Over the past 20 years, prescription retailing has become more and more concentrated in the hands of the major drugstore chains led by CVS, Rite Aid and Walgreens.
Although some supermarket chains have committed themselves to in-store pharmacy—most notably Giant Eagle, H-E-B, Kroger, Publix and Wegmans—many have closed their pharmacies and sold their files to the drug chains. Lunds & Byerlys in the Minneapolis-St. Paul are is just one recent example.
Mass merchandisers have also reduced their presence in pharmacy retailing. Target sold its pharmacies to CVS, and Shopko recently went out of the business (although it continues to operate as Vision Centers). However, Costco, Meijer, Sam’s Club and Walmart also remain important in pharmacy retail.
The reasons for exiting the pharmacy business, both by supermarkets and mass merchandisers, have been led by declining reimbursements, rising costs and squeezed margins.
However, there are signs of a turning point occurring for supermarket pharmacy—at least for those chains who have made a major commitment to pharmacy retailing—which include the following three-fold reasons:
First, supermarkets offer the best pharmacy service, according to J.D. Power's latest Customer Satisfaction survey, which found that 6 of the top 10 rated pharmacy retailers are supermarket chains (see chart below).
Second, supermarkets are well-placed to integrate pharmacy with a health and wellness image reinforced by natural-organic foods and beverages.
Third, the three major drug chains do not offer the best service, do not do well with their front-end merchandise sales and have overexpanded in recent years. As pharmacy profits erode further, store closures by the major drug chains are inevitable, providing expansion opportunities for both dollar and grocery retailers.
In our opinion relative to pharmacy, the supermarket industry is now faced with three potential opportunities:
- To continue to outcompete the drug chains on service and front-end merchandising and pricing.
- To cooperate with the drug chains, providing them with much-needed expertise in food and grocery merchandising, operations and pricing, an example of which is the Kroger/Walgreens arrangement now being trialed.
- To acquire closed chain drug stores for small format and/or limited assortment grocery stores, as exemplified by Aldi. The typical freestanding, highly visible 15,000-square-foot CVS or Walgreens, when closed and available, may be a size compromise worth making, depending on the location and competitive opportunities.
Customer Satisfaction Levels With Pharmacies
- Good Neighbor Pharmacy
- Health Mart
- Sam's Club
- Rite Aid
David Rogers is president of DSR Marketing Systems Inc. He can be reached at firstname.lastname@example.org.