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At the Intersection of Convenience and Healthy

Drug chains are pivoting toward c-stores’ sweet spot

When CVS Health removed all tobacco products from its stores last fall, it was the biggest indication to date that something big is up with the nation’s drug stores.

This was no light decision for the nation’s second-largest drug chain. Tobacco netted CVS $2 billion in sales, not counting total market basket lost from customers who took their smoking habits elsewhere.

But the retailer aimed to be true to its core goal: customer wellness.

“By eliminating cigarettes and tobacco products from sale in our stores, we can make a difference in the health of all Americans,” president and CEO Larry J. Merlo said last year.

Though eye-popping, CVS’ move, in truth, wasn’t surprising. For at least a decade, drug stores have emphasized a partnership with customers centered on health.

This began with making their pharmacists more accessible, able to consult directly with patients, whether over the counter or in private consultation rooms.

More recently, the big three chains—Walgreens, CVS and Rite Aid—have centered their stores on wellness, a move that one consultant endorses.

“So much is pharmacy-driven on the back end, so customers tend to be aligned with the company that has their prescription,” says Neil Stern, senior partner with McMillan Doolittle, a consulting firm based in Chicago. “There’s a lot of stickiness in the business. Once you’ve made a relationship with your drug store, you’re going to keep it that way.”

Rite Aid has been boosting its image with a Road to Wellness program. The initiative has propelled an aggressive store remodeling campaign that incorporates sight lines aiming customer attention at the pharmacy and its health-coaching business. As 2015 began, Rite Aid had revamped more than 1,500 stores—a third of its locations—with another 450 Wellness remodels to come this year. These Wellness stores are easier to navigate, with wider aisles and lower shelves, and contain an expanded offering of clinical pharmacy services and health and wellness products.

Rite Aid has also placed Wellness Ambassadors in many of its stores. They help consumers with everything from over-the-counter medications, vitamins and supplements to interacting with pharmacists on a more personal level.

The retailer has also launched the Rite Aid Health Alliance, which includes partnerships with local health-care providers, a health-care coach and an outside provider working together to develop a care plan for patients.

“This plan helps drug compliance; it helps implement behavioral change,” chairman and CEO John Standley said at the annual J.P. Morgan Healthcare Conference in January. “We think it’s greatly improving the care that these patients are receiving, driving health-care costs out of the system.”

Walgreens introduced its new Well Experience store formats in 2010 and has converted more than 750 of its more than 8,000 stores, including its 15 flagships, with 1,000 more planned for the next year.

These formats offer integrated health and wellness products and solutions, and they provide a private consultation room for services such as immunizations and conversations with pharmacists. To emphasize this, there are “Ask Your Pharmacist” desks, and pharmacists’ duties have been reduced so they can focus on fostering relationships and improving customers’ health.

“There is a huge opportunity to grow the front end by really making the whole store work together in unison to provide great care,” said Standley in January.

Along with banishing cigarettes from its stores, CVS made another bold move last fall: It changed its name from CVS/Caremark to CVS Health. “For our patients and customers, health is everything, and CVS Health is changing the way health care is delivered to increase access, lower costs and improve quality.” Merlo said.

“Drug stores own a unique landscape because they are coming from that physician-like influence: the pharmacist,” says Bruce Cohen, senior partner with management consulting firm Kurt Salmon in New York. “We see them as an influencer model. If you go in and say how you’re feeling, they can provide solutions. You have faith in their suggestions and they can influence you.”

Cashing in on Clinics

Along with a commitment to wellness, the three big drug chains have also gone full throttle into the clinic business.

It’s been a decade or so since the first walk-in clinics started popping up in drug chains, but now they are core. Walgreens launched its Healthcare Clinics in 2006 and now has more than 400 in 23 states and Washington, D.C.

Walgreens is especially focused on four disease states: asthma, high blood pressure, high cholesterol and diabetes. The company offers diagnosis and treatment, as well as acute care, prevention and wellness.

CVS/Minute Clinic launched the first retail medical clinics in 2000. The company now operates close to 1,000 clinics and aims to have 1,500 by 2017.

Rite Aid last year acquired RediClinic and announced in February that it had opened 24 clinics in stores in the Baltimore/Washington, D.C., and Philadelphia markets, with more to come this spring across greater Seattle.

“Providing high-quality, convenient and affordable health care through an in-store RediClinic is just one example of how we are taking our commitment to the health and well-being of our customers to the next level,” said Rite Aid president and COO Ken Martindale.

The RediClinics clinics are staffed by nurse practitioners who can treat patients for more than 30 common medical conditions and can write prescriptions. The clinics also offer preventative medical services such as screenings and immunizations.

CONTINUED: What C-Stores Should Watch

What C-Stores Should Watch

Only a few convenience chains are vested in a true drug offering that transcends 2 or 3 linear feet of cold, cough and allergy analgesics. But that’s not where the two retail channels will wage their street fight.   Convenience operators should be concerned about the halo effect that drug chains are achieving.

“There’s a glow from that with a pharmacist who’s a trusted ally of the consumer,” says Mike Sansolo, a retail specialist and president of Sansolo Solutions, Washington, D.C. “They’re already in the wellness space, for which consumers have more interest, so they’re building on that, going from wellness to serving certain foods—not necessarily the healthiest foods—but it fits with them taking care of the whole person.”

