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We at Kantar Retail believe that the most disruptive retail presence in the U.S. health care environment won’t be from a drug store — it will be from Walmart.
Brian Owens, Kantar Retail
Walmart wants to become the No. 1 U.S. health care provider and is now poised to challenge the slope of drug store growth. Today, Walmart is known as the world’s largest everyday-low price provider of merchandise, but tomorrow it intends to transform itself into the world’s largest EDLP health care provider.
If U.S. drug stores intend to blunt Walmart’s future plans, they must understand the implications of the retailer’s health care experience, services and access strategies.
Experience
The Walmart health care experience challenges drug stores because the retailer is attempting to become a one-stop shop for health.
Given its size, existing foot traffic and record of disruptive innovation, Walmart will use such programs as Healthcare Begins to reconfigure its stores to become markedly more health-care-centric.
Launched in October 2014, the Healthcare Begins program is designed to help shoppers understand health care and guide them to the options that are right for them. This approach is a challenge for drug stores because Walmart has more physical space to create a health care experience and market these services.
For drug stores to remain competitive in this arena, they must reconfigure their stores so that every category provides shoppers with a healthy solution. Think healthy food, healthy beauty and healthy home departments throughout the store.
The drug store shopper will quickly understand that the whole drug store — not just one department in a larger store — is dedicated to healthy living.
Services
The Walmart health clinic service model challenges drug store clinics because it is designed to provide low-cost primary care services throughout its chain.
Drug store clinics provide supplemental primary care for shoppers and are rapidly expanding — CVS plans expand to 1,500 MinuteClinics by 2017. In contrast, Walmart’s 17 Care Clinics are designed to offer low-cost primary care medical services.
Care Clinic services range from $4 doctor visits for the 1 million employees and family members covered by Walmart insurance to $40 doctor visits for the general public. Owned by Walmart and staffed by QuadMed, these clinics embody the low-cost health care service model many families desire.
With only 17 clinics, Walmart’s future success is predicated on the scalability of the model. If Walmart does rapidly expand its primary care services, drug stores must find ways to expand and exploit their specialty prescription services to deepen the trust and loyalty of established shoppers.
Access
In addition to the number of Supercenters, the Walmart Neighborhood Market expansion directly challenges drug stores because the box format will provide shoppers with increased access to low-cost health services.
Approximately 43% of the sales that Walmart is expected to add in the United States in 2015 will be from Neighborhood Markets, and the size of these stores will range from 12,000 to 43,000 square feet.
In the past, the look and feel of these small formats mirrored the Walmart Supercenter assortment, with large-footprint space dedicated to consumables and produce. As Walmart moves forward, its strategic focus is on the fresh, fuel and pharmacy areas.
That means that the pharmacy will now be included in all new store openings along with scaled-down versions of its new health care experience and services.
Bottom line
If Walmart intends to fuel its future growth plans with Neighborhood Markets, the mass merchandiser may soon rival drug as the top health care destination and threaten drug stores’ price/value proposition.
Walmart’s attempt to become the leader in low-cost health care should make drug stores uneasy, but it’s the combination of Walmart’s EDLP model with its low-cost health care services that should keep them up at night.
The jury is still out on how Walmart will scale this new strategy across all its formats. In the meantime, drug stores must play to their strengths of personalization and innovative enterprise health solutions to maintain shopper loyalty.
Brian Owens is director of retail insights at Kantar retail. For more information and insights, please contact him at brian.owens@kantarretail.com or at kantarretailiq.com.
