Inside This Issue - Opinion
Retail pharmacy has place in the big leagues
June 27th, 2011
by David Pinto
The annual Fortune 500 listing of the largest publicly traded U.S. corporations has been published, and community pharmacy, while not a major presence, is nonetheless adequately represented.
Walmart, of course, heads the top-500 list as the largest company in the United States (and globally), with fiscal 2010 revenues in the neighborhood of $422 billion, some $75 billion ahead of No. 2 Exxon-Mobil.
Even more startling is the position of CVS Caremark, ranked 21st on the list with fiscal 2010 sales of over $98 billion. Walgreens comes in at No. 32, with sales of $67.4 billion for the most recent fiscal year. The only other drug chain among the top 100 is Rite Aid, at 100, with $25.8 billion in sales in fiscal 2010.
The surprise here is that both CVS and Rite Aid lost ground last year, the former slipping two places while the latter fell eleven slots from its 89th position a year earlier. Still, CVS Caremark is most noteworthy not for its 21st-place ranking but for the fact that its sales outpace those of Walgreens and Rite Aid as well as Kroger, Safeway, Target and Supervalu, the other mass retailers in the first 100. While it’s true that the majority of CVS Caremark’s sales come from its Caremark PBM, its aggregate ranking is no less impressive for that fact.
As noted, three grocery retailers occupy places among the 100 largest U.S. companies, with Kroger, at No. 25, leading the way. However, its position a year earlier was 23rd on the list, meaning that the food retailer has dropped two places, though its sales in fiscal 2010 advanced by an impressive 7.1% to $82.1 billion.
The significance here is not that Kroger has performed poorly, but that America’s leading grocery retailer, and indeed most retailers, have not fared as well as Fortune 500 companies as have many companies that are not involved in retailing — or at least brick-and-mortar retailing.
As an example, Safeway, No. 60 on the Fortune 500 list, had a more precipitous drop, falling eight places in the past year on sales that remained flat at $41 billion. The poorest performer among the food retailers in the first 100 was Supervalu, which came in at No. 61 this year, versus 47 a year earlier, as its volume declined almost 9%.
By contrast, there’s Costco. Even though the wholesale club’s position slipped three places this year, from 25th to 28th place, its sales advanced by 9.1% to some $78 billion. Among U.S. retail companies, only Walmart, CVS Caremark and Kroger turned in more sales.
(For some inexplicable reason, Fortune, in compiling lists within individual business categories, puts Costco in the “specialty retailer” category, among such companies as Home Depot, Best Buy, Staples and Toys ‘R’ Us. One wonders what Costco’s specialty category could be, or whether Fortune’s editors simply don’t shop Costco for grocery staples, apparel, electronics, drug store merchandise, meat, produce, baked goods or any one of the dozen other broad categories that make Costco so special.)
BJ’s Wholesale Club, also inexplicably listed by Fortune as a specialty retailer, saw its sales advance by 8.2% last year to $11 billion, while its ranking among U.S. companies jumped 11 places, to 221. If there’s a conclusion to be drawn from the fact that BJ’s, which turned in a smaller sales gain than Costco, nonetheless advanced on the Fortune 500 ranking while Costco declined, it is that mid-tier Fortune 500 companies, as a group, did not perform as impressively as top-tier companies in the most-recent fiscal year.
Several mass retailers only tangentially represented in community pharmacy, or not represented at all, are noteworthy for their performance, both good and bad. Sears Holdings dropped eleven places in 2010, to No. 57, on sales that declined 1.8% to $42.3 billion. By contrast, Dollar General and Family Dollar, though slipping marginally in the rankings, saw their sales increase by 10.5% and 8.3%, respectively, an additional indication of the robust vitality of the dollar store retail trade class.
Sales, of course, tell only half the story, while earnings tell the other half. So it was that Dollar General registered a whopping 85% earnings increase and Walmart saw its earnings advance by 14.3% last year, while Costco recorded a 20% increase. Less impressive were Walgreens’ earnings advance of 4.2% and Target’s 3.1% gain.
Kroger earned $1.1 billion last year, recovering from its poor performance of a year earlier. Still, America’s largest grocery retailer, 25th among all U.S. companies in sales, ranked only 153rd in earnings.
Safeway’s earnings were flat last year, while CVS Caremark, Supervalu, Rite Aid and Sears Holdings all saw their earnings drop, the latter by 43%. Indeed, Sears, No. 57 among the Fortune 500 in sales, ranks 402 in profits.
What does it all mean? Probably not much, but it does give some indication as to which community pharmacy retailers are thriving, which are holding their own and which are struggling.
All things considered, such businesses as electronics or e-commerce are probably a better bet in terms of sales and earnings performance. Two examples: Apple advanced 21 places on this year’s Fortune 500 list, as sales increased 78.5%, earnings 145.7%. Amazon.com jumped from 100 to 78, on a sales increase of 40% (earnings advanced 27.7%). Perhaps the performance of Amazon influenced Walgreens to buy drugstore.com.