The drugstore core is very much alive and beating strong. The pharmacy is still the channel’s strongest life force — and everything else sold in-store seems to benefit from the association with prescription meds, remedies and treatments.

The numbers paint a healthy picture for Rx sales. Prescription sales in chain pharmacies increased by 9 percent to $96.1 billion in 2006, according to IMS Health. This is roughly 66 percent of total chain drug sales. Chain pharmacy prescription volume was also robust — growing 5.8 percent to 1.95 billion scripts.
But while prescription dollars and volume rack up solid gains, margins are being squeezed as never before, thanks to benefit managers and insurers reining in costs for the companies, unions and government entities that pay for the benefits.
And that’s where the “other stuff,” comes in — or what is known in the industry as “front-end” sales, with considerably higher margins than prescriptions. On target to compete with, well, Target, Wal-Mart and other discounters, as well as grocery stores that now peddle prescriptions at a discount, chain drugstores have nestled into neighborhoods all across the nation — morphing into miniature “superstores,” sans the crowded aisles and long checkout lines.
In the past decade, the number of chain drugstores has climbed 17.5 percent, according to the National Association of Chain Drugstores (NACDS). The three leaders — Walgreens, CVS and Rite Aid — operate roughly 29 percent of America’s drugstores. All are “bulking up,” either by adding stores or via alliances. Walgreens, for example, has made selective purchases on behalf of its Health Services division, as well as sticking to an aggressive store-building program. CVS beat out stiff competition to acquire Caremark RX. Rite Aid’s Brooks/Eckerd acquisition has given it more girth.
Channel Leaders*
Chain 2006 Annual Sales (in billions) % change (2005-2006)
1. Walgreen Co. $47.4 12.3%
2. CVS $43.8 18.4%
3. Rite Aid $17.5 1.4%
4. Long’s Drug Stores $5.0 9.1%
5. Medicine Shoppe $2.6 1.3%
Source: Company reports and STORES magazine
But beneath all the pharmacy/store power focus, these three and others in the industry that want to emulate them, are consciously keeping their customer base hungry for the promotions and sales of general merchandise and particularly, consumables.
Beating others to the quick
So while prescriptions still account for approximately 60 to 70 percent of chain drugstore sales, the major players’ advertised pitches center around convenience, speed and low prices — with food, snacks, beverages and candy as a regular highlight. It could even be said that drugstores have become the new “convenience” stores — but with a much more expanded/perhaps even more upscale — quick drink/snack focus.
When it comes to picking up snacks and drinks, women in industry focus groups have even claimed to feel safer in drugstores, vs. a gas station mini-mart, for example, with the option for “cleaner” and “fresher” selections; many men have touted the “speed shopping” and expanded selection of a drugstore vs. a convenience store in those same focus groups.
Proof of the phenomenon comes from one industry source that tracks CPG growth. The drug channel was recognized by the latest Times & Trends report, “2006 CPG Year in Review,” from Information Resources, Inc. (IRI), for its “strong performance in core categories,” including “food-related categories, such as deli, frozen and snacks.” The report made note that the channel is increasingly fulfilling consumers’ “quick-trip needs.”
In fact, nearly three-fourths of drugstore trips are quick trips, according to another Times & Trends report, “Shopping Trip Missions: A New Avenue for Growth,” from IRI. Consumers seem to use drugstores for quick trips in part because of their convenient locations and pharmacy services, but also because drugstores don’t carry the variety of foods and perishables necessary for pantry stocking.
Despite the fact that quick trips, on average, include only one to three items in the basket totaling around $10, they are critical because they provide the most frequent opportunities to drive incremental purchases for the channel. Drugstores must continually develop innovative store layouts, merchandising practices and advertising, as competition for quick trips will intensify, predicts IRI.
Forward-thinking drug chains are considering “quick- trip solution centers” that are strategically placed in the front of the store, as well as the placement of secondary displays on the shopper’s path between the door and the pharmacy to build higher-ring quick-trip baskets.
Drug Channel Performance in Confectionery

2006 Data
Drug Store Candy Sales: $2.4 billion
Candy Sales Change (2006 vs. 2005): +4.6%
Share of $28.9 billion Confectionery Market: 8.3% (slightly up from 8% last year)

Sources: Sales figures are compiled by National Confectioners Association (NCA) based on input from Information Resources, Inc. NCA/CMA Monthly Shipment Reports and U.S. Department of Commerce

SWOT Analysis
• The pharmacy is a trusted core
• Quick in/quick out
• Consumables and candy are clearly in focus

• Prescription margins are being super-squeezed
• Channel has a bit of a “grandma” image

• Quick-trip solutions centers
• Introduce gift centers with more upscale candy
• Sampling, yes, sampling

