Drug chain executives brace for the future

Drug Store News, April 5, 1993

Vern Brunner

executive vp-marketing

Walgreens

Marketing and merchandising in the drug store industry will continue to be challenged by the low-inflation environment of recent years. Managing sales and profits during low-inflation periods isn't easy, but it can be done through the use of technology.

With scanning, we can now get answers to questions we've been asking for years. Scanning will allow marketing departments to recognize trends at the individual store and market level and capitalize on them.

Well have the ability to develop the merchandise mix of our stores by their location. That's been done for years in a general way, but information from scanning will take that process one step further.

The challenge is to merchandise to a specific store's market, while at the same time, maintain the general corporate image. A customer who shops us in Chicago should be able to walk into a Walgreen in Phoenix and still recognize us.

Marketing departments also need to more effectively utilize their advertising dollars. That money must be used to promote specific store and market needs, not just the chain in general on a national basis.

Finally, stronger partnerships with vendors can lead to more efficiency in business as well as generating "real" category growth.

Stephen Lund

vp-merchandising

Perry Drug Stores

I'm sure I'm not the first drug store executive to state that retailing - in particular, chain drug retailing - is not as easy as it once was.

With the introduction into the marketplace of retailing concepts such as category killers, warehouse clubs, deep discounters and hypermarkets, the old days of buying an item at the best cost, selling it for a reasonable price, paying the expenses and taking the profit to the bank are gone.

Chain drug retailers are confronted with ever-decreasing market shares of [HBA] and OTC products. Other general merchandise product sales are also finding their way to other retail outlets.

Generally these lost revenues are being offset by significant increases in pharmacy sales. Unfortunately, these pharmacy pales are producing lower gross margins. So, what is a retailer to do?

1) Emphasize core drug store categories:

Product selection and merchandising approaches must show the customer immediately what the real focus in the store is...pharmacy.

2) Be aggressive in marketing:

With so many retail options available to the consumer, marketing approaches must leave the customer with no doubt as to what you're offering them in distinctive benefits.

3) Offer fair pricing:

Although drug stores have the benefit of convenience over other retail outlets, there is a limit to what most customers will pay for convenience.

4) Take care of your customers:

The retailing giants are finding ways to make their customers feel good about shopping in their stores. Certainly we can and must do the same.

5) Control expenses:

The salvation of chain drug retailing will be to shave expenses directly in relationship to the increase in pharmacy business, with its corresponding decrease in gross margin. Increased use of technology is a key to expense reduction.

Markus Ernst

executive vp

Arbor Drug

Too many in our industry fear the community drug store is marked for extinction, given the tremendous competitive challenges we face today. From combo supermarkets and mass merchandisers, with pharmacies to category killers, deep discounters and even direct mail operators, new retailing formats certainly abound.

Fifty years from now, there will be other new formats and new players on the scene. Where will the deep discounters or category killers be? I don't know. But I do know that the community drug store will be there, thriving as it does today.

For other retail formats, pharmacy is often an accommodation to their business. Pharmacy is our core business. Today's informed, discriminating consumer continues to prefer the traditional drug sore format, which has always been Arbor's competitive edge.

As drug stores, we must never lose our health care focus. We must also learn to use the latest technology, combined with attention to the needs of customers, to make the shopping experience more convenient.

The winning drug store operators are focused on long-term strategies, particularly advanced systems, in addition to emphasizing health care, trust and superior customer service.

The community drug store is not an endangered species. We will not only prevail but also prosper, as long as we listen closely to consumer messages. The keys are a strong health care identity combined with convenience, speed, selection and quality staffing.

While the future of all retailing promises to be ever challenging, we believe there will be even greater opportunities for "customer-driven" drug store chains.