Prime Day takeaways, the end of Rite Aid, and Gen Z’s changing drinking habits

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0:56Hey everybody, welcome to the Modern Retail Podcast, our show that covers the ways the retail industry is changing and modernizing. I am senior reporter Gabby Barco. I'm here with co-host Melissa Daniels. How are you this week, Melissa? I'm doing well. It's been a busy one. I think everyone in our industry has had their eyes and ears on the ground this week looking at everything happening. Yes, for sure. I know we say that every week, but it truly was a busy one this week. Later on, we have Alex Tomlin, the SVP of Marketing for Bacardi North America, and Zach Palma, who is the Senior VP of Commercial Intelligence for Distributor Southern Glazers Wine and Spirits.

1:43They're joining Melissa and I to talk about the ways that Gen Z drinks and how it differs from previous generations. It was super fascinating. So please stick around to listen to that later. But first up, we are going to do our rundown and talk about what else? Amazon's fall prime event, deals day, whatever we're calling it. And then we're also going to talk about Rite Aid officially closing RIP and just kind of zooming out to talk about the state of drugstore chains in America. So yeah, let's get started right away. First up, Melissa, what did you buy this week because I think we both just went with the essentials.

2:26But yeah, it's the official start of holiday shopping, as we're being told. Yeah, well, it is the official start of holiday shopping. I actually started stocking up on some holiday gifts about two weeks ago. But yeah, you know, my eyes have been kind of glued to what Amazon as well as competitors like Walmart and Target are doing for these kind of big deal moments. I actually reactivated my Prime subscription this week. I'd been canceled for a long time, but I was seeing some deals and I was like, you know what? I think I'm going to give it a try again and see how it goes. And I got a Ring camera, which has been on my list for a long time.

3:09Yeah, I went from like not being an Amazon shopper to being like a Prime member who ordered a Ring camera this week. So it was kind of a big change in my consumer behavior. And honestly, it was a stocking up on the essentials for me. You know, we've been doing a project in our backyard. So I got some things that had been on my to-do list for that. Got some things for the house and the dogs. And got a new stepstool for my kid. Very home-oriented, very practical-oriented. But then on the competitor side, I had to take advantage of some of the Alta sales too, because as we've talked about on this podcast, it is not just Amazon who does a big October sales event.

3:50It's everybody in the e-commerce ecosystem. Yes, that's right. Also, side note, but maybe you'll get into the summer I turned pretty like everybody else and take advantage of your Prime membership. But yeah, that's really interesting, actually, because yeah, we can kind of get right into like there's the general vibes of what the deals day or prime deals day feels like in the fall. To me, it always feels like the official start of fall, you know, right up there with pumpkin spice latte, which is so ironic because this has only been around a few years. It's so interesting how quickly these things take shape.

4:29But yeah, at the same time, like yourself, I also kind of had my notifications on and was looking at some, you know, what Sephora and Ulta and Targans, these other retailers are doing. And of course, surprise, surprise, they all had their own versions of it. Some of them just literally called like primetime deals. Like they didn't get too creative with the names. So, yeah, vibes wise, I kind of felt like it was a little bit muted, maybe because, you know, there's just so much going on in the background in the news this week. But I was wondering what you thought about the actual savings, because actually the Washington Post put out this story this week that showed that there actually there wasn't price comp wise before and after those days wasn't actually that much savings.

5:14Later on, we'll talk about this a little bit more, but I think probably had a lot to do with price increases recently, especially among retailers and Amazon merchants alike. So in a way, there are these deep discounts, but if the starting price was higher, does it feel like you're getting that much of a deal? That's all debatable. Right, right. Yeah, I think the math this year really wasn't necessarily as compelling as what we've maybe seen in years past. I did see a few things where it's like, oh, you know, this is a$50 Bluetooth speaker instead of$150 Bluetooth speaker. but you know, it's in one color for one model.

