Pharmacy

Drug Store News, May 20, 1996

For prescriptions, 1995 was a banner year. More prescriptions were filled than ever before -- some 2.1 billion were dispensed, an increase of 5.5 percent over 1994. That's the largest increase recorded, according to research firm IMS America. Wholesale prices also rose -- by nearly 2 percent in 1995.

But despite that, the average price a consumer paid for a prescription fell to $26.44 -- nearly the level of 1993.

Nonetheless, because volume was up, sales were up, and the chain drug channel continued to be the all-round leader in pharmacy market share. (See chart pg. 32.)

Chain drug's total. share of the market, among all dispensary types, totaled 25.6 percent in 1995. Its nearest competitor, the hospital channel, captured 5 percentage points less -- 20.4 percent of the market. Independent drug stores captured 17.9 percent of the market, for the No. 3 spot. And chain drug's retail competitors -- mass merchants and food stores with pharmacies -- trailed far behind, with 7.8 and 7.5 percent, respectively.

When compared just with its retail competitors, drug chains obviously still dominated -- and, ever better, increased market share in 1995.

Exploding last year with an 11.2 percent growth rate, chain drug pharmacy sales reached $25.8 billion, up from 1994's $23.2 billion. This increase -- the second largest in the retail pharmacy arena -- was far better than last year's -- when mass merchants registered a stronger growth rate -- five percentage points ahead of drug chains -- and food stores were virtually tied.

This year, the only retail channel reporting a larger percentage increase was mail order.

More important, though, drug chains picked up market share in retail pharmacy -- jumping two percentage points -- while mass merchants and food stores stayed virtually flat despite their 7 percent growth rates.

Mass merchants rang up $7.6 billion worth of prescriptions -- nearly 40 percent of which was sold by a single retailer, the behemoth Wal-Mart. The chain's pharmacy volume -- nearly $3 billion -- placed Wal-Mart squarely in the No. 2 spot in pharmacy volume, ranking only behind Walgreen. The nearest supermarket competitors -- Kroger, Albertson's and Safeway -- only mustered some $375 million a piece.

With chains like Walgreen, Rite Aid, Eckerd, American, Thrifty PayLess, Thrift and Medicine Shoppe reporting double-digit increases in pharmacy sales, chain drug's market share gain comes as little surprise.

And virtually all of the top 10 chains also reported increasing the percentage of sales derived from pharmacy -- from Walgreen's green's 2 percent gain (bringing pharmacy to 43 percent of sales) to Thrift Drug's 8 percent rise (bringing pharmacy to 60 percent of sales). Chain drug's average percent of sales from pharmacy climbed to 40 percent in 1995, up from 39 percent in 1994.

And this growth occurred in a year when the increase in the number of chain stores slowed. Only 59 new units were accounted for in the chain drug segment. Although large chains are continuing to build brand new stores, the majority of the stores were replacement stores in 1995.

In contrast, the number of independent drug stores fell by nearly 1800 -- and their rate of growth in pharmacy sales virtually stalled at 0.5 percent. The good news for independents, however, was that on a per unit basis, each store averaged $798,000 in 1995, an increase of 8 percent over 1994.

There's no doubt that drug chains continue to play an important -- and growing role -- in retail pharmacy today. Gross margins, however, reflected the managed care crunch -- drop ping 2.5 percent for drug chains, to 23.7 percent.

The mix of payments changed dramatically over the past year. The percent of prescriptions from third party exploded from 40 percent in 1994 to 51 percent in 1995. Cash customers, not surprisingly, dropped from 47 percent of prescriptions filled, to 38 percent. Medicaid made up the remaining 11 percent in 1995.

Third party intervention is one reason the customer's average price per prescription dropped in 1995. Another contributor to the decline in retail prices is the number of drugs that have come off patent. And, not surprisingly, the percent of generics to total prescriptions is up. In 1995, 174 million prescriptions were written generically and 352 million were substituted, bringing the percent of generics to total prescriptions to 44 percent -- up five percentage points over 1994.

1995 retail pharmacy performance
by class of trade