Inside This Issue - News
2011 Retail Forecast: Drug chains ready for change
January 6th, 2011
NEW YORK – With 2011 now here, chain drug retailers across North America are encountering many of the same challenges that they did a year ago.
Executives at U.S. and Canadian drug store chains said that as the new year rolls forward, they expect to see more signs that an economic recovery is under way — and gathering momentum — and that consumers are more willing to spend on discretionary items.
Still, chain drug executives noted that providing value for financially pressured customers will remain crucial going forward, in spite of the drug store sector's reputation for being largely recession-resistant.
Another huge issue also will be top-of-mind with pharmacy operators: the implementation of health care reform. Changes in health care and the health care systems in the United States and Canada are pushing community pharmacies to take on new roles and adjust to the shifting dynamics of the marketplace.
To that end, executives point out that making their stores health and wellness centers with pharmacies that offer a broad menu of services will be critical if they are to continue being seen as vital links in the health care system.
Here's a sampling of what some drug retail executives had to say about the business climate that faces the industry in the coming year.
"High unemployment and the disastrous economic climate over the past two years have caused what's likely to be a permanent shift in consumer behavior. We don't think customers will stop looking for a value, or searching for a bargain, even when the economy improves. We think that the more pragmatic, hard-choice mind-set is here to stay." — John Standley, president and chief executive officer, Rite Aid
"As we transition into 2011, we're finding that the economy is causing consumers to remain value-conscious and cautious in their spending." — Larry Merlo, president and chief operating officer, CVS Caremark
"One thing I can say now that I couldn't have said a year ago is that I am optimistic about the new year. Most of our stores are in Michigan, where the auto industry is beginning to get back on its feet, and I believe we will have had a good fourth quarter in the pharmacy as well as the front end. Other signs of an improvement come from pharmacists, who note a dip in the number of prescriptions abandoned because of higher co-pays. ... And customers aren't buying just because they have a coupon or a discount or buying just that bottle of aspirin that they need — sales of items like greeting cards and gifts are picking up." — Rich Grossman, president and CEO, Sav-Mor Franchising
"2011 doesn't look like it's going to be very different from 2010. The recovery is going to be very slow, especially since jobs aren't coming back. From a retail perspective, it's going to be a time to hunker down and get a small increase in sales. It will be about controlling costs and maintaining margins." — Tom McConnell, chief financial officer and senior vice president of finance, Discount Drug Mart
"In 2010, the economy showed some signs of improvement, but a full-blown recovery never materialized. The business climate remained very challenging for most retail businesses. ... 2011 will be another year of slow economic growth, with unemployment forecasted to remain above 8% and the economy growing at only 2% to 3%. Although consumers have loosened their grip on their wallets ever so slightly, they will continue to be focused on value, seeking out the best deals to support their basic needs and forgoing most impulse purchases. ... As such, the industry still faces some headwinds. Given the absence of any new blockbuster drugs, coupled with continued generic conversions, producing significant top-line pharmacy sales growth will be challenging." — Mark Panzer, president and CEO, Pharmaca Integrative Pharmacy
"The company recorded record profits in 2010. We continue to see deterioration in average prescription price, especially as a result of new-to-market generics in the ulcer and benign prostatic hyperplasia (BPH) categories. Diabetic and Alzheimer's agents are the leader in top-line growth. We expect great pharmacy comps now that we are past the H1N1 comp period. ... We are forecasting an increase of 4% to 5% in comp sales of over-the-counter products for the upcoming year." — Joe Courtright, president and CEO, USA Drug
JOHN STANDLEY, RITE AID CEO: "We don't think customers will stop looking for a value, or searching for a bargain, even when the economy improves."
"In the pharmacy, we will emphasize professional development, focusing on the Caution Hypertension program, allowing people suffering from hypertension — or who present risk factors for it — to monitor their blood pressure in cooperation with their pharmacist and their doctor. We will also have other special promotions focused on health. ... In the front end, we plan to increase our private-label penetration, with the goal of developing more than 60 store-brand products this year." — Francois Coutu, president and CEO, Jean Coutu Group
"Kerr Drug is more focused on health care and the pharmacy, so we expect our pharmacy business to continue to be steady and to grow. It will be impacted somewhat by the generic drug introductions, as the entire pharmacy market will be. ... Patients are very aware of their drug spend. They're actually skipping doctor visits, and they are stretching their doses — they may take it every other day or split the pills. So patients are stretching their prescription dollars. In 2011, we think that we'll see a little bit of improvement in utilization for the [Medicare] Part D folks because of the support with the doughnut hole." — Ralph Petri, executive VP of pharmacy and supply chain operations, Kerr Drug
"We create a relationship with the consumer, whether through the look and feel of a store, how we market it, the merchandise mix, private-label products or a loyalty program. ... We're about a brand or a store or customer experience or great beauty advice. That's something we've been striving for. We don't want ever to be known as a place to go to for the lowest price, because that's an unsustainable strategy. As soon as someone undercuts you, you've lost that position." — Joe Magnacca, president, Duane Reade
HEALTH CARE REFORM
"There are threats and opportunities in health care. Thirty million more Americans who are going to gain health care coverage — that certainly is going to challenge the system. We've got an aging population. One in three Americans in the next 10 years will turn 65. We've got a higher incidence of chronic and complex diseases as people age, and to top that off we've got a shortage of primary care physicians. ... Anybody in health care has to have a relentless focus on cost reduction. But opportunities are arising in the prevention and management of chronic disease. And that's where we’re headed." — Greg Wasson, president and CEO, Walgreens
