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05/14/2021

Voices of the Industry: How the pandemic has changed retail

Experts size up the uncertain road ahead as consumers and businesses adapt to how the pandemic has affected the retail industry.

The past year has proven to be a transformational, once-in-a-generation event for the food and drug industry, as retailers had to rethink nearly every aspect of their operations and consumers embraced new shopping behaviors.

Now that the pandemic appears to be subsiding — thanks in large part to effective vaccine administration on the part of pharmacy operators — a new landscape is emerging in which consumers are expected to gradually resume their pre-COVID shopping patterns. How quickly those behaviors return and which, if any, of consumers’ newly adopted behaviors are retained remains to be seen.

The pandemic also forced many retailers to sharpen their skills in key areas, including e-commerce, curbside pickup and drive-thru operations. Going forward, retailers will seek to convert their learnings into enhanced shopping experiences that meet the evolving expectations of their customers.

Opportunities await the players who get it right in such health-and-wellness product categories as personal and beauty care, eye care, and others, as well as in other nonfood areas, including cleaning products and personal protective equipment.

The following are insights from industry thought leaders that outline where the ongoing challenges and opportunities may lie for an industry that remains very much in transition.

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Jim Whitman senior vice president of member programs and services, and Steve Perlowski, vice president of industry affairs, NACDS
“The health and safety of employees and customers will remain job one for the foreseeable future,” Perlowski said. “If customers don’t feel safe in your store, if employees don’t feel safe in your store, they’re not going to come in. That’s the base that everyone has to start with.”

While retailers continue to adjust their operations to provide safe environments for their shoppers and workers, they also are rethinking the role e-commerce will play in their future, he said. Consumers gravitated to digital ordering in record numbers in 2020, with many opting for home delivery through such services as Instacart and Shipt. Now more than ever, food and drug retailers need to think holistically about how their consumers may want to shop with them at any given time.

“There is no such thing as brick-and-mortar and e-
commerce,” Perlowski said. “If you don’t have a solution for both, you have a challenge.”

Another trend that has emerged in the past year that retailers will need to grapple with is the tendency for consumers to shop at fewer retail stores and fill bigger baskets on each visit.

“Retailers need to be top of mind with consumers in order to drive trips,” Perlowski said. “In the near term, people are not going to go back to their old shopping habits.”

He also cautioned that many consumers lack the spending power they once had, and retailers need to be aware of this in their marketing and merchandising based on the shoppers in each store’s market.

“That could mean that in certain areas, private label will be a big winner and, in other areas, it’s the prestige brands that are going to do well,” he said. “That could become a big opportunity for smaller manufacturers to create and carve out that niche.”

Retailers also have the opportunity to better leverage technology to their advantage going forward, and create better shopping experiences for their customers based on data, Whitman said.

The supply chain and related operational issues that retailers had to resolve during the past year, as they implemented various forms of e-commerce, has made them stronger, better retailers, he said.

“I think if retailers go back to their old ways, whatever the old way was, I think they’ll potentially lose some opportunities,” Whitman said.

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David Bishop, partner, Brick Meets Click
Food and drug retailers need to have a comprehensive omnichannel strategy based on a sound understanding of their customers’ preferences, Bishop said.

For drug retailers, leveraging drive-thru windows to offer more products for click-and-collect purchases represents a potentially significant opportunity, he said. Customers have demonstrated that they enjoy the click-and-collect model, and they have become accustomed to using it to pick up prescriptions, he said.

“Right now, it’s simply a single-purpose window, but as we go forward in the next several years, drug stores should be evolving the role and utility of that drive-up window,” Bishop said.

If retailers can encourage the purchase of health and beauty care products or other items that also can be picked up through the window, it could become a point of differentiation from other retailers that may require consumers to leave their car to pick up an order placed online, or to wait in their car for a worker to bring out their click-and-collect merchandise, for example.

“It seems a little unnecessary, or frankly silly, from a customer standpoint to require someone to pull up front and wait in the car for someone to come out with a single bag or two, as opposed to simply driving around the building where the drive-thru is and have it passed through the window, just like they have done with prescriptions,” he said.

Bishop cautioned that retailers will have to think this opportunity through carefully from a store design and operations standpoint to ensure they have an adequate staging area for these orders, and they are providing an optimal experience for customers in the drive-thru.

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Erik Keptner, chief marketing and merchandising officer, Rite Aid
Rite Aid said it sees opportunities to position itself as a whole health destination for customers, a process that encompasses both the product assortment and expanded access through digital channels.

