PHARMACY

Small formats promise easy access

BY Mike Troy

Walmart’s first small-format Express stores have only been open about six months, but strong initial consumer acceptance, coupled with increasingly flexible real estate, points to the near certainty of an eventual rollout.


The stores range between 10,000 and 15,000 sq. ft., offer about 13,000 products and were developed so Walmart could tap potential growth opportunities in rural and urban markets. Walmart expects to end its current fiscal year in late January 2012 with 11 Walmart Express stores following the opening of the first units in northwest Arkansas.


“We are testing a lot of things in this box,” Pam Kohn, Walmart EVP merchandise services, told attendees recently at a Center for Retailing Excellence conference on the campus of the University of Arkansas in Fayetteville, Ark. “Some have pharmacies and some don’t, and some have gas and some don’t. We are really playing with this format. But our customer reaction initially is very, very positive, and we are excited about what this experiment is going to show us.”


Walmart’s small-format development initiatives, including Neighborhood Market, are under Kohn, who is in a relatively new role where she is responsible for centralizing merchandising shared service functions of merchandising execution, store layout, format, and space productivity and replenishment. She joined Walmart nearly a decade ago and early on, as SVP operations, she was responsible for Neighborhood Market before she was elevated to a series of operations and merchandising roles. Now it appears expansion of Walmart Express could happen on her watch.


“We are definitely in the pilot phase,” Kohn reminded attendees at the retail conference, before adding, “our next step will be to test a density pilot so we get more stores in a concentrated area so we can really understand the dynamics.” And those dynamics will be considerably different, as Walmart’s distribution network was built to serve really big stores where the sales velocities were such that they could accommodate large pack sizes and full pallets of goods.


“As we experiment with Walmart Express, and grow and expand more quickly with our Neighborhood Market, it poses a supply chain challenge that we don’t have a ton of experience with yet,” Kohn said. “Now we have to figure out how to do stuff a lot quicker, smaller and more frequently.”


While much of the retail industry is fixated on Walmart’s smallest prototype, of which between 15 and 20 additional units are slated to open in 2012, the more immediate opportunity rests with the medium-sized Neighborhood Market, where financial returns are said to be near those achieved by supercenters. In development for more than 13 years, Walmart in October finally allocated a larger percentage of its $6 billion to $6.5 billion U.S. capital budget to accelerate expansion of Neighborhood Market stores. “We’ve had five consecutive quarters of comp-store sales and traffic growth [with Neighborhood Market], and we are competing very, very well with our grocery competition,” Kohn said.


There currently are about 160 Neighborhood Market stores, but that figure could increase by as much as 50% next year as the plans call for between 65 and 80 of the approximately 40,000-sq.-ft. stores, according to Kohn.

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PHARMACY

Screenings drive awareness

BY Mike Troy

Sam’s Club has been on a roll the past few years, and an emphasis on health-and-wellness categories has figured prominently into the warehouse club operator’s improved performance.


Sam’s recently reported a 5.7% same-store sales increase for the third quarter, which represented its seventh consecutive quarter of sequential comps growth. Membership renewal and upgrade activity was said to be at a 10-year high. Inflation, predominantly in food categories, provided a solid tailwind and accounted for a little more than half of the comps increase, while comps in the health-and-wellness area were in the low-single digits led by pharmacy and optical.


“Pharmacy growth was led by our focused effort on driving script increases and building awareness of the great value and superior service provided by our pharmacists,” said Sam’s Club president and CEO Brian Cornell. “Our investment in hearing centers continues to pay dividends as members have responded to this unique service in our clubs.”


Members have responded by visiting clubs more often and spending more on each visit as the pharmacy, optical department and expanded health-and-wellness product offerings consistently are exposed to members with major health screening events. Since August alone, Sam’s has held major screening events for digestive health, women’s health and eye care. At last count, Sam’s Club had conducted more than 285,000 free health screenings in clubs, and the trend is set to continue in January 2012 with a “New Year, New You!” screening initiative focused on cholesterol, glucose, body mass index and blood pressure.

