TREAT AND EAT

KELLY GATES

Drug chains continue to introduce new private-label consumables to drive traffic, increase profits and inspire customer loyalty. Chains are even aligning their store brands with health and nutrition trends by offering good-for-you foods, such as flaxseed snack bites and reduced-carbohydrate fruit juices, in an attempt to increase the basket size of shoppers making quick trips to their stores.

The channel captured 68% of such trips last year, according to Chicago-based Information Resources Inc.

“After mass merchants and supermarkets started opening pharmacies years ago — nibbling at drug chains from both the right and the left — members of the channel decided to redefine themselves,” said Brian Sharoff, president of the New York-based Private Label Manufacturers Association (PLMA). “Offering private-label food items has been a big part of that. Consider CVS with its Gold Emblem program and Walgreens with its Deerfield Farms products.”

A recent visit to a Muskegon, Mich., Walgreens store by SN revealed dozens of shelf-stable food and beverage items bearing the retailer's premium Deerfield Farms private label, including pasta, baking soda, chocolate chip cookies, meat sticks, fruit punch, nuts and popcorn.

The retailer also merchandises a line of Walgreens-branded consumables, including ice cream sandwiches, popsicles, and both premium and standard varieties of ice cream in half-gallon and pint containers, in its frozen-food section.

Twenty-ounce bottles of several flavors of company-branded soda are merchandised in the retailer's refrigerated section, directly above their national-brand counterparts.

Walgreens' private-label snack selection is also substantial. The retailer offers 30 varieties of Walgreens-brand nuts and 12 kinds of nuts bearing the Deerfield Farms label. Flavors include steakhouse peanuts and cashews; red pistachios, naturally opened pistachios and pistachios in barbecue, lemon chili and jalapeno flavors; dry-roasted nuts; and several mixed-nut varieties. Deerfield Farms flaxseed granola bites, trail mixes, yogurt-covered raisins and an assortment of dried fruits are also merchandised to health-conscious consumers in the store.

Walgreens-brand gummy worms, sugar-free mints and candy cell phones, as well as chocolate-covered raisins and premium chocolate-covered cashews, can be found in the store's candy aisle.

Walgreens declined SN's request for comment about its best-selling private-label items. But sales data show that bottled water, salty snacks and candy are among the channel's best-selling company-brand products.

Dollar sales of bottled water merchandised in drug stores were up 9.5% to $362.6 million for the 52 weeks ending Dec. 3, 2006, according to IRI. Private-label bottled water sold through the channel represented $89.3 million of those sales, up 21.9% from the previous year.

Drug store cracker sales grew 9.5% overall to $74.7 million, while the channel's private-label cracker offering realized an 8.8% increase, totaling $3.9 million. Sales of non-chocolate candy grew 3.2%, while store-brand non-chocolate candy increased by 3.4%.

Drug chains are investing in their private-label lines accordingly.

“Drug retailers are always looking for categories that are high-volume and sustainable, and that's where they put their private-label brands,” said Frank Dell, president and chief executive officer, Dellmart & Co., Stamford, Conn. “It wouldn't be wise to go too deep into private label until they've figured out what the strongest categories are, which, in turn, will give their own brands the best chance.”

Meal solutions have not fared well in the channel.

Although, overall, frozen entrees sales in the drug channel were up 18.8%, drug stores experienced a 46.4% drop in sales of private-label frozen entrees.

“I'm not convinced that meals have the potential in drug stores that they do in supermarkets,” said Dell. “There isn't that big of a selection in drug stores to begin with, so I wouldn't put a private-label entree in the freezer, but I would merchandise private-label ice cream, which is more of a snack item that consumers are likely to pick up at a drug store.”

Curt Maki, vice president, program management at private-label cooperative Topco Associates, Skokie, Ill., thinks the channel has the potential to become a meal solutions destination.

