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Discounters make inroads in core drug store categories.

NEW YORK -- While the overall sales growth rate for discount stores slowed a bit in 2011 from the four-year high it hit in 2010, that was offset by an improvement in same-store sales growth. Discounters tied with chain drug stores for the strongest sales growth among the three major mass market retail trade classes, and they bested the other two channels in same-store sales gains.

Sales at discount stores increased 5.7% in 2011, down slightly from the 6% growth rate tallied in the preceding year. However, same-store sales were up 3.6% for 2011, an improvement over the 3.4% growth rate recorded in 2010, and a huge jump from 2009's disappointing 1.9% figure. Discounters just edged out chain drug stores in terms of same-store sales growth, with the latter format coming in at 3.5% for 2011. Supermarket sales were up 3% overall last year, with same-store sales up just 1.6%.

Discount store chains have been making inroads into the core merchandise mixes of both drug store and supermarket operators for many years, and that trend continued in 2011. It is particularly noticeable in pharmacy. While drug chains still account for the largest share of this growing market--40%, according to IMS Health and the National Association of Chain Drug Stores--discounters have been posting the strongest growth rates.


In 2010, the most recent year for which data are currently available, discount stores accounted for 10% of retail pharmacy sales in the United States, trailing drug chains, mail order (23.5%) and independent drug stores (16.8%) but ahead of supermarkets (9.7%).

However, discount store pharmacy sales grew at almost triple the rate of chain drug pharmacy sales--3.6%, compared with 1.3%. Pharmacy growth rates for other channels also lagged discounters: 2.5% for independent drug stores, 2.2% for mail order and 0.3% for supermarkets.

A major factor in the discount store channel's successful incursion into traditional drug store and food store categories, of course, is Walmart. In particular, the company's Walmart Neighborhood Market stores, which now number about 170 units, and Walmart Express stores, which began opening in test last year, are raising concerns for drug store and supermarket retailers.

Walmart Neighborhood Markets range in size from 25,000 square feet to 70,000 square feet and average about 42,000 square feet. One of the newest stores in this format opened in Riverview, Fla., in March and is fairly typical at just under 57,000 square feet.

"The Walmart Neighborhood Market is designed as a convenient family shopping center offering quick access to low-cost groceries, prescriptions and household products," comments a spokesman for the chain.

"The format provides local communities with another destination for a wide selection of products at the Walmart value price. It's perfect for the consumer on the go."

Walmart first began experimenting with the format 14 years ago, initially calling it simply Neighborhood Market. The company rebranded the concept last year, adding the Walmart name and logo and fine-tuning the merchandise mix.

Along with a drive-through pharmacy and a broad selection of health and beauty aids, the new prototype includes fresh produce, meat, dairy, frozen food, dry goods and staples, deli, bakery, stationery and paper goods, household supplies, and a one-hour photo center.

Walmart intentionally took a go-slow approach with its Neighborhood Market concept so that it could study the format's potential for cannibalization on the company's flagship Supercenter stores, Charles Holley, the company's executive vice president and chief financial officer, told analysts at the Bank of America Merrill Lynch Consumer and Retail Conference in March. However, it expects to move more quickly with its Walmart Express concept, a format that likely presents more of a competitive threat to chain drug stores than the larger Neighborhood Market format does.
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Title Annotation:State of the Industry: the Issues
Publication:Chain Drug Review
Date:Apr 23, 2012
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