Whether toilet paper, shower gel, stationery or tofu: people can find many everyday items in drugstores. A look at the industry on the occasion of the opening of the first dm branch 50 years ago.
Chancellor Olaf Scholz attended the birthday party in person. In front of thousands of dm employees, the SPD politician explained at the Karlsruhe Trade Fair Center in July that retail in particular gives society security – and referred to the corona pandemic: “Your existence, your daily work, your reliability has our cities and our society held together during these difficult times and continues to do so every day.”
Maybe a bit much pathos when it’s about wet toilet paper, shaving cream and lipstick. But Scholz is right that people can find many everyday necessities in drugstores. That was probably already the case on August 28, 1973, when the first dm branch opened in Karlsruhe. That’s how it is today. With the Schlecker bankruptcy, the selection has basically shrunk to a quartet: dm as the youngest chain, Rossmann, Müller and – especially in the north of the republic – Budni.
There are overlaps with the classic food retail trade – Aldi, Lidl, Rewe, Edeka and Co. also have drugstore departments worth mentioning, says trade expert Prof. Carsten Kortum from the Baden-Württemberg Cooperative State University in Heilbronn. “On the other hand, the drugstore chains have, for example, included products from the food sector in their range.” However, it is not about fresh goods. At dm, for example, the focus is on high-quality organic brands.
Paper and pens have also become a strong product group since the traditional stationery trade no longer existed in this form. There may also be photo and baby products as well as pet food.
Müller, on the other hand, plays a major role in toys and competes with Douglas in perfumes. Marketing professor Martin Fassnacht from WHU – Otto Beisheim School of Management even says: “Müller is the new department store, the successor to Kaufhof.” Both experts emphasize that the drugstore chains regularly do well in product tests, especially with their own brands and quality.
In comparison, dm relies on permanently low prices
In the competition, dm stands out a bit because the group relies on permanently low prices instead of bargains and discount campaigns. “It’s a very strong element of trust,” says Fassnacht. And dm boss Christoph Werner, who took over the management of the company from his father Götz (1944-2022), does not want to shake that, even despite inflation: “Especially in times of uncertainty, that helps.”
It is important to him not to engage in “seduction marketing”, he says. When stressed customers rush through narrow aisles and take the best-placed items with them. Instead, they should be able to decide what and when they want to shop. Werner calls it “the ability to be free”. His father had campaigned for the introduction of an unconditional basic income in the public debate for decades.
In general, dm attaches great importance to values and also gives the more than 71,000 employees a lot of freedom – for example when trainees are allowed to try things out on social networks without the management having to approve everything. dm recently made headlines because the approximately 3,300 colleagues at the headquarters are allowed to work with dmGPT as the company’s own AI chatbot – similar to the original ChatGPT. In general, Werner has the young generation in mind, not least in his speech to Olaf Scholz referred to the last generation and their adhesive actions.
“People are driven by real concern,” he explains afterwards. It is also the task of dm to offer solutions as to how the earth remains “suitable for grandchildren”. Only recently, however, did the group suffer a defeat in court in a legal dispute over imprints such as “climate neutral” and “environmentally neutral” on products.
Inflation does not hurt the industry
From the point of view of the economics professors Kortum and Fassnacht, the drugstore chains are all doing quite well in the competition. “Despite inflation and tight budgets, there is no slump in sales,” says Kortum. Here they benefit from the fact that people are not particularly keen on experimenting when it comes to coloring their hair and tend not to deviate from their regular brand to save money. Fassnacht mentions another aspect: “We are much more price-sensitive when it comes to food.”
According to Kortum, drugstores are also regaining shares in discounters. Especially during Corona there was a small dent because less cosmetics were needed. As the market research institute GFK recently wrote in the “Consumer Index”, drugstores increased their sales by 12 percent in the first half of 2023 compared to the same period last year. They are therefore still benefiting – albeit to a lesser extent – from a certain amount of pent-up demand from the peak of the pandemic. The increase was only greater for discounters with additional sales of 13.7 percent.
Online trade still expandable
According to Fassnacht, however, online trading can be expanded: “There’s still a lot to do.” The e-commerce share in drugstores is around three percent. “Something more has to happen.” Typical drugstore items in particular are well packaged and can easily be bought online. However, switching to online is very expensive, especially if you want to link it well with stationary retail. “First of all, money is lost.” In addition, you need IT specialists, who are not exactly in abundance.
CEO Werner does not reveal in detail how online sales are developing at dm. Just this much: Digital and analog trade went well. In total, dm generated sales of around 13.6 billion euros in the 2021/22 financial year (as of September 30, 2022); an increase of 10.7 percent within one year. There are around 4000 dm stores in Europe, a good half of them in Germany.
“The issue of online trading will become more important,” admits Werner. “The cards haven’t been laid yet.” For the foreseeable future, he wants to focus on different sales channels – including combinations, for example, if you pre-order goods via an app on your smartphone and then pick them up in a branch of your choice (“Click and Collect”).
In this way, customers should be accommodated in their respective life situations. A mother has a different shopping behavior than single people without children, Werner gives an example. And speaks of “shopping as it fits into life”.