The 21st-Century Drugstore - Home - Coresight Research€¦ ·  · 2017-08-02This report is the...

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1 August 2, 2017 Deborah Weinswig, Managing Director, FGRT [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2017 The Fung Group. All rights reserved. This is the first report in our 21st-Century Drugstore series. Here, we examine the opportunities for US drugstores to fight for share in the beauty and personal care market. 1) Americans will spend $89 billion on beauty and personal care products this year, some $3.9 billion more than they did last year. 2) We estimate $13.2 billion of the above total will flow through drugstores, making the sector the second-biggest channel for beauty and personal care products. 3) Drugstores account for almost 15% of US category sales, behind grocery retailers’ 22% share. 4) In the color cosmetics subcategory, drugstores enjoy a share of 18%. In the men’s grooming category, drugstores capture 16% of sales. The 21st-Century Drugstore: US Drugstores Fighting for Share in a Shifting Beauty Market Deborah Weinswig Managing Director, FGRT [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016

Transcript of The 21st-Century Drugstore - Home - Coresight Research€¦ ·  · 2017-08-02This report is the...

Page 1: The 21st-Century Drugstore - Home - Coresight Research€¦ ·  · 2017-08-02This report is the first in our 21st-Century Drugstore series. ... , Birchbox, Dollar ... Microsoft Word

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August2,2017

DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Thisisthefirstreportinour21st-CenturyDrugstoreseries.Here,weexaminetheopportunitiesforUSdrugstorestofightforshareinthebeautyandpersonalcaremarket.

1) Americanswillspend$89billiononbeautyandpersonalcareproductsthisyear,some$3.9billionmorethantheydidlastyear.

2) Weestimate$13.2billionoftheabovetotalwillflowthroughdrugstores,makingthesectorthesecond-biggestchannelforbeautyandpersonalcareproducts.

3) Drugstoresaccountforalmost15%ofUScategorysales,behindgroceryretailers’22%share.

4) Inthecolorcosmeticssubcategory,drugstoresenjoyashareof18%.Inthemen’sgroomingcategory,drugstorescapture16%ofsales.

The 21st-Century Drugstore:

US Drugstores Fighting for Share

in a Shifting Beauty Market

Deborah Weinswig

Managing Director,

FGRT

[email protected]

US: 917.655.6790

HK: 852.6119.1779

CN: 86.186.1420.3016

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DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Drugstores:FightingForShareInAShiftingBeautyMarketBeautyandpersonalcareisonecategorythatisseeingbuoyantperformancewhilemostotherretailcategoriesaregoingthroughadifficulttime.Inthisreport,weexaminehowdrugstoresarepositionedtobealeadingchannelinbeautyandpersonalcaresales.

Thisreportisthefirstinour21st-CenturyDrugstoreseries.Furtherreportswillcovertopicssuchascateringforseniorshoppersandhowpharmacyretailerscanserveconsumerdemandforwellnessproductsandservices.

Americanswillspend$89billiononbeautyandpersonalcareproductsthisyear,some$3.9billion(or4.6%)morethantheydidlastyear,accordingtoEuromonitorInternationaldata.And$13.2billionofthattotalwillflowthroughdrugstores,weestimate,makingthesectorthesecond-biggestchannelforbeautyandpersonalcareproductsaftergrocerystores.Wethinkthereareopportunitiesfordrugstorestobolstertheirshareinthecategory,despitealreadyenjoyinganimpressivesliceofsales.

Whilesalesofsomediscretionarycategories,suchasapparel,havefaltered,beautyandpersonalcarehasgonefromstrengthtostrength.Aswechartbelow,growthincategorysaleshavetendedtooutpacetotalretailsalesinrecentyears—andcertainbeautysubcategories,suchascolorcosmeticsandmalegroomingproducts,haveperformedmuchmorestrongly.

Figure1.US:BeautyandPersonalCareSalesvs.TotalRetailSales:YoY%Change

Source:EuromonitorInternational

3.9

4.6

6.5

5.3

2

3

4

5

6

7

8

2015 2016 2017E

AllRetailing AllBeautyandPersonalCare

ColorCosmeacs Men’sGrooming

Americanswillspend$87billiononbeautyandpersonalcareproductsthisyear.

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DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

DrugstoresCapturing15%ofSalesDrugstoresarealreadythesecond-most-popularchannelforbeautyandpersonalcarepurchasing,accountingforroughly15%ofcategorysales,behindgroceryretailers’22%.Inthefast-growingcolorcosmeticssubcategory,drugstoresenjoyanevenhighershare,of18%.Anddrugstorescapture16%ofsalesinthehigh-growthmen’sgroomingcategory.

Figure2.US:BeautyandPersonalCare—DistributionofSalesbyChannel,2016(%)

*AllonlinesalesareincludedunderInternetretailing;dataforotherchannelsareforofflinesalesonly.Source:EuromonitorInternational

Giventheseexistingstrengths,wherearetheopportunitiesfordrugstorestomaintainorgrowtheirshare?

CapitalizeonDepartmentStoreDifficultiesAslewofdisappointingtradingupdatesbearwitnesstothestrugglesthatdepartmentstoresareexperiencinginthefaceofheightenedcompetition.Thesector’sdifficultieshavebeenreflectedinnegativeunderlyinggrowthatahostofdepartmentstorenamesandhavespurredMacy’s,SearsandJCPenneytoimplementstoreclosureprograms—andclosureprogramswillonlydentthesector’sshareinbeauty.

