COVID-19 has spurred an acceleration of innovation and creativity that is setting up everyday food and drug retailers for success in the “new normal.”
We all know the mounting pressure on the pharmacy business. Pharmacies have been struggling over the last few years as a result of growing generic dispensing, growing narrow networks, growing DIR fees, and the growing power of the big three PBMs; all leading to shrinking margins and shrinking numbers of retail pharmacies open to serve consumers.
I broke down the core pharmacy value proposition to the consumer and overlaid the acceleration in innovation to our model from the pandemic. From the perspective of the consumer what really matters is convenience, price, assortment and quality.
The demand for convenience is reshaping delivery of care.
While most independently owned pharmacies have offered the convenience of home delivery for decades, chain and grocery pharmacies quickly expanded their e-commerce experience to include prescriptions. Telehealth had a spike, but reimbursement models are immature, consumers are still learning and experimentation will likely continue.
In the state of Montana, physicians are allowed to dispense medications for emergencies or when there is no pharmacy within 10 miles. Now the Institute of Justice is suing on behalf of three Montana doctors who seek the freedom to dispense more widely. While theoretically, to those not embedded in our industry, eliminating the pharmacy sounds better for the consumer with fewer touchpoints and potentially lower costs. The reality is that pharmacies have invested millions of dollars creating automation, safety and quality in dispensing and, as a result, have built a very efficient supply chain with little waste. Pharmacies are not “needless middlemen.” They comprise a critical part of our health care infrastructure.
How important are pharmacies to health care? They provide the most convenient access to health care, as 90% of the U.S. population lives within five miles of a pharmacy.
Express Scripts launched Parachute Rx for former patients that were covered by Express Scripts and have lost their job and their insurance or for people who have never been insured. They will deliver to your home or you can pick up in a pharmacy. Direct-to-consumer models are emerging that could potentially change how pharmacy services are delivered to patients in the future.
COVID-19 testing by pharmacies has been a highly valued service. As consumers’ share of health care expenses continues to grow, so will their decision-making power on where and with whom to spend their dollars. Retail offers a more convenient model for health care services.
Grocery pharmacies are well positioned to use convenience to improve their value proposition to consumers as they experiment with “food as medicine.” Significant growth in natural and better-for-you products is evidence that consumers are serious about eating a healthier diet. Grocers that enable and support this lifestyle choice through convenient access to healthier food and connect to their pharmacy health care solutions will likely find themselves at a distinct competitive advantage.
Inmar looked across 21 grocery retailers from March 15, 2020, through June 15, 2020, for the top 50 O-T-C products. When shoppers come to the grocery store for a health care need, they are more valuable shoppers. We found that:
- On average, for every $1 that a non-O-T-C drug shopper spent at a retailer; a repeat O-T-C drug shopper spent $4 during the first three months of the pandemic.
- On average, for every single visit to a store from a non-O-T-C shopper; a repeat O-T-C drug shopper visited the store 3.5 times during the first three months of the pandemic.
Shoppers in the pharmacy spend more, and they are more loyal. Grocery pharmacies need to capitalize on that opportunity as their front-store sales surge.
Inmar has seen tremendous growth in enrollment for digital coupon/retailer loyalty programs, with retailers overall experiencing a 52% increase in program registrations compared to last year. Some retailers are outpacing the rest with year-over-year enroll growth rates of 300% to 700%. This represents millions of digital shoppers looking for digital engagement and savings.
Price matters more than ever
Watching consumer and business behavior in the fuel industry, you can learn a lot. Gasoline prices are plastered on large signs. Consumers will drive out of their way for a fuel bargain. Grocery stores use gasoline discounts to drive loyalty. That kind of price transparency in pharmacy is here — as is the COVID-19 market — with rising unemployment and fear. About 47 million Americans have filed unemployment claims in the last 14 weeks.
