The competitive challenges that confront the nation’s drug store operators are becoming more intense. Rivalries within the industry and attempts by members of other trade classes to increase their market share in areas that were once viewed as the domain of drug stores have put new pressure on everyone involved.


drug chains, competition, drug store operators, competitive challenges, Jeffrey Woldt, market share, drug stores, Walgreens, Express Scripts, ESI, pharmacy benefits manager, CVS/pharmcy, Rite Aid, Walmart, community pharmacy, dollar stores, Dollar General, Family Dollar, drug store executives, health and beauty aids, chain drug merchandise mix, Walmart Express, Walmart Neighborhood Market, prescription drugs, Mike Duke, Bill Simon










































































































































































































































INSIDE THIS ISSUE
News
Opinion
Other Services
Reprints / E-Prints
Submit News
White Papers

Inside This Issue - Opinion

For drug chains, competition intensifies

October 22nd, 2012

The competitive challenges that confront the nation’s drug store operators are becoming more intense. Rivalries within the industry and attempts by members of other trade classes to increase their market share in areas that were once viewed as the domain of drug stores have put new pressure on everyone involved.

The fallout from Walgreen Co.’s battle with pharmacy benefits manager Express Scripts Inc., a standoff over contract renewal terms that kept the drug chain out of ESI’s network for more than nine months, has triggered a fight among retailers for patients that moved away from Walgreens during the initial dispute.

CVS/pharmacy, Rite Aid Corp. and Walmart, among others, all gained ground at the expense of Walgreens, as its same-store sales were hurt significantly by the forced absence from its stores of individuals whose pharmacy benefits are administered by ESI.

Now Walgreens is intent on winning those customers back, and its competitors are equally determined to retain them. It will be interesting to see how big a factor patient loyalty in community pharmacy really is, and what the retailers vying for the business will come up with to differentiate their offerings.

The growing appeal of dollar stores among a broad range of consumers is another reality with which drug chains have to cope. Led by Dollar General and Family Dollar — both of which have former drug store executives among their top leadership — value retailers are moving aggressively into consumables and health and beauty aids, categories that are an integral part of the chain drug merchandise mix.

That thrust has helped make dollar stores the fastest-growing segment among brick-and-mortar retailers, a status that has transformed major consumer packaged goods companies into eager business partners. Drug chains must find ways to counter the drawing power of a trade class whose appeal now extends beyond low prices.

More formidable still is the challenge presented by a resurgent Walmart. After a period when the world’s largest retailer made some missteps and experienced difficulty generating comparable-store sales increases in the United States, the company appears to have put its house in order and is altering parts of its business model in ways that should enable it to go head to head with drug chains more effectively.

“Walmart is strong, and we’re getting stronger,” chief executive officer Mike Duke told financial analysts earlier this month. “We have momentum in our business that’s producing top-line and bottom-line results. We’re delivering on the productivity loop and being even more disciplined about operating expenses and capital spending. We’re making investments that are creating a better business …

“In Walmart U.S., our business is in a very good place. Bill Simon and his team have made progress on a number of fronts that are driving stronger comp sales. We’re executing on the fundamentals of assortment and price, driving success in our key merchandise categories, and we are focused on the customer.”

The company’s domestic same-store sales rose 2.4% during the first half, a very respectable result in light of the troubled state of the economy. Put another way, that performance generated $3 billion in additional revenue, more than most retailers chalk up in an entire year.

Of greater concern to drug chains is Walmart’s recent success with small-format outlets and its plans to ramp up their rollout. Similar in size to a chain drug store, Walmart Express, which features such high-turning merchandise as H&BAs, consumables and prescription drugs, gives the retailer a vehicle for penetrating markets where real estate issues previously prevented it from operating. According to Simon, who is president and CEO of Walmart U.S., the format moved into the black less than a year after its debut.

At around 40,000 square feet, the Walmart Neighborhood Market resembles the traditional food-drug combination store. Simon noted that there will be more than 500 Neighborhood Markets in operation, representing $10 billion in sales, by fiscal 2016. The company plans to open 80 small-format stores in fiscal 2013, up from 27 this year, with that number increasing to 95 to 115 in fiscal 2014.

Together with website-to-store delivery and same-day home delivery now being tested in several markets, the small-format outlets will make Walmart an even more powerful competitor for drug chains and other mass retailers.

Advertisement