And here’s what CVS executive vice president Helena Foulkes shared at the company’s Annual Analyst Day last December.

“After we stopped selling tobacco, we asked our customers, ‘What’s next?’ The first thing on their list was healthy food, and we are listening and reacting to that,” she said, pointing out that healthy food represents a $1 billion sales opportunity.

“We are going to give [consumers] more choices in on-the-go healthy food,” says CVS spokesperson Michael DeAngelis. “We want to give customers more, better and healthier choices, and make CVS/pharmacy the convenience destination for healthy food.”

Drug stores’ food offerings are still mostly driven by convenience. “This might change,” says consultant Stern, “but I think they are taking a pragmatic approach.”

However, Cohen of Kurt Salmon points to Walgreens’ aggressive push into fresher food, with more refrigerated food cases and open-air cold vaults bearing engaging signage.

And Rite Aid is piloting fresh options such as sandwiches, salads and fruit alongside organic and gluten-free options. And, says spokesperson Kristin Kellum, “In select stores, we have Fresh Day Cafes, where customers can enjoy Coffee Bean & Tea Leaf beverages, fresh baked goods and sandwiches.”

Last year, CVS launched Gold Emblem Abound, a line of 40 private-label snack items free of artificial flavors and preservatives.

Products include snack bars, popcorn and rice chips, as well as products that are free of gluten, sodium and cholesterol, and contain sources of protein, fiber, omega-3s, probiotic cultures and potassium.

The chain also launched Fit Choices last year, with tags through stores guiding shoppers to find foods in four categories:

  1. Heart Healthy
  2. Sugar Free
  3. Gluten Free
  4. Organic

Overall, says Cohen, in terms of fresh food, the drug stores’ offerings are falling into two categories: convenient healthy options including salads, and artisan offerings such as Caprese sandwiches, wraps and sushi.

CVS’ frozen aisle is still populated by convenience items typically microwaved for lunch, small portions for dinners and indulgent frozen desserts, he says, while the dry offerings are a mix of the convenient fare that has always existed, along with indulgent snacks and newer healthier options: organic dry snack mixes, gluten-free selections and ethnic fare to cater to local tastes.

Says Cowen, “It’s no longer just one giant candy aisle.”

The Convenience Factor

That drug, along with dollar stores, remain in the crosshairs of convenience operators is no surprise. Unlike mass or club, drug’s formats are comparable to convenience and, to the envy of convenience, drug draws the female shopper across all age segments.

Intensifying this cross-channel scrap is the fact that the major drug chains have dramatically upgraded their design and store flow. Today’s Rite Aid, CVS and Walgreens locations are brighter, feature lower gondolas, wider aisles, multiple CSRs and softer tones. They are also ubiquitous, and while they may not offer a fountain or coffee bar, they are expanding the number of single-serve SKUs in candy and snacks,  beverages and seasonal items.

Their convenience is manifested in many ways, says Cohen: “First, it comes from real estate, and they are closer to the dense populations. Second, it’s about changing the box size and being more flexible with it, then having the offerings in the box be applicable to the box. So they’ve mixed in more consumables so you don’t have to walk by a drug store if you’re looking for a quick healthy food offering or drink.”

The real estate has made a big difference in drug stores’ visibility. All of the big three have invested in more flexible footprints, allowing them to move into different spaces and neighborhoods, with a different offering in each, says Cohen.

“They’re trying to be convenient, with drive-thrus and 24-hour openings,” Stern says. “But they’ve also segmented the stores with a little more clarity than before. So … health is anchored by pharmacy; beauty is anchored by cosmetics and skin care; and the rest of the store is anchored by convenience with coolers, freezer space and deli-style fixtures.”

Because of these changes, drug stores today sit at the intersection of convenience and wellness, says Sansolo: “It makes them a fierce competitor for convenience stores. Drug stores are positioning  themselves as the c-stores of the future.”


Finding Your Outer Self

It could be argued that beauty isn’t part of wellness, but we all know that if we look good, we tend to feel good. That said, beauty is getting more attention from drug stores.

Walgreens has dispatched more than 26,000 beauty advisers across the country, located in the stores’ Look Boutiques. These upscale departments sell top brands and offer services such as brow shaping. The chain’s flagships even have manicure stations and beauty departments that are more Sephora than medical establishment.

Rite Aid now has more than 49 Wellness stores with expanded beauty departments featuring top brands and specially trained beauty advisers. And CVS’ MinuteClinics are testing beauty programs such as eyelash-lengthening consultations.

Wellness and beauty are taking center stage. “These are not hourly workers, but people with training,” says Bruce Cohen, senior partner with management consulting firm Kurt Salmon, New York. This model, he says, looks more like a Nordstrom or a Bloomingdale’s than a traditional drug store, which boosts the image of these stores.

Introducing upscale beauty departments and advisers puts the thrust of drug stores even more toward the female customer, says Phil Burgess, who worked for Walgreens for 40 years and now is president of Phil Burgess Consulting in Chicago. It draws them away even more from convenience stores, he says.

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