Excitingshopperswithnewbrands,asWalgreensandotherdrugstorechainshavedone,isonewaycompetingretailerscanmuscleinonthegiftingandtreatingoccasionsonwhichdepartmentstoresthrive.

CaptureShareOnlineItisalmostsuperfluoustonotethate-commerceisthefastest-growingchannelinbeautysales.USconsumersspentsome$7.2billiononlineonbeautyandpersonalcareproductslastyear,accordingtoEuromonitor;thisequatedto8.5%oftotalcategoryspending.InthefaceofaggressivecompetitionfromInternet-onlyplayerssuchasAmazon,Birchbox,DollarShaveClubandIpsy,brick-and-mortarretailersdohaveonecompetitive

GroceryRetailers22.1

Drugstores14.8

BeautySpecialistRetailers14.5

MassMerchandisers

12.9

DepartmentStores9.9

InternetRetailing

8.5

AllOthers17.3

USconsumersspentsome$6.7billiononlineonbeautyandpersonalcareproductslastyear,thisequatedto8.1%oftotalcategoryspending.

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DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

advantage:theycanofferin-storepickup.Walgreenslaunchedapickupservicelatelastyear,whileCVSHealthrolledoutitsCVSExpresscollectionserviceacross2016.Moreover,thesemajordrugstoreplayersareleveragingmobileappstointegrateshopping,loyaltyprogramsandmobilepayments.

EncourageCross-CategoryPurchasingDrugstorescanalsoleveragetheshoppertraffictheyenjoyfromhealthcaretoboostbeautysales,andtheycanencouragecustomerslookingforeverydaytoiletriestoconsiderbuyingbeautyproductsfromthem,too.Loyaltyprogramshavearoletoplayhere.Inlate2016,WalgreenslaunchedanewBeautyEnthusiast“club”withinitsexistingBalanceRewardsloyaltyprogram.CVShasofferedabeautyloyaltyprogramsince2011.

Source:www.walgreens.com/balancerewards

UnderstandMillennialandGenZBeautyShoppersMillennials(thosebornbetween1980and2000)andGenZers(bornafter2000)willgrowinimportanceasbeautyconsumersinthecomingyears—andretailerswillneedtostayattunedtotheirdemands.FungGlobalRetail&Technologyhascoveredthesedemographicsindepth,includinginourreportsTheMillennialsSeries:MillennialsandBeautyandGenZandBeauty—theSocialMediaSymbiosis.Weidentifyanumberofcharacteristicsthattypifytheseshoppers,including:

• Millennialsarefrugal,inpartthroughnecessity.Perhapssurprisingly,thisagegroupspendslessonbeautyproductsthanolderagegroupsdo.Millennialsaremorelikelythanoldershopperstobothvisitdifferentstoresinordertogetthebestdealsandusecouponcodeswhenbuyingbeautyproducts.However,millennialsarenowaged17–37,whichmeanstheyareenteringtheirpeakearningyears–so,thisfrugalitymayeaseoff.Thisgenerationismorelikelythanoldergenerationstoresearchbeautyproductsonlineandtousesocialmediamoreactivelyaspartoftheshoppingexperience.Accordingly,brandsandretailersmustconsiderhowtheycanresonatewiththisdemographicthroughonlinechannelsandperhapsthroughinitiativessuchasonlinecouponing.

Inlate2016,WalgreenslaunchedanewBeautyEnthusiast“club”withinitsexistingBalanceRewardsloyaltyprogram.

http://www.fungglobalretailtech.com/research/millennials-series-millennials-beauty-pokemon-goinvasion-unstoppable/
http://www.fungglobalretailtech.com/research/deep-dive-gen-z-beauty-social-media-symbiosis/
http://www.fungglobalretailtech.com/research/deep-dive-gen-z-beauty-social-media-symbiosis/
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DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

• GenZconsumersaregrowingupalongsidethedevelopmentofsocialmedia.ThatmeansGenZersarethefirstgenerationtogrowupdocumentingtheirlivesonlineandseeingintothelivesofcelebritiesandself-madesocialmediastars.WethinkthismakesGenZthemostself-consciousgenerationever,andthepressuresregardingappearanceandbodyimagearepromptingkidsintheirteensandevenyoungertousecosmeticsandotherbeautyproducts.Thisgenerationisalsoleadingthechargetosocialmediaand,especially,onlinevideoforresearchonbeautyproducts.Brandsandretailerswillneedtoconsidertheironlineengagementstrategiesasthisgenerationmaturesintofullyfledgedadultconsumers.

Theoutlook:OpportunitiestoSeizeShareWithbeautyretailinastateofflux,therearepocketsofopportunityforthosedrugstoreretailersthatareabletoadapt.Retailerscancapitalizeondepartmentstores’woesandworktograbshareinthee-commercechannel.Atthesametime,drugstoresmustkeepaneyeonfuturecustomerdemandsinordertosustaingrowth:asmillennials’spendingpowergrowsandGenZersemergeasconsumers,retailersmustappreciatetheirdemandsinordertofullyservethemasbeautyshoppers.

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DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

DeborahWeinswig,CPAManagingDirectorFGRTNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comJohnMercerSeniorAnalyst

SwaroopraniMuralidharResearchAssistantHongKong:2ndFloor,HongKongSpinnersIndustrialBuildingPhase1&2800CheungShaWanRoad,KowloonHongKongTel:85223004406London:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NewYork:1359Broadway,18thFloorNewYork,NY10018Tel:6468397017


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