Supermarkets are closing in on health and beauty specialists, such as Boots the Chemists and Superdrug, and could snatch up to 50 per cent of the total market within the next five years, according to a recently published report.
As the likes of Tesco, Sainsbury’s and Asda continue to move into non-food markets and squeeze margins, specialists in the health and beauty sector are upping the ante in a bid to combat the competition, seeking scale from consolidation and differentiation across brand, products and store interiors. This is according to the latest Verdict Research study, which analyses the condition and trends of the health and beauty sector.
Four out of the top six operators in the health and beauty sector are supermarkets: Tesco, Asda, Sainsbury’s and Morrisons. The top six retailers, which also includes Boots the Chemists and AS Watson, account for £3 out of every £4 spent in the £14.3bn health and beauty market, Verdict reveals.
Supermarkets have increased their health and beauty sales by £1.7bn over the past five years to £6.5bn, while sector specialists have added less than half this amount, £0.7bn to £5.7bn. Last year, expenditure on health and beauty through grocers was £800m more than expenditure through all the specialists.
Supermarkets have improved their health and beauty offers through price cuts, store expansion, promotions, developing own-branded products and adding more premium items to stock. Over the past five years, Tesco, Asda and Sainsbury’s have acquired between 25 and 54 per cent of new retail space.
Last year, Tesco became the first UK retailer to break the £2bn profit barrier and it is continuing its move into non-food stores. Asda, under the directorship of chief executive Andy Bond, is also piloting smaller grocery stores to find new avenues for growth.
However, the health and beauty specialists are embarking on strategies to beat back the supermarkets. AS Watson has managed to gain 9.2 per cent of the health and beauty market from a recent acquisition spat, buying up value operator Savers, Superdrug and The Perfume Shop.
Meanwhile, Superdrug announced last week that it is investing £14.6m in an aggressive growth strategy and aims to launch at least 35 stores in the UK this year, as well as rebrand one store a week with its new-look format.
The proposed £7bn merger of Boots the Chemists and Alliance UniChem will create one of Europe’s largest pharmacy and healthcare retail and wholesale businesses, with combined sales of £13bn. It could boost Boots the Chemists’ presence in the local community pharmacy business and strengthen its share of NHS income, according to the report.
The retailer is also likely to rationalise its store portfolio and reconfigure stores, concentrating on developing more profitable trading space through disposing of stores or relocating them to more appropriate locations. However, the store closures could free up traditional pharmacy licences, allowing supermarkets in turn to swamp the pharmacy sector.
‘There is a slight risk here and Boots could be exposing itself to more competition. The merger is not an overnight solution and doesn’t completely solve the problem of dealing with competition from supermarkets,’ says Maureen Hinton, senior retail analyst at Verdict Research.
The health and beauty sector is likely to be as turbulent as it is buoyant in 2006.
By Sarah Balmond
• Supermarkets set to take 50 per cent share of the total health and beauty market within next five years
• Superdrug to invest £14.6m in expansion plan
• Proposed £7bn Boots the Chemists and Alliance UniChem merger to create one of Europe’s largest pharmacy and healthcare retail and wholesale businesses. Creative Leap is Alliance UniChem’s retained brand consultancy