The “King of Retail,” Stronger than Convenience Stores: Fierce Competition in the Drugstore Industry
Who will stop the "Aeon Alliance" of Wellsia and Tsuruha? Cosmos Pharmaceutical, the third largest drugstore chain, is in hot pursuit, and what will happen to Matsukiyo with the resurgence of inbound sales?
A daikon radish costs 150 yen a piece, and a pack of pork belly is 198 yen …….
When this reporter visited a suburban Kanto store of Wellesia, the industry’s No. 1 drugstore chain in terms of sales, on a Saturday afternoon, the fresh food section dominated the sales floor. Shoppers were examining the vegetables and meats on display and picking up items in their shopping baskets. Some shoppers filled their baskets with specials on kitchen paper and detergent, and fewer seemed to be shopping for medicines. Wellsia is now transforming itself into a “supermarket where you can also buy medicines.
According to the Japan Chain Drug Stores Association, the drugstore market is worth approximately 8.7 trillion yen (in 2010). It is growing at a rate that threatens the convenience store industry. The next-generation “king of retailers” is rapidly expanding its influence, driven by special demand for sanitary products such as masks and disinfectants due to inbound travel and the COVID-19 crisis.
There is still room for growth in the drugstore industry. In addition to the expected influx of customers from food supermarkets, if we can capture customers from small-scale dispensing pharmacies located in front of hospitals, known as “gate-front pharmacies,” we will be able to further expand our market share. There is no doubt that the market size will surpass 10 trillion yen,” said distribution journalist Tadako Ishibashi.
The strength of drugstores is their overwhelming discounting power. In particular, confectioneries and beverages are 20-30% cheaper than those sold in general supermarkets. How are they able to generate profits with this pricing? Distribution journalist Hiroaki Watanabe explains.
One reason is that the gross profit margin on OTC drugs, which can be purchased without a prescription, exceeds 50%. The current mainstream business model of drugstore chains is to attract customers with special sales of fresh food and daily necessities, and then have them buy pharmaceuticals with high gross profit margins. In the suburbs, there is high demand for “one-stop shopping” type stores where all shopping can be done in one store. Each chain is designing its stores in a way to adjust to this demand.
A former drugstore employee with a pharmacist license continues.
The penetration of private brand (PB) drugs has also contributed to the rapid expansion of the chain stores. The fact that ‘you can buy medicines at low prices’ is an attraction that has never existed before. From the drugstore’s point of view, it is a profitable product with high profit margins.
