Supermarket Rx gains level off

Drug Store News, April 29, 2002 by Liz Parks

Supermarket pharmacies may be approaching a point at which their growth, at least in numbers of new pharmacies opening per year, is leveling off.

According to the Food Marketing Institute's 2001 report on supermarket pharmacies, the rate at which supermarkets have been opening pharmacies slowed last year, reaching its lowest level in five years.

"In general, there has been a solid move among all supermarket retailers to get into and expand pharmacy because that department has had such a compelling positive impact on comparable-store sales. It's helped grow the business and market share," said Bob Summers, a securities analyst for New York-based Banc of America. "But I think many supermarket chains have pretty much finished going back and retrofitting or remodeling existing stores to add pharmacies. Going forward, I think the bulk of the growth will come from opening pharmacies in new stores, and that should lead to a leveling off of pharmacy openings in food stores."

John Shepherd, vice president of chain relations for the National Association of Chain Drug Stores, agreed." [Supermarkets] were busy not just opening pharmacies in most of their new stores, but also retrofitting existing stores to make room for a pharmacy," he said. "But that's pretty much over now. Most of the older stores that had enough space for a pharmacy have been retrofitted, so the growth is now primarily in new stores."

In 2001, NACDS projects that traditional chain drug stores had a 41.9 percent share of all pharmacy sales, while supermarkets had a much smaller 12.3 percent share.

Traditional drug chains, working off a much higher dollar volume base of $69.3 billion in prescription drug sales, still were able to grow their pharmacy business by a projected 16.1 percent, according to NACDS. In addition, supermarkets' dollar sales in pharmacy were up a projected 20.7 percent to $20.4 billion last year.

As Shepherd sees it, pharmacy sales, driven by aging baby boomers and product innovation, are increasing so fast that there still is plenty of opportunity for strong future dollar volume growth for all the players in pharmacy.

Total prescriptions dispensed in traditional chain drug stores increased a projected 5.8 percent to 1.4 billion in 2001, while prescriptions dispensed in supermarkets increased 7.3 percent to 417 million.

One of the big changes in the world of supermarket pharmacies is that they have now become a key marketing tool, a core around which supermarkets are building up their sales of profitable health-related products, including high-margin health and beauty aids, wellness products, nutritionals and organic foods.

"Supermarket pharmacists often play the role of a wellness advisor, as well as the more traditional roles of a medication advisor," said Shepherd. "The whole idea of wellness is a marketing concept. It's a way for food stores to sell higher-margin items, including health and beauty aids. The supermarket with a pharmacy becomes a one-stop-shopping destination, while the drug store, because it has smaller stores and smaller assortments, becomes a convenience shop."

Shepherd said that food chains with pharmacies advertise and promote them more aggressively than in the past. "The food chains have made a major investment in pharmacy and they would like to see more people use it."

Like chain drug stores, food stores also are giving customers the option of having access to drive-through pharmacies. In its 2001 survey, FMI, for the first time, asked its respondents whether they had drive-through pharmacies. One-third of the respondents, or 35 percent, did have drive-through pharmacies in at least one store, and the median number of drive-throughs in place was two per company.

FMI also reported that in pharmacies with drive-throughs, a median 15 percent of prescriptions were sold through the drive-through.

As dollar sales in pharmacy have grown over the years, so has pharmacy grown as a percent of total sales.

Although pharmacy will never be the heart of a food store's business, as it is the heart of a drug store's business; it still is showing strong growth as a key value-added service.

Although there are no industrywide statistics that show how profitable pharmacy is in food stores, Shepherd believes the department is profitable both as a stand-alone department and as a draw that pulls more traffic into a supermarket's health and beauty aid and wellness aisles.

