Walgreens uses niche products as point of difference.(CHAIN DRUG REVIEW: NICHE PRODUCTS REPORT) - Chain Drug Review

Walgreens uses niche products as point of difference.(CHAIN DRUG REVIEW: NICHE PRODUCTS REPORT) - Chain Drug Review

DEERFIELD, Ill. -- In the world of chain drug stores sometimes it's the details that define and separate retailers from their competition. And often it's niche products--specific items that fulfill a unique customer need--that give a company a stronger individual identity.

Dave Van Howe, vice president of purchasing and new business development at Walgreen Co., understands the benefits of niche products.

'They can establish a point of differentiation from other retailers,' he says. 'They can create loyalty, since the product may not be available at all retailers.'

Industry statistics indicate that tens of thousands of new items are introduced into retail each year, half of which are right for drug stores. The challenge for vendors is to attract the category manager's attention to their product.

The vendors must do their homework in this regard. Clearly defining the unique customer solutions offered by their brand, being well informed on the retailer's needs, presenting strong marketing and business plans, and being prepared to potentially offer retailers exclusivity are essential.

From there, it is up to the category managers to decide which products work best on the shelves.

This is where a strong package design--one that clearly states the benefits of the product and sets itself apart from other items--can play a critical role in generating excitement.

Unique delivery systems, as well as homeopathic or natural ingredients, are other ways of attracting the consumer's attention to the product.

Niche products can foster enduring relationships that prove fruitful to both the retailer and vendor. Van Howe considers this 'a win-win situation.'

'They can create an outlet for the category manager to be more creative, since the vendor partners are more flexible with their programs,' he says. 'Any time a retailer and vendor can work together to co-create a marketing plan, there is a higher sense of ownership for both parties.'

There are, however, some downsides to niche products.

Van Howe notes that it is imperative that the vendor and category manager understand the market opportunity for the product and plan an exit strategy should the product fail to meet expectations.

There is also the potential risk of underfunded marketing programs that fail to create consumer demand and sell-through.

But on the whole, Van Howe says, niche products are beneficial to Walgreens. 'Margins are, in general, moderately to significantly higher than for larger brands,' he notes.

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And the recent economic downturn has not hurt their performance either, as top niche products have established strong loyalty among consumers.

Even though retailers and suppliers are more risk-averse than in the past, Van Howe believes that new items remain critical in driving category growth and generating excitement. That is something that companies like Walgreens will look to continue in the future.

Niche products also play a part in Walgreens' Customer-Centric Retailing program, which involves tailoring its SKU assortment more closely to the customers who shop it. The mixes at hundreds of stores will have been revamped by December.

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