Inside This Issue - Opinion
Analysis of top drug store markets offers some surprises
October 25th, 2010
by David Pinto
This issue of Chain Drug Review contains our annual look at America’s 100 largest drug store markets and the shares of the various drug store retailers within those markets. As is usually the case, this year’s analysis offers some surprises.
Among the key findings of this year's top 100 drug store markets report were the following:
• America’s two largest drug chains, CVS and Walgreens, further consolidated their positions during the past year, generally increasing both market share and dominance. What’s interesting here is that, in the main, their gains came not at the expense of regional drug chains or independent drug stores, but rather by taking business from their supermarket competitors.
Indeed, if the 100 leading markets are any indication, supermarket retailers did not fare well at all in drug store categories last year, either holding onto their previous market positions or losing share to chain drug retailers.
If anything can be concluded from this flattening of supermarket performance, it is only that, where pharmacy, over-the-counter drugs and beauty care products are concerned, the frequency of shopping a store is not as important to consumers as convenience of location, ease of shopping, loyalty, and the chain drug store pharmacist’s accessibility and reputation.
• Walmart no longer routinely grabs market share with the regularity it once did. This is a startling revelation, given the success this retailer had previously enjoyed in drug store categories. Indeed, where Walmart remains a significant player in the 100 largest drug store markets, it can no longer be reckoned a decisive player. As the markets detailed in this report show, Walmart at best has been able to hold share, while losing share in several markets that have long been vital to the retailer’s overall success.
Several conclusions can be drawn from this most recent data, but the one that comes most readily to mind is that America’s largest retailer no longer dominates on price and assortment the way it once did, and its pharmacy business has been allowed to languish, a victim of the absence of aggressiveness and focus that has generally characterized the retailer of late.
• Rite Aid continues to lose share in all but its most viable markets. Where the retailer is No. 3 or No. 4 in a particular market, its position continues to deteriorate, while even in those markets where it leads, its leadership position is not as dominant or secure as it once was. Conclusion: America’s No. 3 chain drug retailer has still not succeeded in offering customers a significant enough inducement to abandon CVS, Walgreens or its regional competitors in favor of the Rite Aid down the street.
• The rejuvenation of Duane Reade is producing dramatic results. Where the drug chain commanded just 13% of the New York market a year ago, it now owns 15%. Combined with Walgreens’ 14% share, the tandem of Walgreens and Duane Reade now accounts for 29% of sales in the New York market. However, CVS remains the market leader with a 34% share.
• CVS’ acquisition of Longs Drug Stores in 2008 has produced somewhat mixed market share results for the Woonsocket, R.I., drug chain. While it’s undeniable that CVS has emerged from the Longs buy, and the Osco/Sav-on transaction that preceded it, as far and away the No. 1 drug chain in the most populous state, results in individual California markets vary. In several, CVS has not been able to hold onto the customer counts, unit sales and market baskets that had previously set Longs apart from its competitors as an imaginative and dynamic drug chain. The result, in several California cities, has been a flat to somewhat declining market share, a decline that has, in some cases, helped its nearest competitor, Walgreens.
But the overreaching conclusion that this report produces concerns the strength of the nation’s chain drug retailers and, in particular, the increasing dominance of CVS and Walgreens.
In 89 of the 100 largest markets, one of those chains or the other occupies the No. 1 position. CVS is No. 1 in 40, Walgreens in 49. That is a remarkable statistic. It should be noted as well, however, that leadership in individual markets is usually determined by the number of stores that the two drug chains operate in that market.
Perhaps more meaningful, however, is the fact that Walgreens continues to lead in one very critical barometer of market strength: Its sales per store significantly outpace those of every drug store competitor.