With a little over a month to go before Kantar’s annual Drug Channel Workshop, our team has been busy exploring the latest trends in an ever-changing drug channel. This event is a planning session that will help established brands maintain their strategic position and help smaller brands navigate this complexity and scale in a shrinking front store.
The drug channel is undergoing a transformation. The channel is prioritizing services as shoppers spend more on services at retail in general. Amazon is entering healthcare more deliberately with its acquisition of PillPack and recent partnerships with drug retailers like Rite Aid. Data is playing an increasingly important role as understanding the lifestyle and changing behaviors of drug shoppers will become a critical new skill set. Meanwhile, emerging categories like cannabis/CBD threaten to steal share from more established categories.
We will cover all these topics at July’s Drug Workshop and focus on these themes:
The drug channel is undergoing a major shift to self-care. The major players want to build a relationship with their shoppers to drive loyalty and retain them, offering solutions that match their needs and help them achieve better health outcomes. With Walgreens’ new “neighborhood health destination” and CVS’s HealthHubs emerging as prominent future store formats, the retail drugstore is evolving, with space, assortment, and health programs all changing to emphasize the retailer’s future vision as a health destination. One of the most notable new areas of focus is in the healthcare services space, where drug retailers are responding to a larger shift in spending on services with a new slate of in-store programs focused on weight loss, diabetes, hearing, and other health conditions.
The good news in the drug channel’s elevation of self-care is that almost all brands can play in this space. Self-care is a multidimensional concept that touches almost every retail category, offering opportunity in new areas, such as early care of chronic conditions and management of stress and sleep. Understanding where your brand plays in the drug shopper’s journey and lifestyle will be crucial to succeeding in the drug channel of the future.
Key supplier questions:
- Do you understand your brand’s role in the drug shopper journey?
- Are you prepared for how space and assortment might change in remodels and new store formats?
- Are you prepared to shift your merchandising strategies to better align with retailers’ more health-centric priorities?
Disruption in the Drug Channel
Disruption is here to stay. Whether it’s current headwinds related to lower-than-expected generic drug pricing and government policy or the impending arrival of Amazon via PillPack, the drug channel will continue to face challenges. Even disregarding PillPack, Amazon’s recent partnerships with Bartell Drug and Rite Aid suggest that the eCommerce giant is already here, so drug retailers and their supplier partners need to develop an Amazon strategy today.
The rise of eCommerce (specifically Amazon) is forcing drug retailers to increase their patient focus. To succeed, the major players will need to leverage data so they can build unique profiles of their shoppers and develop lasting relationships. In his opening remarks at CVS’s Investor Day, CEO Larry Merlo emphasized the importance of data, saying, “This data, combined with our investments in advancing our analytics capabilities, provides a powerful engine to inform health decision-making.” In the future, leveraging shopper data and understanding the lifestyle behaviors of drug shoppers will be a new supplier skill set.
Key supplier questions:
- Are you prepared for Amazon’s entrance into the drug channel?
- Are you “data smart”? Does your team have the capabilities to build out shopper profiles with retailer data?
Where Are Drug Retailers Investing?
The major players in the drug channel are also investing in beauty, broader health and wellness categories, and alternative categories adjacent to self-care, such as CBD. This greater emphasis on beauty and health and wellness aligns well with drug retailers’ common goal of becoming a true health destination and helps drive traffic and margin. Kevin Hourican, EVP of retail operations, and Alex Gourlay, co-COO of Walgreens Boots Alliance, have both highlighted the importance of health and beauty categories to boosting profit growth (Figure 1).
Figure 1. Walgreens’ and CVS’s Retail Pharmacy Action Plan and Sales Performance
Source: Company materials
Beauty represents a somewhat new and growing opportunity for suppliers. The expansion of CVS’s BeautyIRL format and Walgreens’ recent partnership with Birchbox indicate that the major players are unlikely to pull investment from the beauty category. That’s why suppliers should consider how they can help drug retailers improve their image as viable beauty destinations.
The other emerging category in the drug channel is hemp-based health products, particularly CBD-based products. CBD is a non-psychoactive chemical in the cannabis plant, capable of offering pain relief without the high of THC. With attitudes changing on cannabis, CBD products are entering mainstream retail, and the drug channel is slowly embracing them. As they expand across retailers, CBD-based products will challenge a variety of categories, much like a digital-native challenger brand.
Key supplier questions:
- How could your brand partner with the new CVS and Walgreens beauty services?
- Do you understand how CBD might disrupt shoppers’ health journey and their relationship with your product?
As the drug channel evolves, suppliers will need to align with the prioritization of self-care, understand disruptive forces challenging the channel, and follow retailer investment in growing categories. For an in-depth look at these trends, the success of independent pharmacies, the strategy and merchandising priorities of CVS and Walgreens, and other important topics in the channel, join Kantar’s drug experts at our Drug Channel Workshop on July 24 in Morristown, N.J.
For more information, please contact:
Ben Antenore, Analyst
Brian Owens, Senior Vice President