Pharmacy will play a critical role in Rite Aid’s future as the company reimagines its entire business through the lens of an elevated role of the pharmacist, according to Keptner.

“However, there are a number of areas beyond pharmacy where we see significant opportunity and are laying the groundwork to leverage those opportunities as part of our ongoing RxEvolution strategy,” he said.

“We know that we have a chance to reimagine how we engage customers, both digitally and in store, as we seek to reposition Rite Aid as a whole health destination. That means going beyond pharmacy to seamlessly integrate alternative remedies that elevate whole health — treating mind, body and spirit,” he said.

As part of this whole health push, Rite Aid is in the midst of a significant merchandise transformation that supports an increased customer focus on self-care. By expanding core categories, including health, wellness and beauty, the chain is enhancing its traditional assortment, expanding “better for you products” focusing on clean ingredients, as well as products that are free from harmful chemicals.

“We also believe there is an opportunity for retail pharmacies to enhance their digital offerings,” Keptner said. “For our part, we’re investing in technology to improve Rite Aid’s online and mobile experiences, with modern web and mobile design, delivery options, and technology partnerships that help us provide more relevant offers and value to our customers.”

In addition, Rite Aid sees pharmacy benefit managers as another area of opportunity, he said.

“Rite Aid’s PBM, Elixir, is about creating connection points and supporting the healthcare ecosystem in ways that we don’t even see yet today,” Keptner said. “Elixir, a national PBM, is a fully owned subsidiary of Rite Aid — giving both payers and patients access to the best products and services from across the portfolio. The increased integration allows us to collectively hyper focus on consumer engagement and coordinated care.”

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Bethany Gomez, managing director, Brightfield Group
The fast-growing CBD category has been significantly impacted by the pandemic and will continue to evolve throughout 2021 and beyond, said Gomez of Brightfield Group, which specializes in CBD and cannabis research and consulting.

Retailers are waiting for the Food and Drug Administration to provide regulatory guidance, which could open up a variety of additional product types that they can carry beyond topical items, including ingestible CBD products, tinctures, capsules, and potentially CBD-infused food and beverages.

“That is definitely something I would encourage retailers to keep an eye out for, and start planning and preparing for,” Gomez said, noting that it could happen by the end of this year. “Once retailers do start carrying that wider variety of products, that really unlocks very significant growth and revenue potential.”

Much innovation in the category also has occurred, particularly with such other “minor” cannabinoids as cannabigerol, or CBG, and cannabinol, or CBN, she said, noting that consumers have embraced as potential treatments for glaucoma and insomnia, respectively.

“We’ve also seen a lot of growth and opportunity in the beauty and skin care categories with innovations that are topically topical based,” Gomez said.

These include face masks, bath bombs and other products that often also contain other such functional ingredients as ashwagandha and turmeric. “There’s a new generation of products that are becoming increasingly sophisticated and can compete more effectively on quality with other products that you would find on shelves,” she said.

Gomez cautioned that retailers should be aware that consumers have become highly price sensitive when it comes to CBD products, and often look for deal opportunities to buy these types of items.

“A culture of discounts has really emerged in the industry,” she said. “CBD has become in many ways like the apparel industry, in that you almost never pay full price for anything, at least through e-commerce channels.”

In the fourth quarter of 2020, more than half of CBD consumers were purchasing at least some of their products online, she said. “That competition from the digital channel is something that retailers should keep in mind as they are thinking about their strategy,” she said. “How can they themselves either think about an omnichannel strategy, or be able to ensure that they have an effective method to differentiate or compete with those online channels.”

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Patrick Spear, president and CEO, GMDC|Retail Tomorrow
Food and drug retailers will need to focus on opportunities in the year ahead to retain customers who were acquired during the pandemic, according to Spear.

“The key thing on everybody’s mind is how to lock in those gains — the foot traffic increases that everybody who was considered essential retail has seen in the last 12 months,” he said.

In the drug channel, Spear said he sees the opportunity for retailers to leverage the relationship that customers have with their pharmacist to provide education and inspire product discovery, particularly in categories adjacent to the pharmacy.

“How are you going to transform that shopping trip into something beyond just a script pickup, and perhaps something more than just a convenience play with all the front-of-the-store items?” he said. “I think there’s a wonderful opportunity there, where you can now start a new conversation with your customer, perhaps in ways you may not have been able to do before.”

He also cited the ability to leverage what he predicted will be ongoing demand for personal protective equipment that was in high demand during the last year and that could have staying power, including immune system boosters and cleaning products.