5:56And it's stuff that maybe people already have. Like, I just think some of the deeper deals on things weren't necessarily in the latest and greatest category. And I don't really know if shoppers want that. I think because we have such a practical, value-driven shopper right now, the best deals are, hey, let me save a few bucks stocking up on dog food on paper towels. You know, do I need a new pair of winter boots? And can I get that now instead of waiting later when it's more expensive. I think it was just, you don't even need it to be a huge discount because people are shopping for these everyday items that they just need to save a little bit on, right?

6:33I think the customer mindset will respond to just enough of a deal. Yeah. And I think the early numbers seem to show that our reporter, Alison Smith, actually pointed this out in the marketplace briefing this week, which showed that early results from brands seemed to point that they did have some gains compared to last year's event. A lot of it was driven, like you said, by essentials and just taking advantage of these discounts. Numerator, they had this, you know, Prime Day tracker that showed the top five sales categories on Amazon during the sale. And it was, I'll rattle them off. It was apparel and shoes, households essentials, home goods, beauty cosmetics, and health and wellness towards the end.

7:21So yeah, and then we had one beauty brand told us that they had their best sales day on Amazon during the sales week and they beat their stretch goal, I guess. So, you know, that sounds promising, you know, right out the gate for their Q4. So yeah, it does seem like all in all, it's still worth it to participate for a lot of these companies. Oh yeah, absolutely. Another sort of complimentary data set I was looking at today was the monthly consumer impact report from the folks at Wunderkind who have a ton of great consumer data. And their October survey showed that 47 % of shoppers say that they're hunting discounts more often right now than they were in previous months and years past.

8:06And I think that's sort of where maybe if it is a stretch item, like, yeah, like I said, I did an order from Ulta recently too, because they had some good sales on items I was eyeing. and I don't usually buy a ton of makeup. I'm definitely like use it till it's at the very end of the palette. I'm not as much of a hoarder on makeup as I once was. But, you know, it was time for a refresh on a couple items. And so this was a good time because the deals were great. You know, I think this is something that we talk about a lot on this podcast and in our work. But, you know, the way that the economy is right now and the way that tariffs are impacting brands' bottom lines and the price increases that they may be having to do as a result.

8:50If you can't offer a good deal or you can't communicate your value to your customer, you're probably not going to fare well in this environment. For sure. And we are talking obviously about Amazon, but really this is a conversation that trickles down all over because as we mentioned earlier, this week has really pulled in a lot of retailers. The same thing's happening for the summer event. I feel like I sound like a broken record, but it's essentially like an internet-wide, like wall-to-wall sales. Because, you know, when Amazon is doing sales, what does everybody else do? You know, Target, Walmart, Best Buy, even like premium brands like Hoka and Patagonia, you know, which don't do a lot of discounting.

9:36They also had deals to coincide with it. So they know that there's a lot of eyeballs on the internet right now and on e-commerce during that 48-hour period, for some of them even longer. So they are going to take advantage of it. And the data shows that people are actually shopping earlier. I think you pulled up this PwC forecast, and I thought that was really interesting because we always hear that people are shopping for the holidays earlier, but to actually see in black and white is pretty interesting. Yeah, the PwC forecast shows that 15 % of total holiday spending will come before November.

10:14So that means October is this really critical time for brands to capture spending. And you're helping people check things off their list for the holidays. But you're also, you know, getting that Halloween bump. You're getting that Thanksgiving bump. You're getting all the sort of fall activities, harvest, homecoming, what have you. And there's a lot of spending associated with that. But I do think it's interesting because we know this has been a hard year for many brands and companies because of the impact they're facing from tariffs, as well as customers becoming more price conscious. And yet we still keep seeing spending is up, spending is up, spending is up.

10:49So somehow brands are finding a way to get through. Yeah, it's, I guess it's just a matter of volume versus unit. You know, it's, you know, again, going back to the price increases. So yeah, we will see, I think it'll start to shape up, you know, as the season goes by, but people do seem convinced that this is a big bellwether for the quarter and for the rest of the year. So yeah, that resilient consumer is still there. And I guess, you know, maybe they're not shopping for that big gift that they're gonna give, you know, in December. But like us, we are, you know, maybe, yeah, getting some things for Halloween, getting some decorations.

