Gas prices, what gas prices? That’s the attitude many drug chains are allowed after the October announcement of an IRI study that high gas prices (an extra $535 was spent per household this past year) may have actually driven consumers to more drugstores this summer.

Channel Leaders*
Chain	Annual Sales (in billions)
1. Walgreens	$42.2
2. CVS	$37.0
3. Rite Aid	$17.2
4. Long's Drug Stores	$4.7
5. Medicine Shoppe	$2.3
*For 2005

It seems that during those hot months, the drug store dollar share increased a half point, among the largest of increases in the channel in several years, according to the study. IRI attributed this phenomenon to consumers “filling in product needs before the next big shopping trip” at nearby retailers — which often turned out to be the local drugstore.

Of course, there’s more to it than that. Even before gas prices started creeping up, the channel has been prepping customers to consider it regularly for much more than script shopping. Perhaps most obvious, the two major drug chains are rapidly multiplying in neighborhoods everywhere (a la convenience stores) and positioning themselves to satisfy the demands of convenience store customers.

“CVS and Walgreens store expansion is riding on the coattails of the aging population growth (the baby boomers), but their newer formats are also enabling them to capture quick trips,” states a report on channel blurring from ACNielsen.

In fact, some teens made it clear in the course of a panel discussion at the National Association of Convenience Stores show held earlier this month in Las Vegas that they did not make a distinction between c-stores and drugstores. They reported frequent trips to drugstores to pick up snack and beverage items.

A strategic focus on consumables is part of this equation. While drugstore dollar sales exceeded industry growth across all CPG departments last year, the largest gains occurred among “less-developed drugstore food categories,” reports IRI’s latest Times & Trends study, “2005 CPG Year in Review: A Remarkable Year of Challenges and Wins.” This is “further evidence of the channel’s evolving role as a convenient food and beverage outlet,” according to IRI.

“The drugstores have transformed themselves into becoming pseudo-supermarkets,” says Anthony Raissen, president of Encino, Calif.-based InterQuantum LLC, a marketing consultancy. “It started out with refrigeration; now they’ve even gone to frozen foods.”

“Between the drug chains’ growth in consumables and the high premium consumers are putting on convenience — those are both very positive trends that are affecting the drugstore channel and its confections business,” summarizes a retail consultant who works with players from both sides of the confectionery industry and wishes to remain anonymous.

Despite the fact that the drug channel accounts for less than 10 percent of the overall confectionery business, leading chains have recently been praised by another industry expert as “the best merchandisers of candy out there.” One names Walgreens, in particular, as “a true destination in confections.” According to him, “it carries a great variety, and is the next best thing to a full-fledged candy store.”

And yet, there are underdeveloped areas for drugstore confections. “They could do a better job of impulse merchandising at the front end,” says the entrenched analyst. “They are not capturing impulse sales to their fullest potential.”

The National Confectioners Association has recently documented this beyond just the front end. According to findings from its report, “Expanding the Dimensions of Confectionery, A $10 billion Opportunity,” the drug channel has some of the best opportunities to persuade consumers who come in for other needs to make confectionery impulse purchases.

“Let’s take the Rx area,” begins Jenn Ellek, NCA’s director of trade communications and marketing. “Typically, there’s a separate cash register, and people are just waiting around for their prescription. The single-biggest impulse opportunity drugstores have is to merchandise candy at the pharmacy area.”

What would be especially appropriate are “health-driven items such as sugar-free, dark chocolate, mints and breath fresheners,” she says, “but there’s also an opportunity for all candy products. It doesn’t have to be the entire section of single-candy offerings, but it should be a significant offering to take advantage of the wait time,” she advises.

Another area of confectionery opportunity in drugstores is the photo development section. “It’s the same thing as the pharmacy,” Ellek maintains. “Consumers are waiting around, and if candy is not right up there, they can pay and leave from the photo area without thinking about buying a treat —they’re not going to go to the front end of the store.”

“Consumers spend a disproportionate amount of time standing around waiting in drugstores — more so than they do in supermarkets, warehouse clubs, and other mass retailers,” notes Ellek. “So the channel needs to take advantage of the time customers have for more impulse purchases.”

Health and wellness trends are shaping more consumer behavior and shopping patterns, and luckily for drugstores, this is right in line with what they’ve been selling for years. “Consumers are more attuned to the nutritional value of foods, including snacks, so functional foods will blur the distinction in confections, and that will change merchandising and display for the department quite a bit,” says Barry Seifer, principal of strategy for Cubellis Marco Retail Design, based in Northville, Mich.

In line with this, quality and quantity are establishing different relationships in the consumer mindset. “A growing number of consumers want less but higher quality,” says Seifer. “There’s a movement upwards — people will trade up to higher quality and lower quantity,” and drugstores are positioned to take advantage of this — it doesn’t require adding precious space; in fact, it alleviates it.

Rite Aid has been moving in a “healthier” direction by carrying breakfast cereals and snack foods tailored for consumers with diabetes and weight woes in more than 3,200 of its locations across the country. Additionally, starting in November, all items that have met Rite Aid’s approval criteria will bear a special tag identifying them as diabetic-friendly choices.

Still, it can’t be all about targeting baby boomers for drugstores, especially now that other channels are exerting more downward pricing pressure on prescriptions. It started with Wal-Mart’s announcement in September that it would cut prices on generic drugs in Florida (in areas where many Baby Boomers reside) to as little as $4, from an average of $25 to $30. The nation’s largest retailer then expanded the number of drugs included in the plan, as other mass retailers, including Target, Kmart and Fred’s, soon followed the move.

But the channel “can’t just sit around and wait for the baby boomers to retire,” says a Wall Street analyst.

While the economic power of pre-boomers and boomers makes them “an extremely viable target” for drug retailers, “there may be an opportunity for some of these retailers to also consider incorporating a younger approach to their targeting and advertising,” notes Todd Hale, senior vice president of Consumer & Shopper Insights, ACNielsen, in its “Channel Blurring” report. Drug retailers “appear to be missing the mark with the younger generations as annual trips by those households are much lower” at drugstores, according to the report, and much higher in supercenters and mass retailers. What young shoppers are particularly attracted to at retail: value-oriented, fashion-oriented and electronic-oriented merchandising displays.

What’s the drugstore channel’s biggest threat into the future? It’s not another retail channel — at least not a traditional one. “I know everybody will think I’m crazy, but it’s the Internet,” according to Frank Dell, CEO of Stamford, Conn.-based Dellmart & Co. “Let me give you the scenario,” he says. “A baby boomer reaches the point in their life where they take their driver’s license away. I understand the trend of moving to a center city so they can walk to restaurants and grocery stores, but the trend of UPS and FedEx building even better home delivery systems will allow the Internet to be most attractive for many consumer goods. I’m talking 15 years from now. Retailers and especially drugstores with prescriptions and the baby boomer target — how are they going to service the largest consumer population with the products they need?” He advises drug chains to become super serious about advancing with online solutions.