“Our behaviors have been transformed,” Spear said. “We think differently now about what products or practices we deploy to preserve or enhance our immunity. I think there’s a huge opportunity there for retailers to think differently about consumer engagement.”

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Mark Panzer, consultant, The BGJ Group
“Several trends that were started or accelerated by the pandemic, like hygiene and sanitization products, fresh foods and local items, will continue to thrive well into post-COVID life,” said Panzer, a past chairman of NACDS who recently joined management consulting firm BGJ Group as an associate.

“Nutrition and personal health products, including vitamins, immune support, sleep assistance and stress prevention, will retain their higher-volume levels for the foreseeable future, which makes for a great promotional opportunity for retailers,” he said. “Focusing on wellness in ads, online outreach and in store will resonate with shoppers for a very long time.”

He also predicted that once the vaccine has been widely rolled out, sales in the skin care and cosmetics categories, which took a big hit due to people not working in offices or traveling on business, will return quickly — “but the rebound will not be 100%,” he said.

“The opportunity here is for retailers to market to the new lifestyle of gradually more social interaction, but also a different approach to both work and travel by curating the assortment and personalizing the offers to shoppers.”

The transition to a post-pandemic world requires marketers to better analyze and understand new trends before they act on any shift in consumer behavior.

“Retailers need to run to where there is daylight, so they avoid being caught without the latest bright, shiny item and category, or with a warehouse of unsellable product,” Panzer said. “It’s really just Retailing 101.”

“Of course, retailers must be omnichannel, accentuate e-
commerce and use third-party services when they can’t immediately meet customer expectations,” he said. “In the long-term, however, to successfully manage their [profitability] for both e-
commerce and in store, they will need to invest in technology that will help them capture, retain and reward their best customers.”

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Nicole Stump, director of category management, McKesson
“With the pandemic accelerating trends that traditionally would have taken five to 10 years to evolve, we — like other traditional retailers — have been challenged to meet consumer demand beyond the traditional brick-and-mortar experience,” Stump said. “Time will tell where the consumer lands relative to their overall shopping experience, but we believe the e-commerce evolution is paramount for retail pharmacies.”

Critical to this success will be gleaning the learnings from the past year and looking to new ways of doing business, she said.

“At Health Mart, we believe the pharmacist and patient relationship will continue to evolve,” she said. “Patient trust has only been enhanced in these seemingly uncertain times.”

She pointed to a December 2020 Gallup poll finding that pharmacists’ honesty and ethics rating are up seven points to 71%.

Pharmacists have played an important role over the last year, especially within the independent pharmacy space, Stump said. “Health Mart independent pharmacies are positioned to support consumers through uncertain times and serve as a critical resource for both preventative and reactive care,” she said. “In leveraging our foundation of trust, serving consumers through both traditional and e-commerce channels is our No. 1 priority.”

Consumers are being thoughtful with their purchases and placing more emphasis on self-care, personalization and sustainability, Stump said.

“Products that speak to preventative self-care while focusing on sustainability are well positioned to win both at shelf and through e-commerce,” she said. “With consumers using multiple inputs in making product decisions, those who are able to clearly communicate product benefits to both themselves and their broader community will emerge as category leaders.”

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Joe Gordon, U.S. president, Bausch + Lomb
After a year during which many consumers have avoided in-person doctor visits for routine medical care, the U.S. is now heading into a “catch-up phase,” Gordon said. “We’re already seeing eye health issues that have gone untreated for far too long,” he said.

This is especially true for older patients, who are the most vulnerable and have been the most isolated over the past year.

Although telehealth has had its benefits throughout the pandemic, there are certain conditions, such as age-related macular degeneration, or AMD, that are best detected through in-office visits with a dilated eye exam, Gordon said.

Bausch + Lomb’s over-the-counter PreserVision AREDS 2 Formula eye vitamins contain the exact nutrient formula recommended by the National Eye Institute to help reduce the risk of progression in people with moderate to advanced AMD, he said.

“Many consumers have also developed more than a year’s worth of digital-first habits, which may make it difficult for retailers to attract customers as the economy reopens, Gordon said. “Safety permitting, retailers will need to remind and, in some cases, reintroduce consumers to the benefits of in-person care that goes beyond our phones and laptops.”

He cited data from IRI showing that U.S. vitamin sales rose 19.5% in 2020, which reflects the increased adoption of self-care during the pandemic, which he said analysts believe will be an enduring trend.