• Discount script initiatives by many other mass players
• Competition for quick trips is intensifying

Making the candy connection
And candy will certainly be a big part of both strategies. The channel has already impressed analysts as having “some of the best merchandisers of candy out there,” despite the fact that the channel accounts for less than 9 percent of total confectionery sales. Walgreens, as well as the other two chain drug leaders, is a master at making seasonal candy the promotional focal point of the store. Confections are well-mingled in seasonal aisles, often making up 70 percent or more of the selection. Walgreens also regularly features candy and gum in newspaper inserts; every week there is at least one candy coupon, typically on the front or back page. And drugstores are notorious now for their movie candy selections — offering speed tables stacked with 3 for $3 (or some similar promotion) of theater-box confections.
Drugstores have also traditionally been strong in gift box candy, but that staid department has been one of the few declining segments in the category lately. “Even before the phrase ‘quick trips’ was coined, drug stores were all about meeting gift needs in a matter of minutes,” says an anonymous industry observer. “People would walk in, knowing they could walk out with a pretty nice box of candy and a gift card to go with it.”
He says that the channel is still “a great gift source,” but that it has to move away from the link to “your grandmother’s candy.” This shouldn’t be too hard, since even traditional gift candy player Russell Stover (and its Whitman’s brand) is making great strides in offering new, more upscale, boxed candy selections.
Take it up a notch
“So that means drug has the opportunity to recreate their quick-solution gift-positioning with a selection of a lot more upscale ‘giftable’ products,” he says. “And that ultimately means a better selection of candy with the creation of better gift sections with cards and fragrance and chocolate and flowers. It could be more of a gift-department concept — this is very valid for drugstores. It is another way to satisfy today’s consumers’ quick-purchase needs.”
That means the channel will have to pull itself up a bit from a “mainstream” heritage and go with more “prestige” brands in the candy and gift arena.
Tied in with a more prestige image in candy is the opportunity for sampling. Drug store executives may think they don’t have the room or the manpower for such an event, but experts believe any efforts along these lines will be greatly rewarded; the thinking is that sampling will produce exactly the kind of surprise and excitement needed to get customers to notice a change in the store — and respond favorably to the department and impulse outposts, ultimately resulting in higher basket rings per trip.
The new confectionery focus should be about celebration, according to Phil Lempert, a retail expert well-known in the industry as the Supermarket Guru. “You go through a Godiva store, they celebrate candy — it smells great, it looks great, customers sample items,” he begins. “In mass channels, the whole idea of sampling is forgotten in confection and snacks. Why not sample dark or premium chocolate? It would be really cool to get people to celebrate it, even in the local drug store — where so many candies are in plastic bags on bottom shelves. There is nothing celebratory about that.”
While the idea of “celebration” is the blossoming focus in consumables, health and wellness is a more obvious opportunity for the channel in the category, and one that has been talked about, but not necessarily executed to the best degree.
Grocery Store Number cruncher*
$144.8 billion — Total Drug Chain Sales
5 — Average No. of Turns
$570 —
Average Sales per Square Foot
 Annual $ Sales Growth
27% — Average Gross Margin-Total Store
$42 billion  Drug Chain Front End Sales
3.8% — Annual Front End $ Comp. Sales Growth
35% — Average Front End Gross Margin
$9.3 billion — Annual $ Sales Edible Consumables
78 — Number of U.S. Chain Drug Companies (10+ stores)
 Number of U.S. Chain Drug Stores
83%  Household Penetration (down from 89% in 1997)
$19  Average Dollars Spent per Trip (up from $14 in 1997)
14 — Average Number of Shopping Trips per Year (down from 16 trips in 1997)

*For 2006
Sources: Drug Store News Annual Industry Report ‘07, Chain Store Guides; NACDS Annual Report ’07; The Nielsen Company’s “U.S. Consumer Dynamics Across Channels & Categories,” April 2007/Homescan 2006

IRI research shows that future growth potential in the better-for-you space will likely be strongest among organics, products offering specific health benefits, convenient nutrition, and healthy products targeting kids. Sales of natural and organic products have been quite strong during the past several years, particularly in the grocery channel, and the segment is “expected to continue to enjoy double-digit to high single-digit growth through the end of the decade,” the study said.
Cross-merchandising opportunities also abound. CVS is reportedly in the process of having a “personal care” attendant on staff at some of their stores — almost like a concierge to help women select the right makeup, skincare, and other HBC items. Experts see this as a tremendous opportunity for more “crossover” with candy. Similar to the idea of cross-merchandising gifts and cards with chocolate, it makes a lot of sense to position chocolate in an area where women are perhaps waiting and contemplating ways to spend money and indulge themselves or others with little gifts.