Supermarkets rack up double-digit gains in Rx sales

Drug Store News, April 24, 2000 by James Frederick

If anyone doubts the impact that supermarkets are having on community pharmacy and the drug store business, they need look no further than the membership list at the National Association of Chain Drug Stores.

"I was hired because of the growth of supermarket pharmacy," said John Shepherd, who became vice president of food stores for NACDS after a 30-year career with Safeway. "When we started this initiative in 1996, supers were 16 percent of our chain [members]. Today, they're more than 40 percent."

Consider, also, the numbers provided by IMS Health, NACDS and the Food Marketing Institute. Food stores now account for 11 percent of retail prescriptions sold through all channels, and last year generated $13.4 billion in pharmacy sales, a rise of 18 percent over 1998 prescription revenues.

"Supermarket pharmacies sold 306 million prescriptions in 1998, a 66 percent increase from 1993 and one of the highest levels of growth in the retail pharmacy marketplace," noted FMI in its most recent report on supermarket pharmacy. "In line with increased retail prescription prices, the median of average weekly prescription sales per supermarket increased to $32,256, a 75 percent increase from the level in 1993."

According to IMS and NACDS, last year's supermarket pharmacy sales shot up again, to 357 million prescriptions sold in 1999, out of a total of 2.97 billion across all retail channels. That represents a growth rate in units dispensed of 16.8 percent over the previous year, outpacing growth in all other pharmacy outlets by a wide margin. By contrast, according to NACDS, traditional drug store chains enjoyed a 10.6 percent rise in prescriptions dispensed, with mail-order pharmacy up 8.9 percent, mass merchandisers up 6.4 percent and independents eking out a 4.4 percent gain in unit sales.

What's more, noted FMI, "Supermarket pharmacies grew from 11 percent of total retail pharmacy outlets in 1993 [5,950 stores] to 14.7 percent in 1998 [7,743 stores]."

Behind the numbers is an industry drawn to the higher margins afforded by health and beauty aids and other drug store categories-particularly when those departments are anchored by a pharmacy, which tends to boost sales for other health and beauty aids and GM categories in the supermarket.

"Supermarket chains continue to find opportunities to drop a pharmacy into an existing food store-particularly when they can buy [prescription] files from a nearby independent drug store and hire that pharmacist," said Shepherd. "In terms of the overall impact on the store, [supermarket operators] have a great deal of incentive to do that, beyond just the profit opportunity of the pharmacy itself.

"A pharmacy in the store impacts customer loyalty, frequency of shopping visits and sales in HBA," he continued. "We figure it leads to about a 35 percent increase. And, of course, HBA is all high-profit product. It's lower turnover, but if you drop in a pharmacy you get more of the high profit and you automatically increase your turnover."

Joseph Pichler, chairman and chief executive of The Kroger Co., underscored the revenue-building potential of pharmacy in a statement last month. "Kroger's total pharmacy sales have more than doubled in the past five years, and our 1,500 pharmacies drive incremental sales in the highly profitable health and beauty care category," he noted.

Food store operators are also exploiting the obvious synergies and health-oriented tie-ins between pharmaceutical care and nutrition in their stores. Many supermarket chains have hired nutritionists to work with diabetics and other pharmacy patients in their stores to counsel them on healthier diets and the right foods, and many have involved their pharmacists in that effort, as well.

Many food store operators, including Albertson's, Kroger, Giant Food, Stop & Shop, Publix, Schnuck Markets, United Supermarkets and Weis Markets have taken steps to better integrate their in-store pharmacies with the rest of the store.

In all, some 40 percent of supermarket operators now "offer disease management programs in at least one of their in-store pharmacies," noted FMI in its report, and 52 percent of them "use merchandising efforts to make the connection" between the store's pharmacy and its food offerings. More than half of all food chains also now offer continuing education courses in disease management for their pharmacists, FMI noted, with diabetes, asthma and hyper-lipidemia getting the most attention.

FMI is devoting plenty of attention this year to efforts to integrate food and pharmacy in the supermarket. Whole health initiatives were a key focus at the organization's 13th annual Pharmacy Conference in mid-April, and FMI is featuring for the first time a Whole Health Pavilion at its annual industry meeting in Chicago next month. The pavilion will feature "a large exhibit area showcasing the expansion of whole health solution concepts" involving "companies and organizations associated with pharmacy, natural products, organics, supplements, health instruction and fortified foods," according to FMI.