Inside This Issue - Opinion
Competitive environment takes a turn
April 26th, 2010
The severe economic downturn that began in December 2007 has altered consumers’ thinking in ways that a number of recent studies conclude will have long-term implications for retailers.
During past recessions, the chain drug industry, with its intense focus on pharmacy and health care, was viewed as resistant (if not totally immune) to the problems plaguing the broader business community. No more.
The trends currently reshaping shopping patterns are creating different kinds of challenges for drug store operators than they have faced in the past. The problems are highlighted, along with much else, in one of the most incisive of the new reports. The AlixPartners 2010 Consumer Sentiment Index reveals that the search for value has emerged as the primary motivation for shoppers.
“Consumers are rapidly changing their mind-set,” says Matt Katz, leader of the business advisory firm’s retail practice. “They’re saying that what’s most important to them is the intersection of ‘good-enough’ merchandise — not ‘the best’ but good enough — and low prices. Consumers are making it clear that retailers must understand the value equation or they will not part with their dollars.”
That tendency has permeated the minds of shoppers to such an extent that most of them will no longer make an exception to the general pattern even for their health and wellness needs.
As a result, the biennial AlixPartners’ research (which polled 7,709 individuals in the United States during last year’s fourth quarter) shows that Walmart is the rising star among pharmacy operators. Sixty-three percent of drug store shoppers cited the company as one of the three retailers they prefer in the segment, with 59% of that group indicating that they buy all of their medications there.
Walmart has been a potent force in community pharmacy for some time, but its appeal in the category really took off with the implementation, in late 2006 and 2007, of a $4 generic drug program and subsequent value-oriented initiatives for select branded medications and over-the-counter health care products. The company’s recognition ranking among drug retailers jumped from No. 4 to No. 2 since 2007, according to the AlixPartners study. (Walgreens is No. 1; CVS/pharmacy No. 3.)
Target, the nation’s other major discounter, matched many of Walmart’s moves in pharmacy pricing and has been similarly successful. Its standing as a drug retailer rose from No. 7 in 2007 to No. 5 last year.
Now it’s up to traditional drug chains to respond.
“They need to understand that there’s a cost to delivering access, experience and service, and what that entails,” Katz notes. “There’s this maniacal focus on lower price points for the consumer but also for the retailer. That creates an opportunity to think about the business a little bit differently. It’s not only about lowest price, it’s about highest value. There certainly are ways to compete other than price, although for the near term price is what consumers are emphasizing.”
Drug chains are working to strike the right balance in the present environment, while at the same time developing the means to differentiate themselves in the marketplace.
If drug chains are to stem the tide sweeping them toward becoming a commodity business, service will be paramount. With the aid of advanced technology and pharmacy technicians, the ability to fill scripts quickly and accurately is common.
What can’t be easily replicated is the individual care provided by trusted professionals who know more about medicines and their effect on the body than any other health care provider.
That expertise, coupled with easy accessibility and a growing array of such other health care services as immunizations and in-store clinics, is the surest means for the trade class to retain a distinct identity. Maximizing those strengths is the best way for traditional drug chains to avoid what Walgreens executive vice president Kermit Crawford has characterized as the “Blockbusterization” of community pharmacy.