PERFORMANCE PROFILE

ALEXANDRIA, Va. -- Retail pharmacy has grown over the last decade to play an integral role in grocery retailing, especially for those chains pursuing a whole-health marketing approach.ociation of Chain Drug Stores in their third edition of The Chain Pharmacy Industry Profile, released here last month.Over the last three years (1998 to 1999) supermarket pharmacies have grown by double digit figures

ALEXANDRIA, Va. -- Retail pharmacy has grown over the last decade to play an integral role in grocery retailing, especially for those chains pursuing a whole-health marketing approach.

ociation of Chain Drug Stores in their third edition of The Chain Pharmacy Industry Profile, released here last month.

Over the last three years (1998 to 1999) supermarket pharmacies have grown by double digit figures -- 24.5% -- from 6,293 pharmacy units in 1998 to 7,832 units in 1999. Of the total 53,832 outlets that comprise the community retail pharmacy sector, supermarkets represented 14.5% of the total number of pharmacies last year.

From 1990 to 1999, both supermarkets and mass merchants posted unit growth of 69% and 52%, respectively. The number of traditional chain drug stores during this period remained fairly stable and totaled 20,063 units last year. The sector experiencing the greatest decline in outlets in the last six years is independent drug stores, declining from nearly 32,000 units in 1990 to under 21,000 units in 1999, a 50% slide.

Prescription drug sales grew a healthy 18% last year to $121.7 billion. Community retail pharmacy outlets, including supermarkets, dispensed the bulk of drugs representing 64.4% of total sales distribution, compared to much smaller percentages distributed by HMOs, long term care/home health, clinics, hospitals and mail order.

The prescription drug category is expected to hit $143.5 billion by the end of this year, another 18% increase over last year, projects the NACDS. Factors contributing to the increase in volume are increasing utilization of prescripton drugs, especially by the elderly (those over 65) and the introduction of new medicines that enable treatment of more serious illnesses outside the hospital setting. Additionally, the growth in managed care and its growing utilization of prescriptions is adding to the overall prescription use, as well as increased consumer awareness of drug therapy options from direct to consumer advertising by prescription drug manufacturers.

Additonally, sales of over-the-counter medications in community pharmacies are expected to reach $33.2 billion in 2000, a 3.8% increase over the $32 billion in OTC sales last year. In announcing a projected 3.15 billion prescriptions by year-end, NACDS also estimates that of the total, chain pharmacies are expected to dispense 1.98 billion, with 1.3 billion from traditonal chain drug stores, 307 million from mass merchants and 397 million from supermarkets.

"The chain pharmacy industry is very vibrant and continues to fill a key role in our healthcare system as an easily accessible source of high quality healthcare services and products," said Craig Fuller, NACDS president and chief executive officer, in releasing the projections last month at the NACDS Pharmacy Conference in San Diego. "The challenge of meeting ever increasing consumer and health system demand for prescrition drugs and pharmacy services requires that policy makers and payors remove many of the administrative burdens on pharmacists that limit patient interaction."

Of 1999 prescription retail sales, supermarkets represented 11% of dollar sales at $13.4 billion, an 18% increase over the previous year. Chain drug stores sold the bulk of prescription drugs with a 42.4% share of sales, generating $51.6 billion. This was followed by independent drug stores with 23.1%, or $28 billion, and mass merchants with 9.9%, or $11.9 billion. Mail order generated 13.6% of sales at $16.5 billion.

While pharmacies are important to supermarkets in establishing their one-stop, convenience image, pharmacy's contribution to overall store sales is relatively low and represents just 10.7% of supermarkets' total sales. This compares to 66% of total sales for traditional drug stores, 57.3% for chain drug stores, 91.2% for independents and 5% for mass merchants. Average annual sales generated by supermarkets were $15.9 billion and average annual pharmacy sales were $1.7 billion.

From a per capita sales view point, supermarket performance has been sluggish over the past 10 years compared to drug stores. From 1989 to 1999, supermarkets per capita sales grew at less than 2% per year. Drug stores, on the other hand, enjoyed a 71% increase, a rate of 5.5% per year.

Generally, over the last decade gross margins have remained relatively stable for retail pharmacy.