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The Competitive Threats

The non-food sector

The most obvious and perhaps serious threat to Boots is posed by the march of the supermarket retailers into the non-food shopping sector.

A report on 2008 Verdict research, published on www.utalkmarketing.com indicated that in the last few years far more shoppers have started to use supermarkets to buy non-food items:

The figures demonstrate the extent to which the supermarkets have tightened their grip on the £177bn UK non-food market of which they now take a share of £19.7bn or 11%.

The great danger to Boots is that just under half of consumers use the grocers for personal care products. Its main market rival is already feeling the effects. In personal care, all of the big four grocers, (Tesco, Sainsbury's, Asda and Morrisons), have larger market shares than Superdrug.

A high street Superdrug store © Biz/ed images

So why do the supermarket retailers seem able to grab market share from the specialists in the non-food sector? The grocers offer:

• Convenience with very competitive prices
• Non-food products for people who happen to be there anyway for food shopping
• But what most supermarkets are doing is much more advanced
• Many actively understand what their consumers want and tailor their offers accordingly

The result has been a better deal for the consumer. The supermarkets have increased competition which has helped keep prices down.

Two key things will help drive the growth of the grocers into non-food:

1. The premiumisation of their offer, which will see supermarkets selling a greater range of higher priced merchandise. This will help them attract a wider spread of consumers and allow them to take more business from specialist players.
2. The growth of the internet as a sales channel for non-food items: grocers are actively involved in this space and, because of their comprehensive delivery networks, could leverage an advantage over smaller specialist players who can find it difficult to accommodate shoppers' delivery requirements.

Supermarkets offer health and beauty products in convenient locations © Biz/ed images

Utalkmarketing quote Verdict's Director of Consulting, saying: "Today's supermarkets are no longer simple grocers. They are cathedrals of consumption, the department stores of the modern age. We expect them to build on this position over the next few years and that will certainly make life difficult for other specialist players."

The pharmacy sector

There has been state support for the wider proliferation of pharmacies in the UK. The government has given encouragement to doctor services being set up out of hours. Some of the larger supermarkets now offer in-store pharmacies.

In February 2008, Sainsbury's announced that they were piloting a new scheme to move into the pharmacy sector. Two of its Greater Manchester stores were to offer a family doctor operating out-of-hours clinics, between 6.30 and 9.00 pm on Monday and Thursday and 11.00 am to 3.00 pm on Saturdays.

The supermarkets are thought to be offering a new method of organising doctors' visits. The Sainsbury's plan was for patients to book appointments through their normal surgery, but to attend the clinic in the supermarket. Asda has also been considering something similar.

According to an article in Brand Republic in March 2008, pharmacy is a fundamentally important part of the brand; representing one quarter of sales, it is the foundation of Boots' authority and credibility.

'Boots stores are mostly located on high streets but its presence in edge of town retail parks is rapidly increasing. Over the last three years, 48 such stores have opened, as well as a flagship London store on Oxford Street. Overseas, Boots is working closely with other major retailers in their local markets, to open Boots branded "implants" within their stores. There are currently 758 implants in 13 countries. Boots also has 96 standalone stores in Thailand.'

According to analysts, Boots' pharmacy-led health & beauty retailing business operates in nine countries. It comprises more than 3,200 retail outlets, of which over 2,900 have a pharmacy. Analysts suggest that although Boots is opening stores, it is finding it hard to grow market share. Some fear that it will also start losing prescription revenue to the supermarkets.

A pharmacy in a large supermarket © Biz/ed images

So let's look at what Alliance Boots is doing to cope with and then counter these threats? Read on in the section on Countering the Threats to find out more.

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