“Chain drug pharmacies could be a good market for private-label meal solutions,” he said. “As shoppers stop by to pick up their prescription needs, they can easily pick up a frozen entree or shelf-stable dinner for that evening's meal. However, a drug chain would need to have adequate space and increase customer awareness that these products are available in their store.”

The idea may not be too far-fetched. After all, drug retailers have come a long way from a few standard private-label health and beauty care products to a significant selection of store-branded consumables.

“We used to just see the basics like aspirin, but there's been continued expansion into food as consumer acceptance has increased,” said Dell. “Price differential has been one of the biggest driving factors for consumers, even though the price differences aren't as great as in HBC.”

Ted Taft, managing director, Meridian Consulting, Wilton, Conn., concurred, pointing out a consistent price drop of one-third or more when comparing private-label drug store brands with national brands.

Most drug chains strategically shelf their lower-priced brands beside national-brand products, or they may choose to only offer their own private-label products in a specific category.

“This is a strategy that has been emerging over the last five years,” said Dell. “In some instances, the idea is to have a private-label product that shows greater value than the national brand by offering a similar product at a lower price, or sometimes even more product at a lower price. As for premium private-label products like CVS' Gold Emblem, if it really sells well, a chain could even drop the national product entirely and raise the price slightly on their own private-label item.”

Woonsocket, R.I.-based CVS employs this strategy by offering only its Gold Emblem brand of double-dipped peanuts, butterscotch candy and yogurt raisins. CVS' Gold Emblem Absolutely Divine cookies in chocolate chip macadamia, fudge crème, peanut butter and raspberry crème shortbread varieties are also without a national-brand counterpart.

In categories that warrant the competition, CVS carries both national brands and private-label items. For example, the retailer merchandises Cheez-It snack crackers in 10-ounce packages for $3.49, an 8-ounce box of Kashi TLC country cheddar-flavored all-natural snack crackers for $2.99 and its own Gold Emblem baked cheese snack crackers in a 7-ounce pack for $1.99. CVS declined SN's request for comment.

Rite Aid Corp., Camp Hill, Pa., has also added to its private-label offerings in the past few years. In its January e-scanner newsletter, PLMA reported that Mary Sammons, Rite Aid's president and chief executive officer, told Wall Street analysts that private-label penetration is “well ahead of last year” and the chain has realized good gains in store-brand consumables.

An SN visit to a Rite Aid store in Muskegon revealed half an aisle at the front of the store dedicated solely to private-label products. Rite Aid-branded nuts were shelved next to several flavors of Rite Aid's private-label Fizz-brand soda, cases of its Crystal Lake bottled water and a variety of the retailer's private-label soups.

Rite Aid-brand cashews, dry-roasted peanuts, a premium nut mix and other nut varieties, as well as private-label fruit-flavored juices, were merchandised near the center of the store. The retailer also carries a wide assortment of Rite Aid-brand bagged candies priced at two for $3, including hard and soft mints, circus peanuts, jelly beans and butterscotch discs.

No private-label products were merchandised in the store's frozen-food section, but Hot Pockets, Stouffer's lasagna and salisbury steak dinners, Tyson chicken nuggets and chicken sticks, Lean Cuisine microwavable meals and DiGiorno's pizzas in both family-size and mini microwavable varieties could be found there.

Convenience meal and snack items like Campbell's Soup at Hand; Ramen Noodle instant lunch bowls; snack bars from Nutri-Grain, Kellogg's and Nature Valley; and refrigerated 20-ounce bottles of soda were also abundant, but all were national brands.

While drug retailers keep their eyes open for high-volume food and beverage categories, sales growth doesn't always mean that products are flying off the shelves.

In the past five years, Rite Aid has twice been accused of selling expired national-brand baby formula and baby food to consumers. The most recent charges involve 42 of the chain's 159 New Jersey stores.

“It's always our policy not to have outdated products on our shelves,” Jodi Cook, spokeswoman for Rite Aid, told SN in November. “As soon as we reviewed the complaint, all of the stores that were named to have outdated products were told to make sure no such products remained on the shelf.”