Top supermarkets in pharmacy sales

Rank  Company                        2001    % total sales  Total
                                   Rx sales     from RX     stores

 1    Kroger Co., Cincinnati        $4,500        8.8%      2,418
 2    Safeway, Pleasanton, Calif.    2,600        7.5       1,800
 3    Ahold USA (1),                 2,000        8.6       1,600
      Chantilly, Va.
 4    Winn-Dixie,                    1,040        7.3       1,152
      Jacksonville, Fla.
 5    Publix Super Markets,            700        4.0         690
      Lakeland, Fla.
 6    H.E. Butt Grocery,               690        9.0         297
      San Antonio
 7    A&P, Montvale, N.J.              400        4.0         700
 8    Delhaize America (2),            375        2.5       1,459
      Salisbury, N.C.
 9    Pathmark Stores,                 350        9.0         142
      Carteret, N.J.
10    Wegmans Food Markets,            320       12.0          62
      Rochester, N.Y.
11    Giant Eagle,                     278        6.0         215
      Pittsburgh, Pa.
12    Wakefern Food Corp.,             250        4.0         209
      Elizabeth, N.J.
13    Hy-Vee, West                     248        9.0         215
      Des Moines, Iowa
14    Raley's, West                    240        9.5         149
      Sacramento, Calif.
15    Spartan Stores (3),              130        4.0         127
      Grand Rapids, Mich.
16    The Penn Traffic Co.,            124        5.0         217
      Columbus, Ohio
17    Marsh Supermarkets,               77        5.0          91
      Indianapolis, Ind.
18    Price Chopper (4),                75        5.0         102
      Schenectady, N.Y.
19    United Supermarkets,              73       11.0          42
      Lubbock, Texas
20    Shaw's Supermarkets,              62        4.0         187
      W. Bridgewater, Mass.
21    Save Mart Supermarkets,           60        4.0          98
      Modesto, Calif.
22    Haggen Food and Pharmacy,         47        7.0          27
      Bellingham, Wash.
23    Ukrop's Super Markets,            41        6.6          28
      Richmond, Va.
24    Quick Chek, Whitehouse            34       12.0         105
      Station, N.J.
25    Times Supermarkets,               26       19.0          10
      Honolulu, Hawaii

Rank  Company                      No. of stores  % of stores
                                      with Rx       with Rx

 1    Kroger Co., Cincinnati           1,702           70%
 2    Safeway, Pleasanton, Calif.      1,250           69
 3    Ahold USA (1),                     759           47
      Chantilly, Va.
 4    Winn-Dixie,                        732           63
      Jacksonville, Fla.
 5    Publix Super Markets,              430           62
      Lakeland, Fla.
 6    H.E. Butt Grocery,                 183           61
      San Antonio
 7    A&P, Montvale, N.J.                305           44
 8    Delhaize America (2),              185           13
      Salisbury, N.C.
 9    Pathmark Stores,                   131           92
      Carteret, N.J.
10    Wegmans Food Markets,               61           99
      Rochester, N.Y.
11    Giant Eagle,                       160           74
      Pittsburgh, Pa.
12    Wakefern Food Corp.,               134           64
      Elizabeth, N.J.
13    Hy-Vee, West                       167           78
      Des Moines, Iowa
14    Raley's, West                      105           70
      Sacramento, Calif.
15    Spartan Stores (3),                 64           50
      Grand Rapids, Mich.
16    The Penn Traffic Co.,              100           46
      Columbus, Ohio
17    Marsh Supermarkets,                 39           43
      Indianapolis, Ind.
18    Price Chopper (4),                  48           47
      Schenectady, N.Y.
19    United Supermarkets,                31           74
      Lubbock, Texas
20    Shaw's Supermarkets,                56           30
      W. Bridgewater, Mass.
21    Save Mart Supermarkets,             30           30
      Modesto, Calif.
22    Haggen Food and Pharmacy,           27          100
      Bellingham, Wash.
23    Ukrop's Super Markets,              21           75
      Richmond, Va.
24    Quick Chek, Whitehouse              13           12
      Station, N.J.
25    Times Supermarkets,                 10          100
      Honolulu, Hawaii

Source: Drug Store News research

(1)Ahold USA includes Bi-Lo, Giant Food, Martins Food Market, Stop &
Shop and Tops Market

(2)Delhaize includes Food Lion, Hannaford Bros. and Kash N Karry stores

(3)Spartan Stores merged with Seaway Food Town giving the company
control of Food Town Supermarkets and The Pharm Deep Discount drug
stores

(4)Price Chopper is owned by Glub Corp.