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Walgreens' move into health and wellness: What natural retailers can learn

Walgreens' move into health and wellness: What natural retailers can learn
Walgreens' new concept stores are positioning the drugstore chain to compete in the health and wellness market. Here are four ways natural products retailers can compete with the encroaching mass market.

It's a whole new breed of drugstore. Over the past two years, Deerfield, Ill.-based Walgreens has helped re-envision—and lavishly remodel—nine urban stores for Duane Reade, a New York-based, 258-drugstore chain it acquired in 2010.

The upscale stores boast amenities one might expect to find at Whole Foods or other natural retail stores: fresh sushi station; made-to-order smoothie bar; coffee and fresh bakery counter; expanded natural and organic section offering fresh fruits, vegetables, wraps, sandwiches and salads—even Growler Bars, where customers can refill glass bottles with local craft beer. The stores also feature physician-staffed walk-in clinics and expansive beauty and personal care "boutiques."

It's all part of a larger transition for Walgreens, which now has nearly 200 "Well Experience" store locations in the Chicago, Indiana and greater New York area. In the stores, the pharmacist has come out from behind the counter and sits at an approachable front desk, where it's easier to counsel patients. In nearly 350 stores, nurse practitioners at Take Care clinics can treat common illnesses and give school physicals and vaccinations.

"We're looking to meet the daily health and wellness needs of Americans across the country," said Walgreens Spokesman Robert Elfinger.

By investing heavily to expand well beyond the traditional pharmacy, OTC medications, "sick care" products, basic vitamins and mostly unhealthy snack foods, Walgreens is making a full-court press on health and wellness—aiming to carve out a chunk of that quickly growing market.

"Affordable health and wellness as an industry is probably somewhere between a $150- to $300-billion new business," said Thom Blischok, chief retail strategist and senior executive advisor to retail at New York-based Booz & Company.

The drugstore industry is fundamentally changing, he said, "by helping people experience health and wellness in a different way than just putting merchandise on shelves." And it's not just Walgreens that's diving deeper into health and wellness; Blischok says Hy-Vee, CVS, and Rite-Aid are piloting innovative approaches, too.

"I believe the drugstore is becoming not only the new convenience store for women but it may be becoming the health and wellness center for the family," he said. "It's a big shift."

How will more holistic drug stores affect the retail landscape?

When Michael Kanter, chief visionary officer of Cambridge, Mass.-based Cambridge Naturals, visited Duane Reade's Union Square flagship store recently, he wondered if these stores may start carrying some of the same high-quality supplement product lines that his store carries. For instance, Proctor & Gamble's recent acquisition of New Chapter has some natural retailers concerned that the line may start being sold in mass.

"Proctor & Gamble certainly didn't buy New Chapter to keep it the same," said Bill Crawford, director of retail programs at New Hope Natural Media. "Will they change formulas and ingredients? I don't know, but they will likely sell a few SKUs in different outlets. Walgreens/Duane Reade may be a good place to test it."

Certainly, the lines between drugstores and grocery stores—and to a much lesser extent, natural product stores—are blurring. Walgreens' fresh-food offerings are a strategy to drive extra store traffic, said Jim Hertel, managing partner of Chicago-based retail consulting firm Willard Bishop. "Consumables will bring more traffic more frequently, and the 'front of the store' generally has higher gross margin percentages."

It's a logical move for drug stores to leverage the pharmacy and other resources already in the stores, said John Smrekar, a retail consultant at San Clemente, Calif.-based Instore Marketing21. He says buying power and distribution are also big advantages for drugstore chains. "They can get into low volume items without a distributor, save 10 percent on cost, manage turnover more effectively and expand distribution instantaneously."

There's certainly opportunity for crossover shopping when people are getting a prescription at the drug store and see new health and wellness products, Smrekar said. "But it really takes service—and if you look at drug store labor, that service commitment has not really been there. It also requires expertise—dedicated resources in that section—or it won't last."

The rising value of health and wellness

The new face of the chain drugstore reflects broader trends among American consumers. "There's a groundswell of the American consumer who's recognizing that it's cheaper to stay healthy than it is to go to the doctor," said Blischok. "So we're seeing the drugstore industry increase its presence in diagnostics."

There's huge opportunity as drug stores continue to reinvent themselves as wellness centers around chronic conditions and disease states, he said: "The drugstore could become—I won't say should become—the pre-ER or the pre-physical, where I go get my blood pressure and cholesterol and blood sugar level checked on a regular basis."

The recession is having a lingering effect on the way Americans shop, Blischok explained. "Shoppers are shopping at 2.4 to 4.2 stores a week, and 78 percent of Americans now are value seekers. While manufacturers and retailers are trying to bring more shoppers into the store, consumption has remained flat for the past 22 months."

Moreover, he said, 61 percent of Americans are survivalists, meaning they are surviving week to week, month to month, on what they make. "They really are attempting to understand where can they save—and one of the places they can save money is by living a healthier life."

4 lessons from mass for natural retailers

Many natural retailers are already doing a lot of things right. "A lot of natural markets are smaller and more compact so they're easier to shop than large supermarkets or drugstores," said Smrekar, plus they tend to be more differentiated, more customer service-oriented and have lower employee turnover.

See How to transform your store into a wellness destination

Still, there's always room for improving the shopper's experience, said Blischok: "The main complaint of shoppers around the world is that it's become complex: I have to spend too much time finding what I'm looking for in a cacophony of merchandise that doesn't make it easy to see." On this front, the top drugstore chains have some ideas worth imitating.

  1. Create merchandising platforms around your shoppers' needs.
    Think like a shopper shops, Blischok advised: Realize they have chronic conditions and disease states and help make their shopping easier by assembling related products and education in defined areas or merchandising platforms. "Natural retailers need to help the shopper understand the regimens and the rhythms of the products that help them manage their hay fever, their diabetes, their cholesterol," he said. "The integration of thinking around helping the shopper make decisions is critical."
  2. Sales associates are critical.
    Make the store experience better by making sure people know how to shop the store, where to get advice and where not to look for advice, Blischok said. "Sales associates need to recognize that people are looking for help in managing either wellness or recovery."

    Nutritionists, dietitians and pharmacists (along with naturals and organics) are playing an increasingly important role in helping people make wiser choices about the medicines they take, the supplements they take, as well as product sourcing and manufacturing methods, he said.
  3. Keep it simple.
    If your store has its own private label products, simple packaging messaging is critical. (Walgreens' new private label efforts are very successful, said Blischok.) Make it easy to understand what the product is used for. "If it takes more than 10 to 15 seconds to find or figure out a product, it's too complex."
  4. Thin out what's not selling.
    Less is more. "Don't make the shopper wade through products they don't want to buy—get it off the shelf," Blischok said. "Clear out and open up your store, put in platforms, put in solutions sets, put in education and put in services."
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