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PHARMACY

Higher healthcare calling motivates

BY Mike Troy

Senior Walmart executives regularly invoke the name of Sam Walton when it serves to reinforce a point regarding the company’s business model or the cultural principles on which Walton is said to have founded the company. Dr. John Agwunobi, president of health and wellness for Walmart U.S., took the practice a step further recently when he participated in a panel presentation with other top executives at a conference put on by the Center for Retailing Excellence at the University of Arkansas’ Sam M. Walton College of Business.


When it was Agwunobi’s turn to address an audience comprised primarily of Walmart suppliers, he shared a grainy video of Walton speaking at one of the company’s Saturday morning meetings. It was early 1992, and Walton was seated next to then president and CEO David Glass. He was bemoaning the healthcare system, the markup charged for various tests he was receiving and a general lack of price transparency. “I wasn’t there,” Agwunobi said, “but he used that opportunity to deliver a very personal message that Walmart has a purpose.”


That purpose, embodied by the company’s “save money, live better” value proposition, has become a more powerful force, motivating Walmart’s health-and-wellness strategies. “We want to lower the cost of health care so more people can have access to it,” Agwunobi said. “Every employer in this environment is facing amazing increases in the price of health care, and we think we might have a way to help them.”


He believes the concept of the productivity loop the company applies to other aspects of its business can work just as well in health care. By lowering prices so more people can buy products and services, the cost can be lowered to increase access so even more people can buy and prices can be lowered more and access improved further in a sort of virtuous cycle, according to Agwunobi.


Accordingly, he said Walmart is visiting with benefit managers and offering lower prices on pharmaceuticals, healthcare services, products and even grocery items, and is asking in return that the firms it works with incent their employees to come to Walmart and become customers.


Agwunobi’s example demonstrates how much more broadly Walmart is thinking about its potential role in an evolving healthcare delivery system, where cost promises to be the dominant consideration for decades to come and nutrition will play a great role. Just five years ago, Walmart took a much narrower view of the healthcare industry, and its focus was primarily on pharmacy. Now it is apparent the company is intent on extending its reach more broadly, even if the extent of its reach still is being defined, as was evident from a recent request for information the company distributed.


“Walmart intends to build a national, integrated, low-cost primary care healthcare platform that will provide [preventive] and chronic care services that are currently out of reach for millions of Americans,” the request for information stated. “Walmart intends to do this in an affordable and accessible way while maintaining or improving quality outcomes. Walmart seeks partners who have a care model or capability that can help dramatically drive down the cost of care, while maintaining or improving quality on a national level.”


Not long after the 14-page request became public, its objective was disputed, as Agwunobi issued a statement that said, “The RFI statement of intent is overwritten and incorrect. We are not building a national, integrated, low-cost primary care healthcare platform.”


While the release of the request and Agwunobi’s denial muddies the waters somewhat regarding near-term health initiatives, it shouldn’t come as a surprise that Walmart sees opportunity in occupying a more prominent position in the delivery of healthcare goods and services. That philosophy also extends to food, where Walmart has embarked on a plan to reformulate products so they have reduced sugar, salt and trans fats, while also increasing access to perishables in neighborhoods known as food deserts.


“We want to make shopping for healthy groceries easier. We will always be a house of choice and a place where customers can come to find all of the options, but we will help [them] understand which is which,” Agwunobi said.


Meanwhile, the company hasn’t neglected its prescription business, which now numbers nearly 3,800 pharmacies in the United States. As the company noted during the third quarter, the health-and-wellness business continued to perform well and produce a low-single digit same-store sales increase thanks to improved in-stock on nonprescription products and an ongoing partnership with Humana on a Medicare Part D program. The Humana program, now in its second year with a monthly premium of only $15.10 and low co-pays, has signed up more than 1 million people since it was launched in 2010.

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