Along with the nation's economy, prescription sales are in a slump.
About two years ago, prescription growth in dollars was between 10% and 12%, but had dropped to the low single digits by mid-2008, according to IMS Health, Norwalk, Conn. Most in the industry agree that prescriptions have been in decline since then, and that the recent spate of job losses will accelerate this downward trend as more consumers lose their health insurance.
Looking down the road, retailers hope the economy will start to recover as soon as the end of the year, which will increase sales everywhere. Also, comprehensive health care reform should provide a big boost to the prescription business, although there is growing uncertainty about that happening this year.
Meanwhile, the same demographic trends that have been feeding confidence in pharmacy for years have not gone away. The nation is getting older and there will be more demand for medications.
The question on the minds of supermarket pharmacy executives facing dismal current market conditions, but a bright future a year or two from now is: How do we get there from here?
For the short term, the answer appears to be discount and free generic drug programs. Retailers that have them see strong pharmacy traffic, and on the downside, long wait times for patients in some stores. Nearly everyone else, including those who were most critical of them when they were first introduced, is looking to implement or expand such programs.
While generics priced at $4 for a 30-day supply and $10 for 90 days, may seem like a loss leader, the actual cost of the drugs is generally lower than the discount retail price. However, retailers lose profits because the operational cost of filling a prescription, exclusive of the drug cost, is estimated to be $10 per script.
Meanwhile, the programs drive traffic and meet a very basic need of consumers.
Free antibiotics might seem like a big loser, but between the low generics costs and the comparatively few scripts for these drugs, the losses are frequently balanced by the publicity and goodwill the programs generate. Some have said that, if handled properly, the free antibiotics offer can result in a highly cost-efficient marketing campaign.
BEYOND THE COUNTER
Longer term, retailers are hoping to see more revenues from services such as drug counseling and outreach to nearby employers, along with taking greater advantage of their unique location within the grocery environment.
“Everyone is looking for ways to recoup money that is being eroded away,” said Dan Milovich, vice president, pharmacy operations, Bashas', Chandler, Ariz. “We're looking at specialty pharmacy, immunization, medical therapy management and durable medical equipment.”
“Whether prescription sales are up or down, the long-term outlook is strong given the broader role that pharmacies play in supermarkets,” said Cathy Polley, vice president, pharmacy services, Food Marketing Institute, Arlington, Va.
“To cope with the downturn, supermarkets need to continue doing their best to focus on customers — focus on the products that remain strong — and emphasize the value they are providing to customers,” said Laura Miller, senior economist, National Association of Chain Drug Stores, Alexandria, Va.
“Supermarkets account for over 15% of the retail pharmacies in the U.S., so they are a huge part of the industry. And none of the economic conditions change the underlying demographic trends, which are all favorable to pharmacy.”
At Spartan Stores, Grand Rapids, Mich., covering an area hit hard by the cutbacks in the automotive industry, Eddie Garcia, director of pharmacy, said the overall emphasis of pharmacy needs to be on health and wellness, integrated with the food side of the business.
“We have to focus on the total health of the patient rather than just prescriptions. The advertising we've done is to try and link overall health as opposed to just simply offer a $4 prescription,” Garcia said. The pharmacies conduct discounted health screening and periodic store tours lead by a dietitian.
CONTINUED INVESTMENT
While some, like Bruno's Supermarkets, Birmingham, Ala., have cut back on unprofitable pharmacies, and others will likely follow in the months ahead, many chains have top management that remains committed to pharmacy.
“Upper management is very committed to the pharmacies in their stores because they create a unique shopping experience that blends food, nutrition and pharmacy services under one roof,” Polley said.
“Supermarket pharmacies often serve as the center for a wide range of health care and nutrition education services,” she added.
“The Giant Eagle Drugstore is an area of continued investment for the company,” said Dan Donovan, spokesman for Giant Eagle, Pittsburgh. “We look for ways to improve our offerings, both regarding our pharmacy business and our overall efforts on consumer health and wellness.
