With more than 25,000 chain drugstores across the US, the opportunity to tap into new consumer segments is massive.

The marriage of food and pharmacy is not new in the US. Albertsons opened its first combination grocery drugstore in 1951 and today just about all major supermarkets offer an in-store pharmacy service. However, it is only recently that drugstores have recognised they are missing a trick - why not add fresh food to their product assortment?

With more than 25,000 chain drugstores across the US, the opportunity to tap into new consumer segments is massive. Walgreens, which operates more stores than Walmart and Kroger combined, began offering an expanded food selection in 10 Chicago stores last month. The 750 new food items, which include perishables, frozen and ambient goods, are aimed at improving access to basic healthy foods in certain areas. Similarly, number two CVS has been quietly rolling out its Urban Cluster programme, which also aims to bring fresh convenience foods to areas where consumers have little access to supermarkets - otherwise known as food deserts.

While Walgreens and CVS are ramping up their own grocery offerings, competitor Rite Aid has taken a more drastic approach by partnering with SuperValu to launch co-branded Rite Aid/Save-A-Lot stores. There are several unusual aspects of this partnership. First of all, it’s not common for two separate - and to a slight degree competing - retailers to launch a new joint format. Second, while competitors such as Walgreens are ramping up their premium food offering, Rite Aid has chosen to partner with discounter Save-A-Lot, which is much better known for value.

However, considering that Rite Aid has suffered four consecutive quarters of negative like-for-like sales, this may be the answer it has been looking for. Save-A-Lot is a winning format with ambitious growth plans. However, the real winner here is Save-A-Lot, which can now offer its shoppers the benefit of an enhanced healthy and beauty/pharmacy offering, enabling it to differentiate from competitor Aldi.

Although these concepts are in their infancy, if successful they could have a major impact on how Americans shop for groceries. Their vast network of stores also puts them in a very strong position to cater to the US’s ageing population who favour convenience and proximity over bulk buying. There are currently 40 million people over the age of 65 in the US, accounting for 13% of the population. In just 20 years that figure is set to reach 72 million. It’s no surprise the drugstores are seeing dollar signs.


Planet Retail

Natalie Berg is research director of Planet Retail.

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