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Drug store chains have an enormous appetite for consumables. Fresh food sales — defined as dairy, deli, fresh meat and fresh produce — grew nearly 13% year over year through April, according to ACNielsen data.
The desire to add more fresh foods to their stores is even driving new store formats, according to Jonathan Stack, president of Panache Cuisine, a supplier of fresh and prepared foods. “Open-air coolers are the predominant vehicle for merchandising, and we are seeing retailers adding sections that run anywhere from 4 ft. to 9 ft.,” he said. Some retailers even are experimenting with island cases positioned in the middle of the store.
Merchandising is crucial to the category’s success. “Consumers are open to purchasing fresh product from more than just traditional grocery stores. The key is for the product to be merchandised in a clean, neat manner that conveys a level of attention that proves comforting to the consumer,” said Tom Sicola, VP marketing at McLane.
Stack said that new offerings from Panache are driven by the college campus segment of his business. “Those consumers want fresh products with no preservatives and ingredients that are locally grown,” he said. “Consumers also want eco-friendly packaging.” Those products also now can be delivered on a just-in-time basis to retailers.
“Short shelf life and spoilage is always a barrier to overcome when entering the fresh arena,” Sicola said. “Our strict ordering system allows for short shelf life product, such as fruit or fresh sandwiches, to deliver with the retailer’s regular delivery, but lose minimal shelf life moving through the supply chain. We are able to leverage pricing on fresh products to offer retailers a better cost than they would be able to negotiate on their own, ensuring a larger gross margin and larger net margin as well.”
As consumers look for healthier choices, healthy fresh options continue to grow at the drug channel. “Distribution of fresher, better-for-you products has been growing,” Sicola said. “We are seeing larger demand for products like yogurt and cheese sticks.”
Hot, fresh foods are another growth area on the horizon. “There’s a lot of opportunity in the ‘hot-and-go’ arena,” Stack said. “Packaging innovations are allowing us to put sandwiches in a panini grill in the packaging so consumers can get a hot entrée in a convenient setting. With very little floor space, drug stores can set up small bistro areas that can become a traffic generator.”