The COVID-19 crisis has undoubtedly changed customer behavior, from how people pay to what they buy. But how has the pandemic specifically affected pharmacy customers? Kearney’s pharmacy customer survey from early fall 2020 reveals that COVID-era customers have new ways of shopping, evolving preferences for obtaining prescriptions and increased expectations of their pharmacies.

Todd Huseby

As the impact of COVID-19 decreases and customers return to “normal life,” our study suggests that these changes are not temporary reactions but permanent shifts in customer behavior — accelerated by the pandemic. For example, 55% of customers said that they would prefer omnichannel offerings to in-store pickup in the future, with 34% of customers specifically preferring home delivery. In addition, 70% of customers plan to use telehealth for future health care appointments.

The implications of these changes for retail pharmacies are significant. In an industry already facing margin pressure and disruption from new entrants, understanding what customers want in-store and online and then proactively strategizing to meet those needs is essential. And the pharmacies that crack this code will be the winners in this new omnichannel era.

Customers in a new world

COVID-19 changed the interaction between pharmacies and customers in multiple ways. According to Kearney’s pharmacy customer survey, one-third of customers are still not entirely comfortable picking up their prescriptions in-store. In fact, 45% of customers reported currently using omnichannel options such as order online for home delivery or curbside pickup. That’s a marked increase from the 31% that indicated they used omnichannel offerings pre-COVID, and the interest is only increasing. The pandemic has forced customers to rethink how they can get their medications. The direct-to-consumer and omnichannel offerings allowed them to pick up their prescriptions without needing to go into a physical store.

Laura Bowen

The survey also revealed that these preferences spanned generations. While younger males were the early adopters of omnichannel pharmacy offerings during COVID, there was an equal representation of ages among the respondents who planned to use omnichannel to pick up their prescriptions going forward. The takeaway here: This isn’t about serving a younger population or new generation. The pandemic spurred omnichannel adoption for everyone, from the reluctant baby boomer who used to pick up his or her prescriptions in person to the Gen Z customer who expects two-hour delivery for everything.

The survey did show that despite the rise of online and delivery options, a large swath of customers still values personal interactions with their pharmacists. Forty-nine percent of respondents said having a relationship with their pharmacist is important, though 20% said they didn’t currently have a strong one. The pandemic may expand the scope of pharmacists’ roles, as retailers look to add more value to these customer relationships and make coming into the store worth the effort. For instance, more than 73% of customers said they were comfortable receiving services at a pharmacy, such as vaccinations, travel consults or screening tests. Of those, 30% said they’d be comfortable with a pharmacist prescribing them medication for a common acute medical condition.

The retail pharmacy squeeze

As traditional retail pharmacies battle for customers with new direct-to-consumer competitors, meeting these new customer demands becomes even more crucial. Online pharmacies experienced rapid growth during the pandemic — in early March the direct-to-consumer pharmacy Capsule reported a fivefold increase in its growth of new customers. And, as the industry expected, Amazon began selling prescription medications in November, offering Prime members the option of free, two-day delivery. Demand for online ordering and prescription delivery was on the rise prior to COVID. Now it’s becoming an expected part of doing business and a key component of future revenue. Before the pandemic, we anticipated that omnichannel revenue would account for up to 45% of nonspecialty pharmacy revenue by 2024. But factoring in the pandemic impact, this share of revenue could grow to more than 60%.

Emily Rowe

To stay competitive, pharmacies will need to make significant investments to improve their technological capabilities. CVS, for example, reports that it invested an estimated $350 million in technology and store design in 2019 alone. The last-mile home delivery will also drive up operating expenses. Home delivery can add up to $9 to $12 per prescription (and, thanks to the Amazon model, many customers expect free shipping).

The rising costs are part of doing business in an omnichannel age. But they arrive at a time when pharmacies are already struggling with shrinking profits. Retail margins have declined by a rate of 2% to 3% over the past several years, in part due to rising DIR (direct and indirect remuneration) fees. The combination of meeting increased customer expectations while earning less per prescription creates a challenging situation for all companies. But it’s proving more difficult for smaller, independent stores and chains that have significantly less volume than big retailers. Given these pressures, more than 20% of smaller pharmacies may fall below their prescription breakeven point, forcing them to either rapidly adapt or potentially exit. As pressures rise, and without a relief valve, we expect a growing number of smaller pharmacies and chains will find the business not worth their while.

A new model for a new era

As the saying goes, every challenge presents an opportunity. In this case, there’s an obligation to meet the changing expectations and the chance to rethink operations for a new era. Here are three recommendations for retail pharmacies to win going forward:

• Enhance your in-store experience. Creating more valuable in-store experiences will keep customers who still want to visit the stores satisfied — and ideally generate more revenue per visit. Contactless technologies such as scan-and-go and self-serve options allow customers to get what they need with less worry. Also consider expanding care offerings and enabling increasingly personalized care. For example, automation and central fill can free up pharmacists for more one-on-one consultations. Meanwhile, customers in 2020 accelerated their growing interest in clinical services at retail. Adding relevant clinical services such as travel consults, health screenings and even partnerships with primary care clinics can increase foot traffic and improve the customer experience that much more.
• Expand omnichannel offerings. Even amid pressures, now is the time to invest in improved digital capabilities. Implementing online ordering and contactless pickup provides a safe and easy way for customers to obtain their prescriptions and retail goods. Also explore virtual care platforms that integrate pharmacy care with other health care providers, as well as platforms that enable improved communication with patients and the community. Online ordering, home delivery and buy online pick up in-store options will increasingly become table stakes for pharmacy customers. Customers who begin their health care journey online with telemedicine are more likely to finish their journey via prescription home delivery.

As the industry becomes more competitive, providing online and in-store customers with transparent pricing and ordering flexibility can differentiate your brand. Allowing customers to communicate with the pharmacy via multiple channels, such as text and mobile applications, will become essential. The same goes for tracking the status of orders.

• Streamline and rethink operating models. While the above actions can help drive revenue, streamlined operations can reduce labor and operating costs — providing a way for retail pharmacies to reclaim some of their profit margins. For example, robotic process automation can automate invoices and billing, while AI technology can improve inventory management. As companies implement home delivery offerings, new payment models such as subscription programs similar to Amazon Prime can provide ways to cover — or at least reduce — the added costs.

The world of retail pharmacy has been evolving, and the pandemic only accelerated the progress. As our survey uncovered, today’s pharmacy customers have new preferences and expectations. Pharmacies that innovate and adapt will not only retain and grow customers but also emerge as the industry’s next leaders.

Todd Huseby is a partner specializing in the health care industry at Kearney, a global consulting partnership. Laura Bowen is a principal, and Emily Rowe is a manager at Kearney, each specializing in pharmacy and health care provider operations.