growing role of the grocery multiples in the distribution of pharmaceutical and medical goods. This has required a change in approach by pharmacies and drugstores as they struggle to compete.
From its initial introduction as a cheap alternative to major brands, own-labelling evolved over the Eighties to become a highly sophisticated and integral element of retailing.
With own-brands generating higher profit margins and providing retailers with the opportunity to develop a distinct corporate identity and differentiated product offer, the scope of own-label ranges was substantially widened and used extensively to pioneer the development of premium sectors.
Own-labelling is a strong feature in the pharmacy and drugstore sector. Own-labels are attractive since they build traffic flow and customer loyalty, allow retailers to promote a value for money stance, and enhance retailers’ margins.
The ownership of distribution systems and manufacturing plants by the larger chains – Boots and Lloyds – makes own- label even more attractive.
An estimated 43 per cent of Boots sales are accounted for by own-label brands built around the Boots name for most products, with the exception of otc healthcare which is dominated by Boots’ Crookes Healthcare brand name.
With an inventory of some 2,000 products across the broad spectrum of health, beauty and homecare, own-label accounts for nearly 30 per cent of Lloyds pharmacy sales and 32 per cent of its drugstores’ turnover, with own-label development also a prime activity at Superdrug.
