Grocery operators’ pharmacy foothold poised to expand
Everyone, it seems, wants a seat at the pharmacy counter.
Albertsons’ pending acquisition of Rite Aid is just the latest — and one of the largest — examples of supermarkets trying to grab a larger share of the pharmacy business, and with it the profits and consumer draw that it brings.
There is no doubt that the food channel is a force to be reckoned with in the pharmacy business. Most new, and many remodeled, grocery stores outside of truly urban markets feature a pharmacy counter, and many grocery retailers have made it clear that they see an opportunity to grab market share from traditional drug stores in this segment.
Yet, many industry officials said that higher costs, competition, regulations and a lack of qualified pharmacists needed to work long and unusual hours are hurting the potential of the pharmacy at grocery stores. There also is the age-old question of whether there is enough business in the marketplace to support all these new pharmacy counters.
“There is no doubt that many grocery stores see the pharmacy as a magnet to draw consumers into their stores, and to offer a valuable service that also makes money for the retailer,” said a senior merchandiser at a Northeast-based supermarket chain. “The question is whether the consumer is going to bite. Are they going to choose a food store for their prescriptions over a drug store with a long history of helping them? I am not sure I know the answer.”
Indeed, supermarket pharmacies are on a roll. Not only are there are more pharmacy departments in food stores around the country, but the number of dispensed prescriptions and their dollar sales are increasing, thus chipping away at the business of pharmacies in other channels.
Statistics gathered by the National Association of Chain Drug Stores show that supermarket operators are going full speed to win sales from the pharmacy. NACDS found that the number of supermarkets with pharmacies increased by nearly 300 between 2014 to 2016, and that supermarkets accounted for 13.6% of retail pharmacy prescriptions in 2016 — a 6.5% increase over 2015.
According to the Drug Channels’ 2018 Economic Report on U.S. Pharmacies and Pharmacy Benefits Managers, prescriptions filled by supermarket pharmacies were up 0.9% in 2017 over 2016. Also, market share for pharmacies in grocery stores remained steady between 2016 and 2017 at 12.2%.
Supermarkets have a lot going for them in this battle. More than ever, the new hub for health and wellness is the food store, which many pharmacy analysts said offers favorable working conditions and benefits comparable to chain drug. Plus, their services are complemented with recommendations of sensible food choices by dietitians and nutritionists.
“As supermarkets look to define themselves as food and wellness centers, the pharmacy becomes an important piece of this health-and-wellness strategy,” said Todd Huseby, lead partner in the pharmacy sector practice of A.T. Kearney, a global strategy and management consulting firm.
“The pharmacist is one of the most important frontline healthcare professionals available to most consumers. A supermarket that effectively utilizes a pharmacist and a dietitian can be a genuine health-and-wellness destination.” Sue Borra, chief health and wellness officer at the Food Marketing Institute, the trade association for supermarket chains, agreed. “There are cases where the nutritionist and pharmacist work closely on disease management,” she said. “For example, if you are getting blood pressure medication or cholesterol medication [from the pharmacist], the dietitian can recommend a proper diet.”
The link between food, health and beauty care, and, in this case, prescriptions, may give grocery operators a big lift in coming years, especially if they can tie all of these segments together.
Borra, for example, shared the story of visiting a large Hy-Vee supermarket in the Midwest that — much to her surprise — included an in-store clinic next to the pharmacy, which also was next to the dietitian’s office. Shoppers in the health-and-wellness area of the store were greeted by a “health concierge,” who fielded questions and steered shoppers to the right department for answers.
Another grocery chain, Giant Eagle, operates more than 200 in-store pharmacies across its chain of 232 supermarkets throughout western Pennsylvania, north central Ohio, northern West Virginia and Maryland. Customers can shop for all of their health-and-wellness needs under one roof — whether that includes such dietary needs as fresh produce, organic options, or gluten-free items, or over-the-counter products and prescribed drugs. The latter can be filled while customers shop.
Shoppers can enjoy the convenience of prescription refill reminders, pick-up notices through text messaging and automated phone calls, or the Giant Eagle Pharmacy mobile app. Other services include a wide range of vaccinations and health screenings. Shoppers using the blood pressure machines adjacent to the pharmacy can use a Blood Pressure SmartCard that allows readings to be tracked and accessed online. If a patient gives permission, the readings can even be viewed by pharmacists who then can consult patients on how to manage their blood pressure. Giant Eagle works with health plan partners to develop customized patient programs and services intended to increase medication adherence rates and health outcomes. The chain also has a specialty pharmacy offering designed to handle the needs of patients with such complex medical conditions as hepatitis C, rheumatoid arthritis, Crohn’s disease and many other disease states. Southeastern Grocers also recently launched its Pathstone Health specialty pharmacy offering across its Harveys, Bi-Lo, Winn-Dixie and Frecso y Más banners.