11:32I know last year I heard from some brands saying that they wanted to do like a pre-Thanksgiving event because they're like a homeware brand that they wanted people to buy cookware. maybe for that week. So, you know, they are finding ways, like you said. But I do think that it seems like every year this October prime sale is getting bigger and bigger. So I'm sure it's just going to continue on this trajectory. All right. Well, on that note, let's move on to Rite Aid, which is officially closing all of its stores. But yeah, let's take a look at just the state of the pharmacy chain. So it is closing all stores after 63 years in business and two bankruptcies that happened in the past year.

12:17So we'll get into that and kind of how we got here. Yeah, I mean, you know, Rite Aid had been around for 63 years. And it's frankly never easy to see something like that go under. You know, you think about just the sort of familiarity that stores provide to their communities. And I think it's one that people are going to notice, you know, the empty storefronts on this one. As far as a little bit more on how we got here, last year, Rite Aid became privately held. They got a new CEO. They had plans to operate fewer stores. But then things got a little rocky this year. In May, they filed for their second chapter 11 in eight months.

12:54At the time, they had about 1 ,275 locations. They had three distribution centers spread across 15 states. But they just weren't able to pull themselves out of bankruptcy enough to operate this big national fleet of stores. I mean, that's a massive footprint. That's a ton of inventory that you have to get. That's a ton of employees you have to train and retain, which is getting more and more challenging for companies in this industry. And I think vendors became more reluctant to ship. So they had some more empty shelves. That doesn't feel good for your customer. And it just kind of becomes this trickle down effect that then you can't get sales, then you can't get revenue.

13:33And at the same time, new capital and an acquisition kind of failed to materialize. I think sometimes brands are hoping for that Hail Mary, someone to come in and help them turn the ship around with a big infusion of capital. And yeah, Rite Aid wasn't on anyone's list. Yeah, which we'll get into a little bit later, but it kind of points to just how many challenges do these drugstore giants have. But before we get into that, if you're curious what is going to happen to some of these Rite Aid locations, I happen to live by one and I can see them boarding up and doing things inside. I'm really curious about what it's going to be, but the odds are it's probably going to be like a CVS or Walgreens because they are taking over a lot of these leases.

14:20They're also taking a lot of the prescription transfers. I think mine had a sign that said, please transfer your prescription to CVS. So yeah, let's get into like who is going to fill these spaces because this is almost 1 ,200, 1 ,300 locations. Yeah, yeah. It's a massive footprint. You know, I definitely think you're right that the remaining competitors are snapping up a lot of leases. The prescription transfer thing has been interesting. I mean, in my community, I think it's caused an overflow at some pharmacies and it's been a lot to manage, right? I mean, this was having a real impact on people's lives in a way that just not being able to go buy something maybe is not because this is medication we're talking about.

15:07So there's just sort of that critical pharmacy piece, prescription pharmacy piece that I think is, you know, still playing out. But I think we've also seen Dollar Tree take on some of Rite Aid's unexpired leases in some communities, which is interesting because we are hearing a lot about Dollar Tree doing well this year and growing because, you know, just people wanting to buy things for cheap. But yeah, I think To me, this kind of just ladders up to the overall future of pharmacy, future of personal care, future of health and medication, retail. It's just such an interesting moment. Yes, you have your Walgreens and CVS who are maybe going to come in and get some of that physical space back, but they have their own challenges too.

15:52Last year, Walgreens said they plan to close about 1 ,200 locations over three years just because the industry is changing so much. Yeah, we can kind of break it down. But one of the glaring issues I see is you have increased competition from a lot of other big chains that have more to offer. So you've got Walmart, Costco Pharmacy is growing pretty rapidly. Kroger, the biggest grocery chain in the country. What they do and what they offer is sort of this one-stop shop to be able to pick up your prescription while also grabbing groceries or anything else you have. Whereas I think a lot of people find that maybe the drugstore model or the format doesn't really fit with modern day shopping habits.

