THE CHALLENGES OF CONSOLIDATION
NEW YORK — Drugstore consolidation has kept up a fevered pitch this past year and promises not to abate anytime soon, according to industry insiders.
Both retailers and manufacturers are assessing the possible effects of changes in the drugstore industry on their businesses.
Among other concerns, some fear drugstores will begin to mimic each other in selection and appearance as a result of the consolidations.
“It used to be that drugstore retailers owned their particular markets,” said Beth Kaplan, executive vice president of marketing for Rite Aid Corp.
“There was always one competitor, but they were a weak number two,” Kaplan continued. “Now, with consolidation, there are four or five big guys left. I don’t believe cosmetics will evolve into sameness. It will be more important to offer something that makes shoppers come to your stores instead of the competition.”
Kaplan’s ideas will be subject to debate at the National Association of Chain Drug Stores’ annual meeting, to be held April 26-30 in Palm Beach, Fla.
In the story about Rite Aid, which is one of four chains dominating the drugstore marketplace, Kaplan reveals what she believes are three issues facing the beauty industry in the near future. They are: assortment and how to use space more efficiently, the need for a uniform way to handle planogram changes and the need for manufacturers to maintain a steady pace of innovative launches.
The consensus among beauty manufacturers is that consolidation and the operating efficiencies that come with it will benefit drugstores, which have been steadily losing market share to discounters in many categories. Still, a few manufacturers expressed anxiety over how the industry shifts might affect them.
“Its been difficult planning out the year,” said William McMenemy, executive vice president of marketing for Del Laboratories. “We’d normally have presented and committed to holiday plans by now, but Christmas commitments are still somewhat up in the air because some of the mergers haven’t gone through yet, so there’s some uncertainty in terms of who’s responsible for what. When you make plans with a retailer like a planogram change or long-term promotions, there is a degree of uncertainty when a merger takes place.”
Joseph Campinell, L’Oreal Retail president, said: “The recent consolidations are not going to affect us dramatically. We have very good business relationships with each of the major accounts. There will probably be some reduction in store count, but I think the country is a little over-stored, anyway. The consumer still has to shop, so it shouldn’t hurt us. I actually see [drugstore consolidation] as a positive. We could have more serious discussions with the headquarter account about how we want to manage the business, how we want to promote, and know that the results will cut across a solid core of stores.”
Retail reports from around the country reflect that business must go on even while changes are taking place at drugstore headquarters. They also indicate that color cosmetics and bath products are generating excitement on retail shelves.
Kristy Bruce, cosmetics buyer for Super D, a Memphis, Tenn.-based drugstore chain, noted that the store’s business improved in 1997 based partially on manufacturers’ new promotional and marketing efforts. “[Beauty] companies have learned that you can’t just put a product out there and expect it to sell. You have to make consumers aware of choices through advertising, and we have to offer more promotions and coupons.” “Cosmetics are doing very well for us,” noted Joan Zukor, director of cosmetics for the Drug Emporium chain in Washington and Oregon. “It started with ColorStay from Revlon — and the addition of new technology to the cosmetics business. The benefit of new technology brought an awful lot of renewed interest in their products. That and the fact they are highly promoted.”
Consolidation won’t be the only topic discussed during meetings at the NACDS annual meeting. While the meeting is not usually the place to hawk products, it is the forum for manufacturers to lay out their plans for key retailers, which inevitably involves their best-selling merchandise. A preview of what’s expected to be in store is found on pages 28 to 34.