2017 shapes up as unsettling year for retail pharmacy

NEW YORK — These are uncertain times for chain drug stores.

The turbulent political atmosphere surrounding the Affordable Care Act, combined with the undetermined outcome of Walgreens Boots Alliance Inc.’s (WBA’s) acquisition of Rite Aid Corp., is making 2017 one of the more unsettled years for the industry in recent memory.

The ACA “is in the crosshairs, obviously,” National Association of Chain Drug Stores president and chief executive officer Steve Anderson said over the winter, prior to the failed repeal effort in the House. The aborted vote notwithstanding, Republican legislators and President Donald Trump have vowed to revisit the issue, and possibly seek bipartisan change.

While any revision of the ACA that reduces the number of people with health insurance will likely hurt drug chains, another legislative effort could give the industry a major boost. Pharmacy provider status legislation, which would increase access to pharmacists’ services, “is a subject of conversation in Washington,” said Anderson. He noted that Health and Human Services Secretary Tom Price had submitted, during his confirmation process, a written comment about the importance of pharmacy care and provider status.

And even as political change and the unpredictability of the Walgreens-Rite Aid deal raise questions for the industry’s near-term future, broad social change is recasting chain drug retailing. The rise of e-commerce, especially Amazon.com Inc., and the tendency of Millennials to shop online and “showroom” have placed additional pressure on drug chains.

The phenomenon helps explain why overall and same-store sales both rose appreciably less last year than in 2015. Total sales advanced barely more than 3% in 2016, compared to nearly 5% a year earlier.

Comparable-store sales increased less than 2%, compared with 3.2% in 2015. The same-store sales growth was the lowest in years — if not decades. In 2007, by contrast, same-store sales soared 5.6%, and overall dollar volume jumped 7.7%.

While burgeoning internet sales have cast doubt on drug stores’ convenience play, the industry leaders are hardly being passive. CVS Health’s integration of a suite of health care assets, and Walgreens’ pioneering beauty initiatives, have demonstrated a willingness to confront change with future-looking action.

The theme of CVS’ most recent analyst day presentation was driving affordable, accessible and effective care. “Despite all of the changes that are happening in health care, success will ultimately be determined by how effective one is at executing on these three objectives,” said president and chief executive officer Larry Merlo. “And we remain very confident that CVS Health is well positioned to deliver on all three.”

The company can make care more affordable through its PBM’s cost management; it can make it more accessible by connecting with patients more fully across the care continuum; and it can make it more effective through analytics capabilities and clinical programs, said Merlo.

And earlier this week, CVS Pharmacy unveiled the next phase of its front-end strategy, including new store designs, more better-for-you food and health-focused products, expanded beauty offerings and educational signage, as well as a more personalized digital experience. “Our focus on providing care to patients and customers defines everything we do in our stores,” stated Helena Foulkes, president of CVS Pharmacy and executive vice president at CVS Health.

For its part, Walgreens has staked out new territory in brick-and-mortar retailing with its Beauty Differentiation model. The concept is based on three pillars: compelling products; an enticing presentation; and enhanced service, including beauty ­consultants.

While the concept’s rollout is ongoing, the customer reaction thus far has executives confident that there is no stopping the retailer’s transition into a beauty destination. WBA co-chief operating officer Alex Gourlay said the new format combines accessibility and ­comfort.

And as much as both chains are enhancing the in-store experience, they are not ceding the fight for online sales. Both have launched in-store pickup for digital shoppers: CVS with Curbside Pickup and Walgreens with its Ship to Store initiative.

Meanwhile, regional operators continue to demonstrate their nimbleness and showcase innovation.

Plymouth, Minn.-based Thrifty White Pharmacy, for one, has debuted the Healthy Outcomes Diabetes Support Program, a patient-centric platform to improve outcomes and help employers control costs.
And in the Seattle area, Bartell Drugs has expanded the scope of its partnership with Amazon.com Inc., whose Prime Now service enables the chain’s customers to have products delivered within two hours.

Those are only the most recent initiatives reflecting regional chains’ determination to stay on the cutting edge of retail pharmacy. In Ohio, the Pharmacy of the Future launched last year by Ritzman Pharmacy has wowed patients and academic institutions alike. Designed to make pharmacy a practice as opposed to a commoditized business, its focus is unstinting pharmacist ­accessibility.

West Virginia-based Fruth Pharmacy participates in a needle exchange program to help fight the scourge of drug abuse. Besides helping limit the spread of disease, the initiative gives addicts who come in to get clean needles the chance to speak to a recovery coach, receive social services and birth control, and get health screenings, including one for hepatitis C. Fruth has also gotten involved with Recovery Point, a nonprofit drug rehab organization.

Kristin Williams, senior vice president and chief health officer at ­Hy-Vee Inc., said of regional chains, “In the challenging health care industry landscape, we’re always open to new and innovative ideas.” Regional players “are well equipped to face these challenges and develop innovative solutions. … We deliver personalized care, we adapt to emerging community needs and pilot new products and services” in partnership with suppliers.