Hamburg-based drugstore Budnikowsky has opened its first store outside of its home region in its 106 year history. The store, in Berlin, has entered a fiercely competitive area but it manages to stand out with a focus on in-store experience, locally sourced products and a more inviting in-store environment than the more established players nearby. For more information see Beauty and Personal Care Retailing – Germany, January 2018.

What we’ve seen

  • On 30 August 2018 Budnikowsky opened its first store in Berlin. It also marks the first store outside of the Hamburg region in its 106 year history.

  • Sales through the German health & beauty specialists grew 3.3% in 2017 to €70.5 billion.

  • Budnikowsky is the fifth largest specialist in a market that has come under growing pressure from the discounters and online pureplays that appeal to shoppers’ looking for the lowest prices or convenience.

From Hamburg to Berlin

The Hamburg based drugstore, Budnikowsky, has opened its first store in Berlin under the branding of its nickname, Budni. The store is the 186th in its store estate, but as shown in the map below, it is the only store outside of the Hamburg area, marking a significant change in strategy for a drugstore that has been around for over 100 years.  

Figure 1: Budnikowsky store finder, September 2018
[graphic: image 1]
Source: www.budni.de/Mintel

The store, which covers some 6500 sq ft, is based in the Prenzlauer Berg area of the city, an area popular with young professionals and well-to-do families. Alongside the usual drugstore products, the store also features a café, vegan and organic food ranges, craft beer, coffee from local roaster and bread from an organic bakery.

Figure 2: Budni Berlin, external view, September 2018
[graphic: image 2]
Source: Mintel

The store features a more industrial and open feel than the typical drugstore, with low-level shelving allowing clear sight lines across the store and lighting used to draw the eye to the latest products. This encourages an atmosphere of discovery, an essential element in differentiating the in-store experience from online competition.

Figure 3: Budni Berlin, internal view, September 2018
[graphic: image 3]
Source: Mintel

Entering a crowded market

The area Budni has chosen for its first store outside of Hamburg is well suited, but it is also well catered for. There are no less than two dm-drogerie markt stores within 300 metres and two Rossman stores within 600 metres (see map below) meaning that competition for customers is going to be fierce.

Figure 4: Local competition around the Schönhauser Allee, September 2018
Base: Starred locations represent drugstores within 600 metres of the new Budni store (excluding pharmacies)
[graphic: image 4]
Source: Google maps/Mintel

To stand out from the others, the new Budni store is designed to have more character than those of its competitors, with a more industrial interior, eye-catching product displays and low shelving allowing for clearer lines of sight throughout the store.

The store has a more comfortable feel to it compared to some of the more sterile, transactional drugstores nearby (see internal image of dm-drogerie markt below). It feels more like a cross-between a store and a Berlin café/bar, fitting in with the local culture better than some of the incumbents.

Figure 5: Dm drogerie markt, Schönhauser Allee, September 2018
[graphic: image 5]
Source: Mintel

A sector enjoying steady growth

The structure of the German retail market is quite different from other major European countries in that the dominance of the discounters in the grocery segment means the supermarkets have been unable to become a major force in other categories.

As a result, the historical strength of the discounters has paved the way for a thriving drugstore sector, with these stores branching out into beauty products, health foods, and catering to food trends such as veganism, organic, and even localism.

The specialists have performed well, with data from the Statistiches Bundesamt indicating that sales through the health and beauty specialists grew 3.3% in 2017.

Figure 6: Health and Beauty specialists, sales (excl. VAT), 2013-18
[graphic: image 6]
Source: Statistisches Bundesamt/Mintel

But these are challenging times

But against this positive growth are growing challenges, partly from the growth of online players with 25% of German shoppers purchasing beauty or personal care products online in the last 12 months. Although only 2% of people said they only shopped online, it is clear that the internet is increasingly being utilised for repeat purchases, threatening the future performance of the stores.

Additionally, having historically shunned beauty and personal care products, thereby allowing the drugstore sector to grow, the discount grocers are increasingly expanding their ranges in this area and have even added some branded products. According to Mintel research 25% of personal care shoppers made a purchase from a discount grocery store in the past 12 months.

For Budnikowsky, the decision to move beyond the boundaries of the Hamburg region stems for a realisation that to remain competitive, it needs to increase volumes. In-keeping with this strategy, but separate from the store in Berlin, is a joint partnership with Edeka that will see more Budni stores opening across the country with the first due to open in the North Sea port city of Bremerhaven soon.

Figure 7: Leading health & beauty specialists, sales (excl. VAT), 2017
[graphic: image 7]
Source: Companies/Mintel

What it means

  • The new store in Berlin marks the start of a new phase in the history of Budnikowsky, with more stores outside of its home region of Hamburg likely to open soon, both as standalone stores and in partnership with Germany’s largest grocery retailer, Edeka.

  • The move should help Budnikowsky grow its sales but it will remain a relatively niche, regional player. However, it can use this regionalism to its advantage by promoting local produce and exporting its more ‘neighbourly’ and less corporate brand image to compete in other crowded markets such as Berlin.

  • The focus on localism, in-store experience and discovery of new products should hold appeal and will help guard against the more transactional nature of the online players. However, to compete even more effectively Budni could think about how it complements the in-store discovery experience with a home-delivery or subscription service that enables customers to easily keep stocked up between visits.

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