Lakeland, Fla.-based Publix Super Markets, relies on the same formula and variety of services to serve the health-and-wellness needs of customers in the 1,067 in-store pharmacies it operates in seven southeastern states. Customers appreciate the one-stop shopping experience, and especially the availability of registered dietitian nutritionists who can turn complicated food science into practical information. Each dietitian is experienced in providing nutritional counseling for a variety of health conditions.
Publix, Giant Eagle and Southeastern Grocers are just some examples of how large regional food chains are competing successfully against chain drug stores. So, it’s no wonder why the J.D. Power 2017 U.S. Pharmacy Study reported that supermarkets have the highest levels of overall customer satisfaction among pharmacy channels. Trailing grocery, in order, were mail order, hospital or clinic, chain drug stores, specialty pharmacy, and mass merchandisers.
Albertsons operates 1,800 pharmacies across the country and owns 2,300 supermarkets, including such notable banners as Safeway, Vons, Shaw’s and Acme. The proposed combination of Albertsons and Rite Aid will create an enormous chain, with 4,350 pharmacies and 320 clinics across 38 states and the District of Columbia. Albertsons’ existing pharmacies will be rebranded as Rite Aid, but some Rite Aid stores will remain as standalone units.
Perhaps in recognition of the retailer’s rising stature in pharmacy, NACDS recently elected to name Albertson’s senior vice president, pharmacy, health and wellness Mark Panzer as its new chairman of the board.
Of course, Albertsons is part of that disruption, according to Chris Smith, director of pharmacy intelligence at Inmar, which provides pharmacies and health systems with apps for claim reconciliation, exception management and technology. “Not only will Albertsons have the benefit of expanding their geographic footprint throughout the East Coast, but they also will be gaining a new pharmacy benefits manager,” he said. “In 2015, Rite Aid purchased Envision Rx, which now will be under Albertsons. This vertical integration will inject a top-10 PBM into Albertsons’ portfolio of services overnight.”
Obviously, the traditional drug stores are not standing still. Vertical integration is driving CVS Health’s pending purchase of Aetna, the managed healthcare company, and Walmart’s interest in buying Humana, the health insurance company. The Wall Street Journal opined that “a Walmart-Humana deal would cap a series of transactions that could transform the business of managing health care.”
Humana and Walmart shared a successful partnership in the past that benefitted both parties. The Walmart and Humana Medicare Part D plans were one of the first established between a retailer and a plan. By vertically integrating Humana within Walmart’s operations, Walmart will be able to bring their popular Walmart/Humana Part D program, as well as Humana’s other managed Medicare networks, in house.
While most regional grocery chains do not have the national scale to do similar agreements, considerable opportunities for supermarkets to grow and prosper in their trading areas exist.
“Many supermarket pharmacies still own a No. 1 or No. 2 market share provision in their markets, so their ability to develop and implement alternative growth strategies will be imperative to standing pat against the vertical integration trend,” Inmar’s Smith said. “The mostly regional-based supermarket pharmacy operator has a distinct advantage when it comes to these strategies — local flexibility. Most of healthcare delivery is a regional, if not local, transaction. The ability of supermarkets to deliver meaningful and valuable programs and services to the regional or local healthcare providers will be key.”
Meanwhile, small grocers with pharmacies may start to worry because they, too, cannot afford these large-scale acquisitions leading to impressive vertical integration.
“After all, these deals — generally by larger players — are designed to capture and retain traffic,” A.T. Kearney’s Huseby said. “As reimbursements fall, if traffic also falls, such non-deal-making supermarket pharmacies will be under greater pressure. Some will surely decide that the business is worth more sold to others than kept. While not a supermarket, Target made such a decision. One could say that its pharmacy business was worth more to them sold to CVS than kept and operated.”
And what of chain drug pharmacies? Are supermarket pharmacies a real competitor to them?
Huseby thinks so, especially in certain regions where the supermarket’s pharmacy brand is well accepted. As consumers shift and take a more holistic view of health and wellness — prescriptions, OTC, nutrient-rich foods, wearables, personalized services and recommendations — supermarkets have an opportunity to compete very effectively by serving those holistic needs. But getting that strategy right is critical, he said. Typically, there are not a lot of extra investment dollars or time to waste on low-ROI strategies.
Analysts said a larger threat to chain drug pharmacies — and to supermarkets — would be the entry of Amazon into the prescription drug category. The online retailer would have to overcome several hurdles, such as the red tape of regulatory compliance and the employment of pharmacists to fill prescriptions. However, the resources and persistence of Amazon has traditional retail pharmacy operators looking over their shoulder.
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