Are Drugstores Priced Too High to Compete in Grocery?

Discussion
Oct 07, 2011

In a RetailWire discussion back in August, Everyone Getting Into the Grocery Business, Charles Walsh, president of OmniQuest Resources, noted, "No question that mainline grocers such as Walmart, Kroger and their ilk will be affected by the growth of the ‘pantry’ offerings developing in dollar stores and drug store chains. There isn’t a chance in Hades that these chains will unseat the dominant grocers, but they will have an impact on their growth."

Major drugstore chains have been among the most aggressive retailers pushing into groceries, with Walgreens, for example, pointing to itself as one solution to the food desert problem facing the U.S.

Drugstores, to be sure, have some advantages. With chains such as CVS, Rite Aid and Walgreens seemingly on every major traffic corner, location is not an issue. Relatively small store size also adds to the convenience factor.

But convenience comes at a price and the question becomes how much more consumers will be willing to pay for it?

According to market basket survey of a 25 items at stores in the Boston area, the average drugstore tab for these groceries was $102.94 versus $75.60 for the supermarkets.

"Drugstores are not doing shoppers any favors by carrying groceries at convenience store prices," said Edgar Dworsky, founder of Consumer World, which released the survey. "We are not talking about just a penny or two difference per item, but as much as a dollar or two in some cases."

Rite Aid was the most expensive of the drugstore chains, with the market basket adding up to $107.96. CVS was the least expensive of the three drugstore chains at $98.12.

The three supermarket chains in the survey included Market Basket, Shaw’s and Stop & Shop. Supervalu-owned Shaw’s was the most expensive at $83.56, while Market Basket was the cheapest at $68.55.

Discussion Questions: Is there a workable equation to the price vs. convenience decision for consumers? Will higher prices be a significant roadblock to drugstores looking to pick up share of the grocery market?

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23 Comments on "Are Drugstores Priced Too High to Compete in Grocery?"


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Ryan Mathews
Guest
9 years 7 months ago

You could ask the same question about convenience stores and you’d get the same answer.

Some consumers are willing (or have no alternative) to paying a higher price in exchange for convenience.

Is it a formula for widespread expansion and will Rite Aid one day be the largest grocer in America?

Of course not.

But, as long as they keep the selection tight, overcharging for some grocery items will continue to be a lucrative revenue stream for the drug channel.

Steve Montgomery
Guest
9 years 7 months ago

The survey indicated the cost of grocery items in drug stores is higher than supermarkets and this is regarded as shocking news? Next we’ll find that canned goods cost more in a c-store.

While not as high a cost-to-serve channel as c-stores, drug stores certainly don’t have the buying power of supermarkets. Order quantities are going to be lower, delivery cost and buying brackets higher. Unlike supermarkets who utilize their vertical integration to help control cost, groceries as a DSD items for drug stores.

Consumers vote with their dollars. If the resulting retails at drugstores are too high then they will have to make adjustments in their cost structure or find that they have a great deal of shelf space devoted to inventory that is just sitting there. I expect the drug chain will find a balance that meets consumers’ value expectations and their internal economic needs.

Raymond D. Jones
Guest
Raymond D. Jones
9 years 7 months ago

It seems that the key battle is over who will capture the shopping trip. Convenience often trumps price on that. Pricing on particular items is less important once the shopper has already chosen a store to visit. The extra pennies are less than the cost of another store visit, especially with gas prices so high.

Gene Hoffman
Guest
Gene Hoffman
9 years 7 months ago

The consumer mind is like a clock. It moves in one direction (although Steve Jobs altered that accepted perception).

Higher prices in drug stores have some leverage over the consumer’s mind … but that is offset by other factors such as the value of one’s time, gasoline prices and the hustle of going to other stores to save a dime or quarter.

Once a drug store gets a consumer inside its four walls it is at an advantage, allowing it some pricing leverage. The challenge the drug store faces is not to get greedy since the mind has a long and evaluating memory. So to drug stores I say, “Keep your pricing fingernails short; not too sharpened.”

Max Goldberg
Guest
9 years 7 months ago

If consumers don’t like the prices that the drug chains charge for groceries, they can take their business elsewhere. There are trade-offs in every shopping decision; price vs. convenience being one.

Doug Stephens
Guest
Doug Stephens
9 years 7 months ago

Given that 2/3 of those surveyed indicated they feel ill-prepared financially for retirement, it’s a safe bet that price is going to hold as a concern among older shoppers. And younger shoppers are already feeling the pinch. So, yes — drugstores will have to measure the price/convenience equation carefully.

