ANALYSIS: Boots plots health and beauty survival plan - As supermarkets threaten to wage a price war in the cosmetics market and Wal-Mart enters the fray, how will Boots survive? Alexandra Jardine reports

When Boots introduces an own-label cosmetics range called Botanics

next month, it will be more than just a run-of-the-mill launch. For

Boots, the success of its own-label ’power brands’ is central to its

survival plan.

For almost a century, Boots has enjoyed one of the most privileged

positions in retail. The undisputed market leader in pharmacy, cosmetics

and toiletries, enjoying exclusive agreements with major brands and high

margins on sales, it is also one of the country’s most trusted brands. A

recent survey by Right of Admission Reserved (ROAR) found that Boots had

more trust than the Royal Family among consumers aged between 15 and

24.

Despite this, Boots’ share price has plunged since the June announcement

of Wal-Mart’s entry into the UK. Wal-Mart has the UK’s cosmetics and

toiletries market high on its agenda. In the US, its health and beauty

sales account for pounds 8bn, 10% of its turnover, and its imminent

arrival through Asda has sparked a health and beauty price war, with

supermarkets slashing the cost of fragrances, sun creams and toiletries.

Tesco is the latest to attack the sector, launching a pounds 30m

discount campaign last week.

According to a report from Verdict Research, grocers and supermarkets

together now have a larger share of the pounds 11bn health and beauty

market than the specialists, such as Boots and Superdrug.

Concerns about Boots’ future have even prompted rumours of a merger or

takeover, but the company is confident it can survive. Steve Russell,

its new chief executive, admits that ’sitting in the same territory as a

powerhouse (Wal-Mart) is a dangerous place’, but asserts that Boots

could carve out its own niche with a ’differentiation-led strategy’.

Martin Bryant, director of marketing businesses at Boots, explains the

new positioning further: ’We see ourselves as moving from a

products-based business to becoming an expert in health and beauty,

working with great brand companies to be the first to build new

products.’

Boots’ own-brands have always been strong - its No7 make-up is now the

UK’s best selling cosmetics brand with annual sales of more than pounds

90m - and the new ’power brands’, of which it plans to launch six over

the next year, including Botanics, are designed to be ’unique and

exclusive’.

But wooing the big consumer brands is important. Boots believes leading

brands want to work with a retailer that can enhance their properties

rather than use them as part of a price war. It is currently working to

strengthen its hold on clients such as Johnson & Johnson, L’Oreal,

Procter & Gamble and Smith-KlineBeecham.

The company is also endorsing branded products in its advertising as

’health and beauty award winners’. The brands were identified from

Advantage Card data as being the most popular.

Meanwhile, Boots hopes to capitalise on its reputation for expertise by

giving customers in-store consultations with experienced beauticians and

hairdressers. ’We see our’s as a very different relationship with the

customer to that of a supermarket, which is essentially a needs-based

retailer,’ says Bryant.

To further develop its public presence, Boots has revamped its members’

magazine, Health and Beauty, as a women’s glossy to rival titles such as

Zest, and has launched an internet portal, handbag.com, tailored

exclusively to women. It is also planning a further series of online

moves, including a site for men, and a health and beauty site.

Will added value help keep the company afloat in the event of a price

war? Boots has been quick to dismiss price cuts as ’destructive’, taking

the view that promotional prices are more important than Wal-Mart’s

’everyday low prices’.

But retail analysts believe the company will be forced to lower its

prices, even if it does not wage an all-out price war. ’Because of a

lack of competition in the late-80s and early-90s, if Boots wanted to

grow its margins, all it needed to do was keep putting its prices up.

That has changed,’ says Robert Clarke, retail marketing consultant for

FT Management Reports.

Richard Hyman, retail analyst at Verdict Research, believes Wal-Mart

will not be ’life-threatening’ to Boots, but that ’it will lose some

market share’.

’Boots has a strong brand, a good market share and good ethical

credentials,’ he says. ’If it has trouble defending its business from

Wal-Mart, God help other retailers.’

Market share (%)

Retailer        1994     1998

Boots           24.5     25.8

Tesco            8.6     11.5

Superdrug        8.9      8.4

Sainsbury’s      7.9      7.8

Asda             4.4      5.8

Safeway          4.4      4.6

Source: Verdict on Health and Beauty retailers 1999

Figures relate to share of toiletries, cosmetics and OTC medicines

This article was first published on Marketing