Tops in satisfaction, GNP leverages scale
The way chief executive R. David Yost sees it, AmerisourceBergen Corp.’s Good Neighbor Pharmacy program is a bulwark for independent pharmacists against the pressures of a brutally competitive pharmacy market and an unforgiving economy.
Now numbering more than 3,700 independent pharmacies across the United States and Puerto Rico, GNP has become one of the largest drug store brands in the United States. By leveraging the best qualities of the owner-operated pharmacy — a strong community presence, personalized service and the flexibility and willingness to cater to the individual needs of patients — and blending them with the economies of scale, marketing expertise and buying power available to the big retail chains, AmerisourceBergen has built GNP into a powerful national brand.
Consumers appear to be taking notice. For the first time last year, J.D. Power & Associates ranked GNP No. 1 in customer satisfaction among all pharmacy retailers, based on a nationwide survey of more than 12,300 pharmacy customers. What’s more, GNP’s selection as best in service and personal care by consumers came in “the first year that they have been a ranked brand in the study,” said Jim Dougherty, J.D. Power’s director of healthcare practice.
In a recent report, ABC succinctly described its relationship with its huge network of GNP-affiliated independent drug stores. “We deliver prescription pharmaceuticals, private-label [over-the-counter] drugs and other health-related items daily, and we provide business coaching services, marketing support and access to managed care networks,” the company noted.
Key to its relationship with GNP stores, ABC said, is its full-service approach to supplying its customers. “We serve the vast majority of our customers on a prime vendor basis, which means that we provide all of the products that a pharmacy needs to serve its patients on any given day. Due to the high cost of pharmaceuticals, providers do not hold large amounts of inventory on hand; rather, they rely on … just-in-time delivery of the products they need,” ABC said.
ABC brings “tremendous scale” and “operating efficiency” to its independents via this model, the company reported. Through the GNP Premier program, launched three years ago, members also get expertise in managing their business and pricing their merchandise more profitably, and targeting their best customers. Participating independents also can benchmark their operation and business performance against a peer group of similar pharmacies through the GNP InSite market database.
GNP pharmacies also participate in their parent firm’s massive generic purchasing and pricing program, PRxO Generics, for “competitive pricing and new generic products from [more than] 100 manufacturers as soon as they are launched. We provide our customers the financing they need to buy the products. We then use our own purchasing power to secure the best possible value,” ABC reported.
The 3,700 GNP stores also benefit from centrally developed ABC programs “designed to drive continuous improvement, compliance and market penetration,” the company noted. Among those programs: the GNP Provider Network, which links the 3,700 GNP independent operators together with “small and regional chain drug stores and food-and-drug combination stores” served by ABC, according to the company. Together, that national group of independents, small chains and supermarket pharmacies comprise “the fourth-largest managed care provider network in the United States,” according to ABC.
Meanwhile, changes are afoot in ABC’s executive suite with the pending departure of its top executive. Yost announced in March he would retire July 1 after nearly 37 years, the last 14 of them as CEO. Succeeding Yost is COO Steven Collis, and moving up to president of AmerisourceBergen Drug Co. is David Neu, who last served as SVP operations.
GNP also is under relatively new management. Last August, ABC promoted Mike Cantrell to president of GNP, a new position, and group VP retail business development. Cantrell, who was VP professional services at Longs Drug Stores before joining ABC as VP central fill business development in 2009, reports to Jerry Cline, SVP retail sales and marketing. One primary role for GNP, Cantrell said, will be “helping our pharmacists develop their role in healthcare reform, with the understanding that they are a significant component of the solution.”
Kmart perseveres with Rx, clinic deals
One has to admire a person who perseveres through hardship and difficulty, and the same goes for companies that keep going and keep trying, no matter what the market throws at them.
One such company is Sears Holdings and its mass-merchandise chain Kmart. Kmart has borne the brunt of a difficult economy in recent years, facing store closings across the country and declining sales. U.S. sales for the chain in 2009 were $15.7 billion, when it had 1,327 stores, but last year, that number declined to $15.6 billion in 1,307 stores. But that hasn’t stopped Kmart from offering important services at its in-store pharmacies, whose number totaled 981 last year.
In February 2011, Kmart began offering flu shots to customers at 500 of its pharmacies at the reduced price of $15 — or for free to Medicare Part B beneficiaries — while giving those who were members of the Shop Your Way Rewards program 15,000 points — a $15 value — emphasizing the ability of the influenza virus to persist as late as May, past its usual peak season. The company also emphasized the expertise of its pharmacists, available to patients with health-related questions.
