Actifed

ST. PETERSBURG, Fla. -- A pricing comparison of health and beauty care items at Wal-Mart and three major drug store retailers revealed Wal-Mart as the most inexpensive place to purchase health and beauty care products.

That Wal-Mart would emerge as the low-price leader of a pricing comparison, while rather predictable, nevertheless provided fresh insight into the competitive situation facing drug chain retailers as they continue to face the challenge of producing front-end same-store sales growth.

To assess the competitive pricing environment, Drug Store News selected a busy stretch of U.S. 19 in St. Petersburg, Fla., where a Wal-Mart supercenter that opened last fall competes in close proximity with a new CVS store, a more established free-standing Walgreens and strip center Eckerd locations.

For comparison purposes, the Chicago-based retail consulting firm of McMillan Doolittle developed a list of 61 health and beauty care items of which 39 items were found at each of the four retailers. Wal-Mart's aggregate p rice for the 39 item market basket was the lowest at $286.91. Walgreens' total was 15.8 percent higher than Wal-Mart's, although it was slightly below the CVS and Eckerd totals, both of who were within pennies of one another and approximately 20 percent more expensive than Wal-Mart.

Despite that gap, McMillan Doolittle senior partner Neil Stern said he was surprised Wal-Mart's pricing advantage wasn't larger. "I would have expected the difference to be wider," said Stern.

As long as Waigreens' pricing is within 15 percent of WalMart, Stern said customers are likely aware of the differential, but don't object to it because of the convenience benefits offered at drug stores. Although C VS and Eckerd were not as close to Wal-Mart as Waigreens, they were within 3.5 percent of their main drug chain competitor. Such a narrow amount is an inconsequential difference, according to Stern.

"Generally speaking, the rule in pricing is that zero to 5 percent is not really noticed by the customer. At 5 percent to 10 percent they notice, but don't switch," Stern said. "When the pricing difference starts to get up around the 20 percent range it really starts to jump out at consumers."

And therein lies one of the surprising findings of the pricing comparison. The most significant difference in pricing was found in health care products such as pain relievers and cough and cold medicines where Wal-Mart was nearly 27 percent cheaper than Walgreens.

"When you segment by category and find that Wal-Mart is the cheapest on health care products it is surprising because that is considered the strong suit of drug stores," Stern said. "The difference is pretty jarring."

Chain drug stores are incapable of matching Wal-Mart's pricing for prolonged periods of time because of their higher operating cost structures, but that doesn't mean strong efforts weren't made in stores to communicate value to customers. At Eckerd, hundreds of shelf talkers in the cosmetics area touted 10 percent off and enabled Eckerd to beat CVS on price in that segment-- but not Walgreens or Wal-Mart. At Walgreens, customers who clipped coupons from the Sunday circular could have saved $4 off the $39.99 shelf price of Crest Whitestrips, a price point that would have got them closer to the $35.84 price at Wal-Mart. A coupon was also needed to save $3 off Walgreens' $6.99 shelf price for Revlon's Color Stay Mascara. Another half dozen items at Walgreens were promoted with "hot buy" shelf talkers, even though the price was roughly in line with other drug chains.

Despite efforts to develop a list of dominant brands in common sizes across a range of categories, pricing comparisons in the health and beauty care categories are hampered by several factors. The abundance of SKUs from which drug chain retailers have to choose, particularly in the personal care area, and the limited amount of space available to display them requires careful editing of assortments. Consequently, only about two-thirds of the items on the Drug store News shopping list could be found at every store. In almost every instance where a particular item couldn't be found, it was a matter of a retailer stocking the brand, but in a different quantity than listed. For example, each retailer stocked Johnson & Johnson's line of babybath, lotion and shampoo, but in different quantities. Ironically, Wal-Mart offered a 9-ounce bottle of baby bath and baby lotion, while the drug stores offered the 15-ounce version. Only J&J's 22-ounce baby powder could be found at each store.

The stocking of different sizes of major brands may complicate market basket pricing comparisons, but that's not necessarily a bad thing for drug chains as it makes it harder for customers to compare prices, too.

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