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2010 Retail Forecast: Chain drug execs look ahead
January 7th, 2010
by CDR Staff
NEW YORK – As the second decade of the 21st century gets under way, chain drug retailers across North America are being forced to grapple with a variety of issues critical to their future.
Knowing that drug stores have a reputation for being largely recession-resistant, executives at American and Canadian drug chains are hoping for the best. Yet such issues as health care reform, the growing reliance on generic drugs and shrinking pharmacy reimbursement rates continue to shape the way they do business.
And the economic downturn, they point out, has changed shopper behavior and in many ways has altered the role of the drug store.
Drug chain executives say that as the year progresses, they expect to see more signs that the economic malaise is lessening and that consumers are feeling better about spending on discretionary items.
Here's a look at what some drug retail executives had to say about the business environment that the industry faces in 2010:
"2010 is likely to be another challenging year for drug store chains, with continued economic uncertainty across the nation, high unemployment and ongoing efforts to make sure retail pharmacy is fairly reimbursed under health care reform legislation. While it remains to be seen what legislation will pass, a major concern is that we will be paid a lower Medicaid reimbursement rate several years before we see any benefit from an increase in the number of insured." — Mary Sammons, chairman and CEO, Rite Aid Corp.
"As our nation’s economy slowly recovers from the recession in the first half, it will continue to be a challenging economic environment. Fortunately, while retail pharmacy is not recession-proof, we are to a certain degree recession-resistant. Customers will shop more frugally, and it will be more important than ever to retain loyal customers while attracting new ones." — Larry Merlo, president, CVS/pharmacy
"The recession has clearly had a major and lasting effect on consumer behavior. Shoppers remain concerned about U.S. unemployment levels, which are expected to exceed 10%. They are avoiding the use of credit, searching for the best value and buying on the basis of needs instead of wants." — Greg Wasson, president and CEO, Walgreen Co.
"As far as the economy is concerned, we expect that the recovery will be slow and steady, led by a moderate retail and home sales rebound, followed by badly needed jobs creation. Among consumers, the value focus discovered in 2009 will not go away anytime soon. Consumers have embraced a new sensibility in their spending habits. They are using much more discretion in their purchasing behaviors and are more selective in how and where they spend their dollars." — David Lonczak, chief marketing officer, drugstore.com
HEALTH CARE REFORM
"One big issue in the United States is that health care reform will commence eight or nine months after the signing of a bill. The uninsured will not, however, come into the system for several years, so there’s going to be a lag. That means pharmacy operators will have to figure out how to bridge the gap because reimbursements may drop quickly, but the offsetting volume won’t materialize for some time. Everyone doing business in the States is going to have to take a look at their business plan and react accordingly." — Andy Giancamilli, CEO, Katz Group North America
"As far as major changes for the industry, health care reform is obviously what everyone is watching. The jury is still out on that, and we’re on the edge of our seats. But I remain fairly confident that in the end the final bill will pretty much be to our liking." — Mark Griffin, president and CEO, Lewis Drugs
"Another great concern is the cost of proposed health care legislation. The government will have no choice but to raise taxes to pay for the debt. Increasing taxes for struggling consumers will not help our economy to rebound. Assuming that health care reform legislation is passed, the best development for our industry would be an increased focus on the pharmacist’s role in delivering health care. ...The worst development would be to continue the current paradigm of decreasing costs by either reducing reimbursement to community pharmacy or providing incentives to use mail-order pharmacies." — Rich Grossman, president and CEO, Sav-Mor Franchising Inc.
"Health policy that does not promote the role of pharmacy in the delivery of accessible and affordable health care services would be a huge missed opportunity. Consumers would not receive the full benefit of pharmacists’ health care expertise and services, while the industry as a whole would not benefit from the role pharmacists can play in lowering overall health care costs." — Brian Bertha, senior vice president of marketing, McKesson U.S. Pharmaceutical and McKesson Patient Relationship Solutions
|"We see 2010 as the year of the pharmacist." — Tim Canning, Health Mart
"There’s a lot of pressure on reimbursement rates in various places. Our state [Washington] is one where NACDS, in conjunction with the state pharmacy association, has filed a lawsuit to stop a Medicaid reimbursement rate cut. Right now we’re filling Medicaid prescriptions below our operating cost, and we can’t continue to do that. That’s one example of the pressures that pharmacy is under." — George Bartell, chairman and CEO, Bartell Drug
"The current debate in Washington, D.C., and in state governments [over health care reform] could place community pharmacy in jeopardy. If we are not actively participating, events could spiral out of our control and beyond our influence. ... With the difficulties that pharmacies have faced in 2009, there is a reality check: The reimbursement model [under which] pharmacies have been paid for their products and services in the past needs to change, and we will spend a lot of time and effort working on that initiative." — Anthony Civello, president and CEO, Kerr Drug
EXPANDING ROLE OF PHARMACISTS
"The principal challenge that we face is ensuring that pharmacists are recognized for the high-value clinical services they provide. This recognition needs to come from not only patients but also payers, manufacturers and public policy makers. We especially need to ensure that pharmacists are appropriately compensated for the value they provide. ... We see 2010 as the year of the pharmacist, with major opportunities in the areas of [health care] access, [medication] adherence and diabetes care." — Tim Canning, president, Health Mart
"By expanding their scope of practice, pharmacists have a great opportunity to participate and help manage health care expenditures by offering more accessible alternatives to the current established options. We also believe consumers will continue to spend cautiously; however, consumer spending on health care will continue to increase in the upcoming year." — Wynne Powell, president and CEO, London Drugs
"By continuing to make operating improvements and by changing the perception of our pharmacy, we are building stronger relationships with our customers and increasing the total value that we bring to them. We anticipate the momentum we have generated [in 2009] to continue into 2010." — John Lederer, chairman and CEO, Duane Reade Inc.
"2010 will likely be another year of great change for retail pharmacy. As the patents expire on an increasing number of branded medications in coming years, we’ll see an increasing emphasis on generics conversion. Retail pharmacies will need to continue to improve generics penetration to improve their margins and to help patients reduce their overall health care costs. As margins continue to narrow, retailers will need to continue to focus on improving overall efficiency and on building nondispensing revenue." — Terry Burnside, senior vice president and general manager, Medicine Shoppe International
"Uniprix launched the Aeroplan loyalty program several years ago, and it has proved to be an excellent decision for us. Well-known retail chains and brands are part of the program, so Quebec consumers are motivated to use their cards when making purchases at our stores. We quickly noticed something that has remained a consistent factor: When a customer uses an Aeroplan card, the average sale is more than twice the amount spent by a shopper without a card. That’s why we’re always eager to create original promotions with our leading suppliers." — Francois Castonguay, president and CEO, Uniprix Group
"With the increasing national focus on reducing health care costs, retailers will continue to identify ways to work more efficiently and better utilize pharmacists’ and staff time. As regional chain retailers and independents alike continue to look for ways to maintain market share by expanding their health care and front-end offerings, they will seek to make back-office functions as efficient as possible in order to free up pharmacists’ time so that they can focus on patient care." — Jay Williams, vice president of retail market management for pharmaceutical distribution, Cardinal Health Inc.
*Editor's Note: To read the full 2010 Retail Forecast and more executive comments, please see the January 4, 2010, print issue of Chain Drug Review.
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