“We make educational outreach to various community groups, physicians and other business organizations. For inquiring customers, we also offer store tours led by licensed dietitians.”
Giant Eagle recently added free antibiotics for the cough-and-cold season in its Erie, Pa., and Maryland markets, he noted. In both areas, other retailers have implemented such programs.
Also, Giant Eagle links pharmacy to its fuel incentive program — fuelperks! — with an offer of $1 off per gallon of gas when the customer brings in a new prescription and presents the retailer's loyalty card. This combination of lowering both the price of the prescriptions themselves and the price of another important expense, namely fuel, allows us to better assist our customers during these fluctuating economic times,” Donovan said.
“Our upper management team is very committed to pharmacy recognizing that pharmacy's impact on the supermarket goes well beyond prescription sales,” said Dave Adams, director of pharmacy operations, Martin's Super Markets, South Bend, Ind. “The addition of pharmacies to our supermarkets has resulted in growth from our HBC departments, increased foot traffic within the stores and a customer base, which is extremely loyal.”
A year ago, Martin's began a free antibiotics program, and Adams said the retailer is “very pleased” with its performance. “This program has been a blessing for many of our patients in these economically challenging times. One of our keys to success is being able to offer these programs while still maintaining our high level of customer service,” he said.
Like others, Martin's is expanding its medication counseling services to employers in its market area with an eye to reducing costs. “For a fee, our pharmacists will schedule appointments with selected employees and provide them with information to assist in managing their disease state. By providing these services we hope to improve patient outcomes, build relationships with local employer groups and reduce overall health care cost,” he said.
Commitment to pharmacy by upper management varies greatly chain to chain, said Robert Gorland, vice president, Matthew P. Casey & Associates, Harrisburg, Pa. The company specializes in supermarket and pharmacy feasibility studies. The pharmacy business is “grossly overstored,” he said.
“Smart chains are closing under-performing pharmacies with sales below $15,000-$20,000 per week, especially if they have had flat or declining sales for one or more years,” Gorland said.
GENERICS PILOT
Tops Markets, Buffalo, N.Y., is among those experimenting with discount generics now, said Frank Wolff, director of pharmacy. “To help our customers during these tough times, Tops Markets rolled out a pilot $3.99 Generic Program in select markets in December, designed to help our customers who are struggling to make ends meet,” he said.
Over the past year, pharmacy margins have come under pressure for two reasons. “First, the fiscal challenges facing state governments have resulted in reductions in reimbursements for state and federal programs. In New York the cutbacks in Medicaid and EPIC [Elderly Pharmaceutical Insurance Coverage], which took effect on July 1, had a dramatic adverse impact on our margins. Second, our customers have become more cost conscious and are reviewing all expenses, including prescriptions,” Wolff said.
Discount generics programs can be good, but they are not a cure-all, said John Beckner, director, pharmacy and health services, Ukrop's Super Markets. “My philosophy is they certainly serve their purpose in terms of saving money. But people should not lose sight of the other things that pharmacists do that provide value.
“It's not all about the cost, although that is very important in this day and age, but there are other things that contribute to lowering costs as well. People have to look a little bit longer term. There are things that pharmacists can provide that will contribute to lower health care cost and better health overall, in addition to $4 generics and the like,” he said.
“Right now, everybody is hunkered down and focused on the economy. Rather than putting in new programs, they are trying to maintain existing ones, and to put in efficiencies. The interest in health and wellness is still going to be strong, but the growth might just be slower for a while,” Beckner said.
One example of a recent pharmacy program at Ukrop's was flu shots. “We had a very successful flu season. It seemed like there was a lot more interest in the flu vaccine this year compared to last year.”
In this case, the recession may have contributed to customers getting more flu shots.
“People are still interested in doing what they can to prevent illness. That may be even more so in that people are fearful about their jobs — they can't afford to be out of work. So I think they have really paid attention to all the promotion about how important it was to get a flu shot,” Beckner said.
Additional reporting: Christina Veiders