The real opportunity in my mind, is for grocery stores to do a better job of making the pharmacy the hub of the store. A focus on nutrition, wellness, fitness and overall health as opposed to simply pushing prescriptions could open up huge opportunities to capture share from the Walgreens and CVSs of the world.

David Livingston
Guest
9 years 7 months ago

I think drug stores have found their sweet spot. Lowering prices a little probably would not increase sales enough to justify the lower prices. Drug stores are in business to be convenience stores and therefore can get away with higher prices. Not only are their grocery prices high but so is everything else in their stores. Target and Walmart are probably considered the low price drug stores. If you compared prices with those two chains you would probably find corner drug stores like Walgreens, CVS and Rite Aid are priced much higher in normal drug store items as well.

Being a solution to food deserts is just press release hype in order to get a little government money for store development and to get their name in the paper.

Hayes Minor
Guest
Hayes Minor
9 years 7 months ago

With consumers willing to make multiple trips to a variety of stores for selection and good prices, it only makes sense that the drug channel offers groceries. Shoppers aren’t blind. They know the prices are higher. But from the shopper’s perspective, if it saves them an extra stop at another store on their way home from work, price doesn’t matter. The real question becomes, how much space are these retailers really willing to allocate for groceries in the long run and how long will the channel overall keep this up?

Mark Burr
Guest
9 years 7 months ago
I think we may be effectively missing the point of what’s happening with drug stores — especially chains like Walgreens. It’s easy to make up a list of items and price them out across three chains and compare them to a grocer. The grocer or Walmart or others will always come out on top in that method. Where chains like Walgreens are effectively competing is in ad items and coupon items. How so? They are many times less or at least equal to the local grocer or Walmart. They are catching the eye of the consumer and they have affected the shopping trip in such a way that they become included as a regular destination for shopping these items. What happens when you induce traffic? Well, we all know the answer to that. Check a few items. Sure. Analyze what’s really happening and it’s a different story. For Mrs. Scanner, the shopping destinations for regular purchases have increased. The ads that Mrs. Scanner regularly shops have increased. They always include the local grocer, but they… Read more »
Camille P. Schuster, Ph.D.
Guest
9 years 7 months ago

Walmart and Target are both testing small neighborhood stores. Are they also charging one price in their discount and super center stores while charging higher prices at the small stores? I do not live near one of the small stores so do not know if the prices are different. Less demand, need for convenience, and lack of alternatives may be reasons for higher prices. Maybe higher prices are charged because of the lack of competition or alternatives. If some of the new small format stores provide competition and offer lower prices, the space could become very interesting.

Jerome Schindler
Guest
9 years 7 months ago

From my observation, drugstores use a high/low pricing model for grocery items; everyday is high, promotional weekly ad prices generally very low. C-stores will probably be the biggest losers in that battle.

Jonathan Marek
Guest
9 years 7 months ago

Mr. Dworsky’s statement is ridiculous. Of course drugstores are doing consumers a “favor” — or rather they are offering a choice. A choice that would not exist without them. If the convenience is worth the price, consumers can buy. If not, no one is forcing them to buy from drugstores.

On the retailer side, drugstores can reach the right balance of price vs. convenience by testing price levels and understanding which specific store environments will support higher prices and which won’t. And “support higher prices” means that the consumer will make the choice to value convenience over price.

Ed Rosenbaum
Guest
9 years 7 months ago

Higher prices will always be a deterrent to shoppers having limited spendable income. Convenience of being on every corner and in some cases two out of every four corners, is strong. But not for the weekly grocery spend. It works only for the limited one or two items needed now. That is what makes the c-store successful marketers of grocery items.

Ben Ball
Guest
9 years 7 months ago

The comparison of drug food prices to grocery/supercenter is “interesting” — but not where I expect the real game to be played for convenience food — especially in the urban food deserts.

The really interesting game is going to be played when the Walgreens is across from a Walmart Express and the CVS is beside a DG Market.

Eliott Olson
Guest
Eliott Olson
9 years 7 months ago

The concept of log-time is useful in calculating the fulcrum of price and convenience for various demographics.

Gene Detroyer
Guest
9 years 7 months ago

They haven’t so far. People buy groceries at the drug store, but they are not grocery shopping. This is all about convenience. Why are we questioning this? We don’t question convenience store pricing.

