Top 10 Chain Drug Retailers

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NEW YORK — The leading chain drug retailers upheld their position in the industry last year as ranked by key financial measures.

Walgreen Co. again was at the top in sales ($71.63 billion), followed by CVS Caremark Corp. ($63.65 billion, retail pharmacy sales only), Rite Aid Corp. ($25.39 billion) and Shoppers Drug Mart Corp. ($10.50 billion, converted from Canadian dollars).

After that, the makeup of the top 10 drug chains by sales differed slightly from a year ago, primarily due to a large acquisition. In late March 2012, McKesson Canada added Katz Group Canada’s Drug Trading Co. banner pharmacy business (850 stores) and Medicine Shoppe Canada franchise pharmacy business (160 stores) in a $920 million (Canadian) deal.

As a result, Health Mart jumped to the No. 5 position in drug chain sales with estimated revenue of $6.70 billion, followed by Jean Coutu Group ($3.90 billion, converted from Canadian dollars), McKesson Canada ($2.23 billion estimated, translated from Canadian dollars), London Drugs ($2.21 billion estimated, converted from Canadian dollars), Rexall Pharma Plus ($2.20 billion estimated, translated from Canadian dollars) and Medicine Shoppe ($1.90 billion estimated). Slipping out of the top 10 to No. 11 was Uniprix, with sales of $1.82 billion (converted from Canadian dollars).

1. Walgreens — $71.63 billion
2. CVS Caremark — $63.65 billion (retail sales only)
3. Rite Aid — $25.39 billion
4. Shoppers Drug Mart — $10.50 billion**
5. Health Mart — $6.70 billion*
6. Jean Coutu Group — $3.90 billion**
7. McKesson Canada — $2.23 billion***
8. London Drugs — $2.21 billion***
9. Rexall Pharma Plus — $2.20 billion***
10. Medicine Shoppe — $1.90 billion**
Source: Racher Press research.
**Converted from Canadian dollars.
***Estimate. Converted from Canadian dollars.

CVS Caremark again led the sector in net income ($3.88 billion) and gross margin (30.0%) in 2012, thanks to what president and chief executive officer Larry Merlo called a “solid performance across the enterprise.” Walgreens was again No. 2 in net income ($2.13 billion) and gross margin (28.4%).

Jean Coutu held onto first place in net margin (8.4%) and return on investment (35.4%).

In net income, Shoppers Drug Mart was No. 3 ($595.4 million, translated from Canadian dollars) and Jean Coutu was No. 4 ($225.1 million, converted from Canadian dollars).

Following Jean Coutu in net margin were Shoppers Drug Mart (5.6%), CVS Caremark (3.2%) and Walgreens (3.0%). Rite Aid was third in gross margin (27.8%).

By store count, Walgreens continues to lead the field, with 8,071 drug stores, followed by CVS Caremark (7,458), Rite Aid (4,623) and Health Mart (3,077).

Last year’s McKesson Canada-Katz deal also changed the top 10 by stores. McKesson Canada jumped from the No. 7 to the No. 5 spot in store count with 1,636 units, nudging Shoppers Drug Mart (1,295 stores) to sixth. Rounding out the top 10 were Medicine Shoppe (595 stores, U.S. only), Pharmasave (485 stores), Rexall Pharma Plus (430 stores) and Jean Coutu (405 stores).

With acquisition options scarce, leading pharmacy retailers are seeking other avenues for growth.

“The sizable deals are all gone,” said equity analyst Joseph Agnese of S&P Capital IQ. “You might see smaller regional players get acquired, but nothing that’s going to significantly move the needle.”

1. Walgreens — 8,071
2. CVS Caremark — 7,458
3. Rite Aid — 4,623
4. Health Mart — 3,077
5. McKesson Canada — 1,636
6. Shoppers Drug Mart — 1,295
7. Medicine Shoppe — 595*
8. Pharmasave — 485
9. Rexall Pharma Plus — 430
10. Jean Coutu Group — 405
*U.S. stores only.

That has led the two biggest U.S. drug chains to look abroad. Last summer Walgreens partnered with global health, beauty and pharmacy wholesaler and retailer Alliance Boots, and in February CVS Caremark acquired Drogaria Onofre, a 44-store drug chain in Brazil.

“You’re now seeing the big operators think more internationally,” Agnese said. “CVS took a nibble, and Walgreens of course had a much bigger deal. And that’s because of the consolidation in the industry.”

According to the Drug Channels Institute, the top five dispensing pharmacies — CVS, Walgreens, Express Scripts Inc., Rite Aid and Walmart — last year represented a record-high 63% of U.S. prescription dispensing sales.

“What we’re seeing is a slow and steady concentration of dispensing market share. You’re seeing regional chains being picked up; in the last few years you’ve seen CVS acquire Longs, Walgreens acquire Duane Reade and USA Drug, and CVS acquire Medicine Chest,” said Adam Fein, president of the Drug Channels Institute and its parent Pembroke Consulting, a pharmaceutical industry consultancy. “And the two largest drug store chains continue to expand their store footprint. They’re each planning to add 2% to 3% square footage every year. So they’re slowly gaining more share. File buys are another form of acquisition, a way to seed the store.”

Drug chains, too, have stepped up participation in preferred pharmacy networks as payers seek ways to lower health care costs, Fein said, noting that Walmart and Costco Wholesale Corp. have been active on that front as well.

“Preferred networks are really taking off in the commercial marketplace and in Medicare Part D. Right now, probably a third of all commercial payers have some kind of a narrow network offering,” he said. “The chains, particularly Walgreens, have really made an effort to get involved in some of the preferred payer networks that have developed. And that’s driving store traffic.”

*To see the lists of the top 50 drug chains by sales and by stores, see the State of the Industry 2013 report — which includes economic analysis, drug chain profiles, interviews with chain drug leaders, and industry trend articles — in the April 22, 2013, print issue of Chain Drug Review.


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