Carl Marks Advisors has decades of experience helping businesses navigate complex challenges across the healthcare, retail, consumer products, and food and grocery industries. Our deep cross-sector expertise—spanning operations, strategy, and corporate restructuring—enables us to help the drugstore chains that operate at the intersection of industries.
Today, drugstores are under pressure from all sides. The “front of the house,” which includes personal care, beauty products, snacks, and beverages, is vulnerable to online retail giants. Meanwhile, the “back of the house,” where pharmacies operate, faces growing federal and drug regulations.
As consumer preferences shift and industry headwinds intensify, drugstore chains must rethink their business models now or risk their competitive edge in convenience. Here are four challenges Carl Marks Advisors is tracking, and how retailers can adapt.
Competition from Online Retailers:
Big-box retailers and grocers like Walmart, Target, and Whole Foods have significantly expanded their prescription-delivery and food-delivery services, claiming a larger market share from drugstore chains. The promise of next-day delivery has superseded the convenience of neighborhood drugstores, leaving chains struggling to maintain their relevance.
To meet consumers where they are, drugstore chains should explore integrated, intuitive omni-channel strategies to discourage consumers from turning to online retailers.
Product Selection & Customer Service:
In-store shopping at drug stores has become increasingly inconvenient. The rise of products locked behind plastic cases, understaffed locations, and poor product selections has left consumers frustrated, especially when they are searching for everyday essentials.
Moving forward, drugstore chains should invest in customer service, which is a crucial differentiator in the retail space, especially when competing against larger, big-box retailers who may lack personal touch.
Inefficient Store Layouts:
Historically, drugstore chains sustained larger storefronts with lower labor costs and traditional staffing models. Today, rising overhead expenses, including rent, utilities, and staffing, make it increasingly difficult to justify large storefronts with repetitive merchandise.
To increase revenue and adapt to changing consumer behavior, drugstores must reassess their store portfolios over the next five years. This will require financial restructuring, renegotiated leases, and the closure of unprofitable stores to offset the rising cost of commercial real estate.
Price Sensitivity:
Consumers are increasingly likely to purchase cheap merchandise like toilet paper in bulk online – once a cornerstone of drugstore chains’ business. However, private-label food and healthcare products continue to attract budget-conscious consumers who have been impacted by inflation over the last three years.
Adept drugstore chains will continue to invest in these value-based products to lure foot traffic into their stores.
Drugstore chains across the U.S. are facing new realities. With shifting consumer behavior and big-box retailers expanding their share of the market, standing still isn’t an option. To stay competitive, drugstores must optimize their store footprints, prioritize value-based products, and reinforce their position at the intersection of the retail, food, and healthcare industries.
