Though the influx of new generic drugs and a challenging front end reined in sales growth, North America's leading drug chains have continued to expand their retail presence.

top 10 drug chains, North America's leading drug chains, Chain Drug Review, chain drug store industry, Walgreens, CVS Caremark, CVS/pharmacy, Rite Aid, Health Mart, McKesson Canada, Shoppers Drug Mart, Medicine Shoppe, Pharmasave, Rexall Pharma Plus, Jean Coutu Group, London Drugs, pharmacy retailer, Joseph Agnese, S&P Capital IQ, Adam Fein, Pembroke Consulting, pharmacy services

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The Top 10 Drug Store Retailers

May 1st, 2014

NEW YORK – Though the influx of new generic drugs and a challenging front end reined in sales growth, North America's leading drug chains have continued to expand their retail presence.

The same players remained as the top 10 drug chains by sales and store count as a year ago, according to Chain Drug Review's annual State of the Industry report. But most have added a chunk of new stores and/or significantly enhanced their store base.

By store count, Walgreens again was the largest drug chain, with 8,221 drug stores, followed by CVS Caremark (7,660), Rite Aid (4,587), Health Mart (3,246) and McKesson Canada (1,650) in the top five.

Walgreens (+144 stores), CVS (+202) and Health Mart (+169) had sizable net gains in stores year over year. Rite Aid (-34 stores) has continued to close underperforming stores and locations coming off lease, while also pushing ahead with conversions to its "wellness store" format, which company executives say generates higher front-end sales and script count than the chain's other stores. More than a quarter of Rite Aid's store base now has the wellness concept, and plans call for 450 more locations to adopt the format in the retailer's current fiscal year.

Rounding out the top 10 chains by stores were Shoppers Drug Mart (1,309), Medicine Shoppe (570 stores, U.S. only), Pharmasave (500 stores), Rexall Pharma Plus (454 stores) and Jean Coutu Group (407 stores). Compared with their store counts in last year's State of the Industry report, Rexall had a net gain of 24 stores, Pharmasave saw an increase of 15 stores and Jean Coutu was up by two stores. Medicine Shoppe's store total decreased by 25.

1. Walgreens — 8,221
2. CVS Caremark — 7,660
3. Rite Aid — 4,587
4. Health Mart — 3,246
5. McKesson Canada — 1,650
6. Shoppers Drug Mart — 1,309
7. Medicine Shoppe — 570*
8. Pharmasave — 500
9. Rexall Pharma Plus — 454
10. Jean Coutu Group — 407
*U.S. stores only.

Outside the top 10 chains, Kinney Drugs is slated to reach the 100-store mark this summer, and Thrifty White Pharmacy has grown to 90 locations.

Some of the other regional chains adding stores over the past year included London Drugs, Bartell Drugs, Medical Pharmacies Group, Lewis Drugs, Aurora Pharmacy, Fairview Pharmacy, HomeTown Pharmacy, Ritzman Pharmacies and Lifechek Drug.

"Overall, the chain drug store industry has a positive outlook," said S&P Capital IQ equity analyst Joseph Agnese. "The overall favorable demographics are driving demand for the industry, and stores are increasing their focus on wellness and improving service in their pharmacies."

Drug chains have "done a decent job" in the front end over the past few years in the face of rising competition, according to Agnese.

"Drug stores have always been thought of as the convenient location close to your home. But now all of these dollar stores are expanding and moving more and more into the middle- and higher-income neighborhoods, where drug stores are located. So it's become a much tougher environment to operate in," he said.

"The front end is a very profitable part of the store, with wide margins, and it's important to defend that share of wallet with consumers. What drug chains are trying to do in positioning themselves as wellness locations is increase service, which differentiates them from dollar stores."  

1. Walgreens — $72.22 billion
2. CVS Caremark — $65.62 billion (retail sales only)
3. Rite Aid — $25.53 billion
4. Shoppers Drug Mart — $10.08 billion**
5. Health Mart — $7.40 billion*
6. Jean Coutu Group — $3.68 billion**
7. London Drugs — $2.19 billion***
8. Rexall Pharma Plus — $2.16 billion***
9. McKesson Canada — $2.14 billion***
10. Medicine Shoppe — $1.90 billion**
Source: Racher Press research.
**Converted from Canadian dollars.
***Estimate. Converted from Canadian dollars.

Smaller drug chains will need to try to overcome their disadvantage in scale by distinguishing themselves in the marketplace with strong customer service and unique offerings, such as home health care and durable medical equipment, according to industry observers.

"Differentiation will be the key for regional chains," said Agnese. "Stores that are located in less population-dense areas, away from urban centers, and areas that aren't going to support a large front end are probably the best position for independently owned shops."

On the revenue side, Walgreens led the field in total sales ($72.22 billion), followed by CVS Caremark ($65.62 billion, retail drug store sales only), Rite Aid ($25.53 billion), Shoppers Drug Mart ($10.08 billion, converted from Canadian dollars), Health Mart ($7.4 billion estimated) and Jean Coutu ($3.68 billion, translated from Canadian dollars).

London Drugs ($2.19 billion estimated, converted from Canadian dollars) and Rexall Pharma Plus ($2.16 billion estimated, translated from Canadian dollars) climbed past McKesson Canada ($2.14 billion estimated, converted form Canadian dollars) on the sales ladder versus a year ago. Medicine Shoppe ($1.9 billion estimated) remained at No. 10.

"The outlook for the drug store industry is very positive. But we're going to be seeing a globalizing pharmacy industry, and lessons will be learned across borders, especially as we move to a world of more generics," said Pembroke Consulting president Adam Fein, an expert on drug distribution and the pharmacy supply chain.

Though supermarkets and mass merchants have upped the ante in pharmacy services, chain drug stores still hold a competitive edge in terms of health care, according to Fein.

"Drug stores have a natural advantage because they always have been seen as a pharmacy-first format. But they do need to rethink the business model," he said. "I think CVS exiting the tobacco business is a significant step to signal that they want to be a true health care location."

In the front of the store, drug chains have been getting more upscale in their health and beauty offerings to compete with department stores and establish themselves more as shopper destinations as profit margins in the pharmacy business narrow, Fein explained.

"The core business of dispensing is still going to be foundational. But you'll see more emphasis on front-end products and more emphasis on drug stores becoming broader service locations with other types of products. I would not be surprised to see Walgreens' U.S. stores look like Boots' U.K. stores, which only generate about a third of their revenues from prescriptions and get much more of their revenues from cosmetics and other health and beauty aids," Fein said.

"The world of pharmacy is in a transition period right now," he added, "and when it comes out on the other side it's really not going to look like the past."

*To see the full lists of the top 50 drug chains by sales and by stores, see the State of the Industry 2014 report — which includes economic analysis, drug chain profiles, interviews with chain drug leaders, and industry trend articles — in the April 28, 2014, print issue of Chain Drug Review.