More and more independently owned pharmacies are offering free generic drugs for those that have lost a job even as activity among charitable pharmacies is increasing. More is being published on how consumers can maximize their benefits from 340B programs. Retail chain pharmacies are advertising low-cost generics, free medications, and other price-centric approaches that have gained traction with high-deductible plans and will gain momentum with the surge in unemployment. Consumer Reports covers pharmacy services and publishes data on the best-value pharmacies and ways to save money.
A federal judge recently upheld a policy that requires hospitals and health insurers to publish their negotiated prices for health services. Secretary of Health and Human Services Alex Azar applauded the court’s decision. The American Hospital Association said it will appeal. We should expect to see these moves for transparency continue, as consumers will demand it. The economic pressure of 2020 requires consumers to plan every dollar.
Assortment and merchandising are evolving across channels
Private label offerings are gaining strength, as product shortages have encouraged trial of new brands and the economic crisis spurs the desire for lower-cost alternatives. Inmar Intelligence data shows that in March of 2020 40% of shoppers reported purchasing a new brand during their most recent shopping trip compared to only 18% who said the same thing in March of 2019. McKinsey reported 13% of shoppers changed their regular store due to the pandemic.
As e-commerce grows and consumers change behaviors (forever!) pharmacies are rethinking assortment strategies to further draw on their strengths. The breadth and depth of what is in-store versus online will continue to change. Inmar data shows:
- 41% of in-store shoppers have downloaded and/or used a grocery retailer’s mobile app in Q1 2020 versus 22% in Q1 2019.
- 362% increase in online conversations among consumers discussing grocery delivery and pickup.
Clinical services are becoming an increasingly important assortment strategy, as thousands of consumers are already using the pharmacy for COVID-19 testing. This reliance on pharmacies as consumers’ first line of COVID defense is only going to increase once vaccinations become available. The new definition of pharmacy assortment is an opportunity to differentiate your brand and your future.
Quality and safety are still more important than anything else
Not all innovation has to be “big” in order to have a big effect. In support of our pharmacy partners’ efforts to protect patients and staff, Inmar added messaging to our workplace floor mats while making them six feet by six feet so that maintaining critical social distancing would be easy for patients, consumers and employees. We also added a single indicator to our MedEx TraySafe medication kit replenishment and tracking solution that’s helping prevent the transmission of viral infections in the hospital setting.
Now we have ramped up our nationwide consumer drug take-back program in support of the DEA’s Secure Your Meds campaign, helping to prevent diversion and misuse of prescription medications. According to the DEA, “Rates of prescription drug abuse in the United States are alarmingly high, as are the number of accidental poisonings and overdoses due to these drugs. Studies show that a majority of abused prescription drugs are obtained from family and friends, including from the home medicine cabinet.”
Inmar is offering national services to pharma manufacturers to help them meet extended producer responsibility requirements. Inmar is leveraging the same consumer drug take-back infrastructure to provide PPE disposal services to pharmacies that are COVID-19 testing sites. Staying at home has made cleaning out of medicine cabinets more important than ever. Pharmacies who are educating consumers about the safe drug disposal in their stores will drive traffic and loyalty.
The most powerful quality and safety microscope is on the drug supply chain and DSCSA-mandated serialization has been the focal point. At the same time, the pandemic has caused us to take a closer look at the entire supply chain. There is draft legislation that would require tracking for active pharmaceutical ingredients, prohibit purchases from China, create transparency in the supply chain and provide incentives for manufacturing in the U.S. I expect to see even more innovation and creativity emerge as a result. We must be able to protect the health and safety of Americans, pandemic or not.
We never want a recalled product or a counterfeit product to be dispensed to a patient. We focus on making sure that we have products available to consumers, that appropriate generic substitutions are on hand and that drug shortages are avoided. And we are moving towards interoperability in 2023.
I am still waking up every day to this new reality and thinking about it from every angle. I think we have discovered that we are highly adaptable and creative in these times. Let’s continue to collaborate as an industry to better serve patients and keep the assets of the pharmaceutical industry focused on what really matters — better care, lower costs and more accessible health care. It’s an opportunity for retail to further secure its role in health care. Keep innovating!
Lari Harding is vice president of client development at Inmar Intelligence.