Previously, the chain had offered flu vaccinations for $25 at its walk-in flu clinics. Customers who bought a flu vaccination also received a coupon book worth up to $45 and a 10%-off shopping pass for use on health and beauty products and consumables.
Kmart also has leveraged its status as a mass merchandise retailer to attract customers to its pharmacies. In October 2010, it introduced a program whereby customers who transferred their prescriptions over received a $20 Kmart gift card for each prescription transferred, for up to five prescriptions per household. In addition, it introduced the “Transfer for a Cause” program, also donating $5 for up to five prescriptions to the Breast Cancer Research Foundation in recognition of Breast Cancer Awareness Month.
WMT remains health, wellness stalwart
It has been a challenging few years for Walmart among ongoing sales difficulties, restructuring of senior leadership and the pursuit of a new, yet familiar, strategic direction. Despite all the turmoil and the constant media attention it received, Walmart’s health-and-wellness business unit remained a steady performer through 2010.
The category of health and wellness — defined by Walmart to include the pharmacy and optical services — accounted for 11% of sales of $260 billion last year, versus 10% of roughly the same level of sales the prior year. There also was a modest increase in the number of pharmacies, which numbered 3,732 versus 3,694 the prior year.
So there was some growth; it just wasn’t the blistering pace set during the ’90s or earlier last decade when hundreds of new stores with pharmacies were opening annually and Walmart was gobbling market share. Rather, the past few years, it has been Walmart ceding market share to a wide range of competitors as evidenced by nearly two years of quarterly same-store sales declines. The company aims to reverse that trend by relying on familiar strategies of offering everyday low prices on the broadest assortment of goods in the marketplace, supported by a simplified price match program that allows cashiers to make on-the-sport adjustments.
The messaging is sure to sound familiar to customers since it served as the company’s core value proposition for decades. It is conceivable and perhaps even likely that with Walmart speaking to consumers again, it will see a rebound in customer traffic. Comp-store sales growth also is a realistic possibility, especially since comparisons with prior years are easing, and a bit of inflation, which all retailers appear to be passing through to consumers, will contribute to above-average transaction sizes.
These factors are poised to benefit the health-and-wellness business since an increase in customer traffic will be arising as merchandising changes are taking place under the leadership of new chief merchandising officer Duncan Mac Naughton. Walmart is placing a greater emphasis on new items and once again relying on in-aisle feature displays of sharply priced products to drive sales.
While a return of some familiar merchandising strategies is seen as helping top-line results, don’t look for a meaningful increase in the number of Walmart pharmacies anytime soon. The profits Walmart generates are increasingly being used to deliver shareholder value in ways other than new store growth. For example, share repurchases and dividends now consume significantly more cash than capital expenditures on new stores.
The biggest opportunity for Walmart to achieve a meaningful increase in its pharmacy count lies in the development and subsequent expansion of small-format stores, which are included in this year’s capital budget. The company plans to opens its first truly small-format stores this year in an experiment in which some units will contain prescription departments and others will not. When the first of these new Walmart Express stores opens this spring in Northwest Arkansas, just in time for the company’s shareholders meeting, they are sure to attract considerable interest due to their potential impact on the marketplace if Walmart is able to grow the concept.
That’s a big “if.” While no one doubts Walmart would be capable of opening huge numbers of small stores annually or that the potential exists to make a real-estate acquisition to facilitate more rapid expansion, the financial viability of any type of small format is hardly a given at this point — this despite the fact that Walmart has ample experience with small stores in international markets and presumably should be able to capitalize on that expertise with a U.S. variant.
The company has been down this path before with Neighborhood Market. Developed in the late ’90s, there are fewer than 200 of the stores today, and the reasoning for the slow pace of expansion was always that supercenters offer a higher rate of return. Now that it is 2011 and supercenter growth has slowed, there would appear to be a place in Walmart’s store portfolio for smaller units. However, a new competitor now exists for capital — in the international area. Of Walmart’s $12.7 billion in capital expenditures last year, the bulk of it was for new stores, and the U.S. and international division were each allocated 33% of that amount. However, internationally, Walmart gets more bang for its buck. Walmart added 23 million sq. ft. of new selling space internationally, whereas in the United States, a comparable expenditure netted only 10 million sq. ft. of new space. In addition, the company faces considerably less aggravation in many of its international markets as its proposition of low prices and quality merchandise for consumers and jobs with benefits is greeted more warmly.