16:41And frankly, most of the time, the prices tend to be higher than at things like dollar stores or a Walmart. So they can't compete on price. And then as far as the convenience go, So it kind of, it's like the inverse where it's like, well, why wouldn't I just go get, you know, my prescription at a Costco or a Target instead? And so it's, yeah, it's creating this weird effect where, you know, they're just not getting as much foot traffic. I think something like COVID and the vaccines gave them a temporary boost, but that was obviously not sustainable. And then not to mention, you've got the rise of online pharmacies and mail-in prescription services like Amazon and Capsule and all of these digital services that are making it easy.

17:28You know, if you're like me and you don't like standing in those lines, you can just do that, which also obviously service some desert pharmacies, which we'll get to next. Yeah, you know, I would also add FSA store in that category as something where people are getting those over-the-counter type of pharmacy needs in an easy way. You know, there's the Amazon and online marketplace of it all. But I think that very specific with health, there's specific services that are really cropping up to serve health needs from an e-commerce perspective. and yeah, that's going to be something that Walgreens and CVS are going to continue to have to grapple with.

18:11Yeah, I mentioned pharmacy deserts. This is one of those terms that's cute and funky, but I also think a bit pejorative to the desert as a desert resident. There's plenty of life in the desert, listen. Well, I actually wanted to hear your thoughts as somebody who lives in a more of a rural area and then I'm in a very densely populated urban area. I wanted to hear about the so-called pharmacy deserts because you mentioned that you are seeing that sort of bottleneck of people trying to figure out where to get their prescriptions next. But the decline of independent pharmacies, I think, should not be underestimated either because you've got these local mom and pop shops that have been filling prescriptions for decades that are now also seeing this trickle down of shutdowns.

19:03I think there's reports that thousands of them have shut down this decade, and that's also impacting these areas that are already underserviced. Yeah, you're absolutely right. As far as the data there, I believe it was some University of Pittsburgh data that found around 7 ,000 pharmacies have closed since 2019. And if you think that's not going to have effect on the lines and the capacity at the existing Walgreens and CVS up there. Yeah, it's obviously going to and it's hard for people. Yeah. I mean, I had to wait like two hours to get a prescription the other day that I thought it had been filled, but then it wasn't.

19:39And so then I, you know, fortunately, I could go and come back. Yeah. But it's like, man, there was, you know, seven other people in line dealing with similar situations. So it's a rough time for pharmacy. It's an area I'm hoping to do more reporting on. But yeah, the Rite Aid shutdown is the end of an era. But, you know, I think there's this sort of bigger problem for the pharmacy and drugstore world that that's going to persist. For sure. Okay, well, let's get into this week's featured segment where we are going to do a deep dive into the trends of the alcohol industry right now. So there's been a lot of changes.

20:17We hear a lot about how people are drinking differently, drinking less. Gen Z doesn't drink. I think that's the big headline we usually see because whether they're price conscious or drinks are now$20 a drink in some areas. I saw a post about that recently. It's like, how do you expect me to go out at these prices? Yeah. Which I relate to. So to unpack these trends, we are going to be joined by Alex Tomlin from Bacardi and Zach Palma from Southern Glazers Wine and Spirits. And they really, I mean, they acknowledge that things are changing. And we talked a lot about what they're doing and how they're monitoring, you know, sort of the upcoming generation's drinking habits.

21:01Fun preview. We talk a lot about spritzes. So please stay tuned for that. But yeah, we had a fun one this one. I think, you know, it's not all doom and gloom for the alcohol industry, it seems. No, certainly not. I enjoyed this conversation because I think it's one of those topics that shows how just because things aren't staying the same doesn't mean that the industry is over. Some of the headlines of the industry's death are greatly exaggerated. Yeah. So stick around for that after the break.

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22:47Like so many sectors we cover on this podcast, the U.S. alcohol industry is in a state of flux. Gen Z is exhibiting very different drinking habits than prior generations. They're more health-conscious, value-driven, and they still want to look great on social media. So to unpack the world of alcohol and its many changes, we have Alex Tomlin, SVP of Marketing for Bacardi North America, and Zach Palma, Senior Vice President of Commercial Intelligence from distributors Southern Glazers Wine and Spirits. They have both had a front row seat to the ups and downs of this sector and how it's evolved. So today we'll be talking about everything from the rise of the spritz to why happy hour is making a big comeback and what quote unquote healthier, better for you drinking really looks like in practice.