"Today, more than ever, the health care environment is changing, and I couldn't be more excited about how the role of the community pharmacist is evolving. ... There is ample opportunity for community pharmacists to grow their businesses and become more integral members of the patient care team. To do so, it is vital to elevate the role of pharmacists in the health care system. ... Many worry there won't be enough doctors to care for the more than 30 million additional lives that will be insured under health care reform legislation, so who will patients and payors turn to? They will turn to community pharmacists. We need to continue to emphasize the clinical expertise of pharmacists in the delivery of community-based patient care that is accessible, high-quality and low cost — and make sure that expertise is reimbursed fairly." — Tim Canning, president, Health Mart
"With more than 30 million more patients expected to be insured under the new health care reform legislation, the need to deliver care more cost-effectively is critical. This need has resulted in a growing focus on preventive care and keeping Americans out of emergency rooms and other high-cost care settings. ... This focus on greater health and wellness is certainly good news for all Americans, and it's also good news for pharmacists. As the most trusted and accessible health care providers in the nation, pharmacists have an important role to play in our nation's newfound focus on preventive care." — Brian Bertha, senior VP, McKesson Patient Relationship Solutions
"The changing landscape of the American health care system presents both challenges and opportunities for patients as well as pharmacists, physicians, pharmaceutical manufacturers and other health care service providers. As innovations in medicine advance standards of care and quality of life for patients, we must also consider the most efficient methods to deliver that care so the burden of cost is not an impediment to achieving better health. ... As health care reform begins to expand access to care, and public and private payors search for ways to manage costs, America's pharmacists are well-positioned to provide meaningful assistance with both access to care and cost containment." — Steve Collis, president and COO, AmerisourceBergen
"In health care, we're still struggling with Medicaid and reimbursement issues. As far as health care reform is concerned, we'll soon see how things will begin to shake out with the Obama administration and the new Congress. Probably the best thing for health care would be less government intervention — allow the marketplace to dictate any reforms. ... Money can still be made in this business if it is managed properly." — Mark Griffin, president and CEO, Lewis Drug
"The pharmacy environment in Canada is rapidly changing, and we expect it will continue to do so in the areas of regulation and policy changes, expanded scope of practice and the continued move to patient-centric care. ... Most dramatic are the changes in Ontario, where the dichotomy between the significant funding cuts to pharmacy and new professional services opportunities interplay in 2011 to evolve the business model." — Andy Giancamilli, CEO, Katz Group Canada
"One of the major issues for 2011 is dealing with the health care reform law, which is key to community pharmacy's interests. Also of specific concern are the Medicaid AMP [average manufacturer's price] fix, the durable medical equipment (DME) accreditation exemption, the requirement for pharmacy benefit manager (PBM) transparency in state health insurance exchanges, and the development of such new models of patient care delivery as medical home and accountable care organizations." — Albert Garcia, executive VP of pharmacy, Navarro Discount Pharmacy
"Drug spend is one of the most efficient aspects of the health care system today. However, it will remain a target of cost-cutting efforts as budget managers look for near-term financial relief. Provider reimbursements will likely continue to erode. ... Reimbursement pressure on pharmacy will not abate, but drug utilization and ancillary care is destined to increase. To prosper, pharmacies must attract and retain more patients by expanding their service offering and establishing themselves as health care destinations while they improve operating efficiencies." — Mike Cantrell, president, Good Neighbor Pharmacy
ROLE OF PHARMACISTS
"In 2010, Canadian pharmacists achieved milestones by expanding their scope of practice. The expanded services that pharmacists can provide in the expanded scope of practice are unique to each province. Specific examples of some of the patient services that Canadian pharmacists can now deliver include the administration of vaccines, medication therapy management, limited prescribing rights and travel vaccination consulting. These expanded services allow pharmacists to have a key role in their patients' health, and this helps to lift some of the burden from Canada's health care system." — Wynne Powell, president and CEO, London Drugs
"We expect many of 2010's health care and pharmacy trends to continue into 2011.
Americans will continue to look to retail pharmacy as the most convenient, local access point for health care services and expertise. We expect retail pharmacy to continue to innovate, to find new ways to offer patients convenient, value-added health care services that solidify retail pharmacy's role as patients' preferred local health care destination. ... Chains and independents alike will continue to find ways to help patients better manage their health. Every day we're inspired by stories we hear from our customers: retail pharmacists helping patients better manage diabetes, making it easier for their customers to get flu shots and other immunizations, and partnering with local long-term care facilities to meet their pharmacy needs." — Steve Lawrence, senior vice president of retail independent sales, Cardinal Health
"The Uniprix banner continues to highlight what makes us stand out from the competition: pharmacists’ concern for their patients — 'We Care.' Because we are an affiliation of owner-pharmacists who are truly focused on service and customer relationships, we say it loud and clear. ... We are continuing to train affiliated pharmacists and their technicians and recognize their contribution to the success and growth of our affiliated pharmacies." — Francois Castonguay, president and CEO, Uniprix Group
*Editor's Note: To read the full 2011 Retail Forecast and more executive comments, please see the January 3, 2011, print issue of Chain Drug Review.
MORE ON RETAIL BUSINESS:
• Late surge lifts chain drug holiday sales