Doron Levy
Guest
Doron Levy
9 years 7 months ago
Yes, actual drug stores are considered pricier than their grocery store counterparts. The convenience factor does come into play here though. Here in Toronto, there are certain Shopper’s Drug Marts that are open a full 24 hours with a pharmacist on duty meaning OTC and RX can be sold 24 hours a day. Otherwise, when the pharmacist is not on duty, all OTC and most cough and cold sections must be roped off. BUT you pay for that. SDM’s dispensing fee is almost double than its grocery store competitors and for those that don’t have extended insurance benefits, that’s a huge bite out of the wallet. Add to the increased pricing on any accessory items that may be needed, Aspirin, Tylenol etc, and now you are taking about a very expensive shopping trip at 3am. That said, I am seeing certain grocery chains expanding their pharmacy hours to the 10 and 11pm time frame to compete head on with 24 hour pharmacies. Ultimately, price will dictate where one buys their RX and other pharmacy related… Read more »
Craig Sundstrom
Guest
9 years 7 months ago
Remember that scandal a few years back where ****** abducted thousands of people at gunpoint and forced them to buy groceries at their stores? Of course not (!) nor are you going to see such in the future: stores sell items — and people buy them — at prices that work for them…what more needs to be said? (Fortunately Mr. Dworsky later took off his Ralph Nader hat when he offered this common sense advice: “To save the most…comparison shop, to check the ads of both supermarkets and drugstores, and then to cherry-pick the best deals.”) As for the “food desert” angle, there is a certain amount of anecdotal evidence for it: here in Oakland in the ’70s/’80s, Walgreens took over a number of Safeway locations in what had become “inner city” areas. I doubt the food selection would delight nutritionists, and it certainly doesn’t approximate what Safeway offered, but that’s not the point; the point(s) is (are) Walgreens must have found the “workable equation” here or the locations wouldn’t still be in business, and… Read more »
Dave Wendland
Guest
9 years 7 months ago

Price is not the only determining factor when making a product decision and drugstores are not out to replace the supermarket shopping trip (pantry filling) but can undoubtedly compete in fill-in trips and convenience.

Speaking of convenience and time-constraints, a new product has debuted that allows parents to purchase pre-written notes to stick into their kids lunch boxes. So, if they’re willing to spend money on a pre-fabricated note that tells their kids “I love you” why wouldn’t they pay for a little convenience on grocery items at their local drugstore?

Kai Clarke
Guest
9 years 7 months ago

Sometimes price will matter for drugstore’s success in able for them to get a firm place in the grocery retail market. However, the drugstore shopper is often different than the grocery store consumer, and this allows for different price vs. availability scenarios to occur in the drugstore retailer. There is a place for drugstores to compete here, but it is on a limited basis, and certainly not a key fundamental in their profit picture.

Verlin Youd
Guest
9 years 7 months ago

Each consumer will figure out their own price vs. convenience equation based on their own individual preferences and situation. Not that I am in any way representative of the average shopper, but if I am in the drugstore to purchase medicine and they happen to have the gallon of milk I need or the half gallon of ice cream I want, I’m likely to purchase it there rather than waste time and money driving to another retail outlet. On the other hand, if I need to do my weekly grocery shopping, I don’t see myself doing that at the drugstore.

As for prices being a roadblock to picking up share in the grocery market … hasn’t been so far.

David Slavick
Guest
David Slavick
9 years 7 months ago

Let the buyer beware and be aware. As many have noted, nothing shocking about the traditional drug store chains charging more for the same basket of items as a grocery store. CVS, Walgreens and Rite Aid are more than happy to charge more for the convenience of shopping in a clean, safe, trustworthy environment. They do offer “loss leaders” to pull in traffic and while CVS has a real-time rewards program in place, Walgreens most certainly will be stepping that up as well. Bottom line — shoppers will shop and every one else will buy what they need when they need it and travel to the location most convenient.

Chris Partlow
Guest
Chris Partlow
9 years 7 months ago

I think Mr. Clarke hit the nail on the head. Will drugstore’s provide some competition to the traditional grocery markets? Sure. But I don’t think price is going to be the determining factor. People who do their grocery shopping at drugstores do so for the convenience. Like Mr. Youd said, if you’re in the drugstore and you see something you know you need to pick up at the grocery store, you’ll grab it and save yourself a trip. You may look at the price but, in my opinion, the convenience of being able to cross that item of your shopping list right there, saving yourself another trip, will trump any issue of price. If drugstores want to seriously compete with retail grocery markets, price may become an issue at some point. But as of right now, the accessibility/convenience of picking up groceries at the drugstore will provide them with a little bit of flexibility in terms of pricing.

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