23:36This will be a lively conversation. So get your Hugo spritz ready. Zach, Alex, welcome to the Modern Retail Podcast. Thanks so much, Melissa. Looking forward to it. Thanks, Melissa. Great to be here. All right. Well, let's get started by having a lay of the land on Gen Z drinking habits. Really, like, what's changed from your perspectives? Alex, let's start with you. What are the biggest differences you're seeing in Gen Z customers versus older generations when it comes to drinking? Yeah, I think the real story isn't so much about drinking less. It's really about how this generation is drinking differently.

24:15So if you kind of step back and look at the bigger picture, this is the most diverse generation in history. And as a result, they think and drink differently to the previous generational cohorts. So there are three big things that we're seeing. They're more mindful. So their drinking is more about choice, occasion and intentionality. It's not abstinence. What we see is that inclusivity is the real driver. They expect options that fit their lifestyle without compromise. Secondly, we're seeing quality experiences winning over quantity. Premiumization for this generation isn't about status. It's really about values.

25:03It's about relevance to the occasion and unique experiences. And then the third thing which links to that in terms of experiences is for this generation, experiences are, you know, the real currency. What we see in a world where, you know, there's a sea of white ad noise and media fragmentation, we need to meet Gen Z where they are. And so we lean heavily into culture, verticals like sport, music and entertainment, or even in the on-premise, a brunch to create a shared moment and experience amongst friends. So although the bigger picture is that this consumer group's spending is under pressure, like all cohorts, what we're seeing is they'll put a premium value on experiences, and we're really leaning into that.

25:57Oh, we'll get back to brunch later. Yeah, that's going to be something we talk more about today. Zach, I want to kind of hear a little bit more from your perspective on this. You know, When we were chatting before we were recording, you kind of said that we're back where we are in 2019, despite some of these headlines saying that Gen Z is killing alcohol. From an intelligence perspective, what are you seeing? Yeah, so I think Alex really hit the button on the head with the younger consumer. They haven't walked away from drinking entirely, right? They really are focused on that experiential occasion and drinking better.

26:34And so, like you mentioned, when we spoke before the podcast, we talked a little bit about how our business at Southern Glazers, from a volume standpoint, it's basically exactly where it was at when we finished 2019. But I think what's really interesting is from a value standpoint or a dollar standpoint, we're actually 13 % or 14 % ahead of where we were in 2019, right? So, I mean, if you read the headlines every morning, you'd think the industry's completely falling apart, that we're at half of maybe where we were four or five years ago, and that just isn't the case. And so I think when you look at that data and you think through the fact that revenues continue to grow 2 % or 3 % a year for the last four or five years, even if volume's been flat, that's really come from things like tequila, where you're seeing continued premiumization within that category.

27:23When you look at the whiskeys, right, consumers are continuing to trade up there. And so while the frequency may be cutting back a little bit, not just in Gen Z, but, you know, across all generations, you know, as the financial pressures have increased on them, they've made that conscious decision to really, you know, drink better. And I think we see that online kind of day in and day out in, you know, in our business. Yeah. Well, let's get back to brunch. So a big part of this is where people are drinking, right? So we're seeing, I feel like, you know, obviously during COVID, we had this explosion of at home.

27:58Everyone became a mixologist. Everyone built at a home bar. But now we kind of swung back to more restaurants, on-premise experiences, whatnot. There's also this little bit of a shift to like earlier or daytime drinking. Not that that's, you know, gone away at all before this. But I myself am going to like a daytime birthday party this weekend. And I guess that's like a 30s thing now, as opposed to a nighttime because people want to wake up and they want to the birthday girl wants to work out the next day. And so, yeah, I think with that, it's a perfect segue to kind of talk about why you feel like these shifts are also sort of informing the way people order, maybe when they are at that bar or restaurant or a concert or a tennis match.