Consumables

Drug Store News, May 20, 1996

Things have a way of turning full circle. Retailers who pared down their general merchandise and consumables offerings to concentrate on pharmacy are rethinking that strategy. With pharmacy margins this tight, it's time to look elsewhere for profits.

Dollar and unit sales increases may be flat across some consumable segments, but every impulse sale the products generate means a higher ring at the register.

Earlier this year Trish McHale, director of trade marketing for Planters observed, "Some chains are setting up what could almost be called a convenience store within a drug store to capitalize on the impulsivity of food. Eckerd is one prime example. The chains are losing their traditional base of pharmacy, OTC and HBC to the mass and food channels and strong consumables sections are a way to make that cash back."

"Food and beverages are really becoming a priority for drug stores," said Jeff Weekley, director of national sales for Coca-Cola. "They are seen as incremental and profitable. Retailers are giving significantly more time and attention to these categories."

Walgreens' new stores have expanded in-line coolers. Rite Aid's newer stores have larger consumables sections. More retailers are adding in-and-out promotions. "I've seen milk, cheese and eggs in some chains," Weekley said.

In addition to expanding their in-line sections, retailers are taking advantage of off-shelf displays that maximize profit potential. Harco, K&B, Medic Discount Drugs and Pharmhouse all ran a number of of-shelf promotions during the year. Those retailers often combined floor-stands with circular ads and point-of-sales signing.

Reduced fat here to stay

Retailers had a lot of new introductions to lend some excitement to the category. The hottest trend in consumables can be described in two words: reduced fat.

Though manufacturers say that healthier products will bring new users to the snack category, retailers still worry that the flood of introductions will only cause cannibalization of existing products.

They have reason for concern. Chip and snack sales were flat to down in drug stores last year, according to Information Resources. Private label snack and chip SKUs fared poorly, with dollar sales down 18 percent and unit sales down 20 percent. The sharp decline may be due to an increase in promotions in branded products.

Candy sales haven't soured

The news in candy -- the No. 1 grocery category in drug stores -- was much better. While the category's dollar sales growth in drug stores was up only 3 percent for a total of $1.6 billion, private label dollar sales increased nearly 13 percent. Bagged, pegged private label candy has become a big part of the category at many chains.

M&M/Mars' Milky Way Lite and Hershey's Sweet Sensations, the first major reduced-fat introductions to hit the market, proved that consumers with a sweet tooth are looking for a healthy alternative to guilt-ridden bingeing. More entries are sure to follow.

Consumers who want it all are demanding fewer calories from candy as well. LifeSavers Delites, a sugarless hard candy, is one of the first non-specialty brands to address that market, which may soon be a niche no longer.

Drug store retailers may need to get sharper on their candy prices as the mass market continues to steal category share away from every other channel. Promotions can help retailers keep the mass retailers from closing in. Research from the National Contectioners Association shows drug stores still had the highest frequency of candy/gum sales on promotions-even higher than mass merchants.

Biggest gains in category

In the beverage segment, consumers grew bored with new age beverages and flavored teas and opted instead for truly healthy bottled water and juices. While those segments showed slight dollar sale increases for branded products, private label products really took off-especially in bottled water.

Private label bottled water dollar sales were up 67 percent in drug stores. Unit volume for private label bottled water grew 63.6 percent. Retailers say that once consumers try bottled water, they continue to purchase the products. Private label products, with their built-in loyalty, are making retailers happy indeed.

While sales of branded carbonated beverages fizzled at drug stores (dollar sales were down 13 percent), sales of private label products sparkled. Dollar sales increased 22 percent; unit sales grew 19 percent.

Among branded products, Mountain Dew, Dr. Pepper and Sprite showed the most promise. Cola sales were up slightly and diet soda sales were flat.

With sales of reduced-fat foods and healthy beverages soaring, it's no surprise that sales of beer and alcohol were flat. Specialty beers were the bright spot in a year when major breweries reported a decrease in sales for the first time in history. Expect more action in specialty beers as major brewers compete for a shrinking consumer base. Private label wine grew, but from a minuscule base. And branded wine products had a flat year at drug stores.