Value-driven market propels sales

Drug Store News, Jan 20, 2003 by Bernadette Casey

Mark Griffin started celebrating early in 2002--really early. Feb. 10 marked the 60th anniversary of Sioux Falls, S.D.-based Lewis Drug, and the chain celebrated the year with shopping sprees, free trips and car giveaways for its customers.

From a sales standpoint, according to the chain's president and chief executive officer, the first eight months of the year were the best in the chain's history, with a 15 percent sales increase over the same time last year. Toward the end of. the year, like most retailers, Lewis found that many holiday purchases fell into the home improvement category, and purchases were driven across all categories by the customer's need for value within this tight economy.

Holiday shoppers were making practical purchases, including coats and sweaters, and taking advantage of the low prices on digital cameras and DVD/VCR combo units. Griffin believes the value equation in retail has never been greater.

Recognizing the customers' need to get the most bang for their buck, retailers have ramped up promotional efforts, which brings customers in but takes a bite out of already tight margins. And that is a challenge drug chains will continue to face in 2003, Griffin told Drug Store News.

"We have almost created this monster ourselves by promoting as often as we do. We need to get shoppers driven to the store not only for promotions, but on a regular shopping trip basis, and I think that has become more difficult," Griffin said. "It is not only a value-driven market, but it has become a value/promotion-driven market. That form has escalated in the last two or three years considerably, and I think it will continue to escalate because the economy puts extra pressure on that style, and we saw that during Christmas. It is sometimes hard to drive people out of their homes without the promotions."

Of course, the economy will remain a concern in 2003. Drug chains can count on the consistent demand for prescription drugs. But with ever-shrinking margins, Griffin believes the best opportunity for drug chains in the coming year lies in growing the business at the front end of the store.

"When you have a 50,000-square-foot store, you have to learn pretty quickly how important the front end is, and we've been competing in that style of retail a long time," Griffin said.

Two specific areas of growth Griffin sees for drug chains in 2003 are seasonal and lunch-to-go offerings. "Seasonal presents a lot of opportunity and continues to grow because people count on it convenience-wise. It also is an area you can compete with the grocery and mass [chains] on and make money on. Margins in seasonal are typically pretty healthy," Griffin said. Every spring and fall, Lewis Drug vastly extends its seasonal assortment out of the aisles and into its parking lots, creating 25,000-square-foot nurseries.

Pantries are a natural fit for drug chains because of the channel's convenience strength and are another area in which the chain has been innovative. Lewis offers customer healthy lunch options, such as hot vegetable and chicken soups to go, and makes sure ready-made edibles are easily accessible near the front of the store.

While Griffin sees opportunities for drug chains in 2003, there are new developments in the marketplace, such as the continuing spate of Rx-to-OTC switches, which he believes will impinge on the relationship between the pharmacist and the customer. "How does community pharmacy maintain that commitment and loyalty from the consumer? They had more of a relationship when the product was behind the counter. How is that going to affect the sales equation?" Griffin asked.

And now, whether products are prescription or OTC, grocery chains and mass players can have products such as Claritin on their shelves just as quickly as drug chains. "The distribution equation is a key element in the success of retail pharmacy. How product flows and the timing of it is going to be more important than ever. Speed is everything in retail now," Griffin said.

Maneuvering a regional drug chain through some very trying times would certainly be enough responsibility for any retail executive. But Griffin has also been doing double duty as chairman of the National Association of Chain Drug Stores--a position he will turn over to Rite Aid president and chief operating officer Mary Sammons in April at the NACDS Annual Meeting.

"I have enjoyed my time as chairman very much. The relationships that I have developed both with NACDS and with my friends in the business have been above expectation and will be with me all my life. NACDS has done a great deal for this industry, and we cannot recognize that enough."