“Pair consumer interest in vitamins with greater exposure to blue light from screen time, and you can see why people are reaching for vitamins that help support their eye health,” Gordon said. “As we anticipate many people will continue to work from home for the foreseeable future, we look to support our customers with products like Ocuvite Blue Light eye vitamins, which are formulated with high levels of lutein and zeaxanthin to help replenish the macular pigment layer that helps eyes shield and filter blue light.”

The eye care industry overall is seeking to meet the increasing demand for products that fill the unmet needs of patients, he said, which is resulting in increased research and development to identify and introduce ocular pharmaceuticals and OTC products with significant benefits. In 2021, Bausch + Lomb will bring several new over-the-counter eye care products to market, Gordon said.

“In addition to Alaway Preservative Free antihistamine eye drops, which were launched in February 2021, we look forward to launching other new over-the-counter products this summer,” he said.

As more prescriptions are delivered online, there is opportunity for beauty and personal care products to become a bigger part of that online shop. This is particularly true if the online experience and apps are improved to easily connect to loyalty cards and promotions.

U.S. Consumer and Market Insights team, Unilever
Consumers consolidated their shopping trips for beauty and personal care in channels other than drug stores in 2020, according to Unilever’s CMI team. The share of consumer dollars for beauty and personal care (in Unilever categories) going to the drug channel in 2020 decreased from 20.2% to 17.8%, according to data from Numerator.

However, the drug channel continues to transform into a more health-oriented channel, they said, citing Kantar data. This may mean a shift toward health-oriented options, both for physical and mental health, which can range from vitamins to healthy snacks and drinks to more pampering products within personal care.

For example, in 2020, the growth in the vitamin sector in the drug channel was 17%, which was significantly higher versus 2019, according to IRI data.

As 42% of people indicated to Numerator that their health behaviors have shifted since COVID-19 started and the drug channel is one of the key channels for vaccinations, this could be an opportunity to capitalize on renewed foot traffic to promote products geared toward mental and physical well-being.  About 49% of people indicated they will do some shopping while they are at the drug store to get their vaccine, according to Numerator.

In addition to the above, IRI data showed the drug channel increasing partnerships with third-party delivery services, and their online sales of beauty and personal care grew 109% in 2020. As more prescriptions are delivered online, there is opportunity for beauty and personal care products to become a bigger part of that online shop. This is particularly true if the online experience and apps are improved to easily connect to loyalty cards and promotions.

The food channel historically has had a hard time getting shoppers to put beauty and personal care items in their basket, with about 13% of their beauty and personal care dollars going to the grocery channel compared with about 38% of their dollars going to mass channels.

During the pandemic, Numerator data showed household penetration of beauty and personal care increased by 6.5 million households, as people sought one-stop shopping in grocery.

Moving forward, some grocers are seeking to reinvent the beauty and personal care parts of their store to try and keep the newfound traffic. For example, Kroger is revamping some of its beauty sections to be more experientially oriented.

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Elizabeth Anderson, managing director, Evercore ISI
Drug store operators have been on the front lines of the vaccine rollout and will continue to play an important role in that effort through the second quarter of this year and beyond, said Anderson, an equity analyst who follows the healthcare sector, including the drug store channel.

In addition, they likely will continue to be involved as COVID-19 vaccines become available for children, and if booster vaccines may be required for new coronavirus variants. She estimated that most of the U.S. adult population will be vaccinated by the end of the summer.

At Walgreens, Anderson said the biggest question mark is around what direction the company will take under the new leadership of Rosalind Brewer, the former Walmart and Starbucks executive recently named CEO of the Deerfield, Ill.-based drug store chain.

“What is she most excited about? What is she most interested in? What can she do to help fix the gross margin degradation?” Anderson said.

For CVS, the challenges and opportunities revolve around how the company’s HealthHUB store strategy unfolds, and how it will leverage the Aetna acquisition to help drive the business.

For the front-end categories, retailers will continue to deploy strategies to drive sales in those categories as consumers have shifted to e-commerce. The traditional challenges that drug store retailers have faced around prescription reimbursement also remain in place, Anderson said. “Those are going to be some of the broader industry challenges, and those are not going away,” she said.

Drug retailers also should see some benefits from increasing healthcare visits by consumers who have been avoiding medical care during the pandemic out of fear of catching the virus.

Another consideration is that because consumers have been wearing masks and social distancing throughout the pandemic, the cough-cold and flu season “has been nonexistent,” Anderson said.

“That’s something all of the drug stores have pointed to as impacting their pharmacy programs, as well as the OTC portion of their sales,” she said. “I would assume that as things continue to open up, we could see a resumption of [demand for] cough-cold and flu [remedies].”

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