May 6, 2008
Wal-Mart Puts Heat on Rx and OTC Competitors
Wal-Mart, the company that brought you $4 generics, is making business a bit more challenging for competitors with a new program designed to offer consumers even better deals on both prescription and over-the-counter medicines.
The company announced yesterday that it would expand its $4/30-day generics program to offer 90-day supplies of some medicines for just $10. The new program is particularly interesting because 90-day prescriptions have largely been controlled by mail order pharmacy operations often run by pharmacy benefits managers (PBM).
Wal-Mart has also reduced prices on a number of medicines not covered under its $4 plan. Pharmacies at the retailer’s divisions in the U.S. will now offer Alendronate, a generic version of the osteoporosis drug Fosamax, for $9 for a 30-day supply and $24 to cover 90 days. The same medication, according to Wal-Mart, generally retails for in its generic version for $54 while the branded drug goes for $102.
”More and more people find health care, and particularly prescribed medicines, difficult to afford,” said Dr. John Agwunobi, Wal-Mart senior vice president and president, health and wellness, in a released statement. “We’re succeeding in our efforts to deliver simple, affordable, quality pharmacy solutions for families struggling with the rising costs of health care. And, our customers – and their budgets – are seeing a dramatic difference.”
Wal-Mart also claims that it is taking its healthcare savings to the OTC portion of its business with more than 1,000 products priced $4 or below. The retailer claims that it is now saving consumers as much as 50 percent off what they would pay at competing drugstores and other national chains for store brand versions of medications such as Claritin, Pepcid and Zantac.
Discussion Questions: What will the new phase of Wal-Mart’s discount RX and OTC medicine program mean for retail competitors? With so much emphasis on generics/store brands, what will this program mean for Wal-Mart’s relationship with Rx and OTC drug manufacturers?
[Editor’s Addition] It appears as though Target intends to match Wal-Mart’s program on both Rx and OTC meds. In a released statement to announce it would keep pace with its rival, Kathee Tesija, executive vice president, merchandising, said, “We understand the economic challenges our guests are facing and remain committed, as always, to meeting their health and wellness needs at a great value.”
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Wal-Mart has announced that they want to be a leader in the health care area. The $4 generic price was a major step. Now that competitors are matching it, they are expanding the program. When competitors match them, I would expect to see more innovation from Wal-Mart to maintain their leadership in this area.
This is not really a surprise, is it? Wal-Mart is a one-of-a-kind retailer with one-of-a-kind resources. When this retailer decides to tackle an issue or a competitor, they can and often do unleash strategic and tactical weapons that are outstanding. These folks are great merchants!
In this case, the timing is interesting. While traditional pharmacy is competing very well (particularly at the top), there are a number of opportunities that face all players industry wide. Chief among those are attracting, serving and maintaining the all important health care consumer. This is easier said than done. More and more, a better educated consumer refuses to stick to traditional shopping models. Cross channel, format mixing and changing loyalty are now all very common among the “new consumer.” This consumer positioning has been developing for quite some time. It is now enhanced with the current challenges with energy (gasoline) cost and the pending presidential election. Simply put, all consumer concerns and positioning is amplified.
Wal-Mart’s action here continues to help consumers clearly understand what Wal-Mart stands for…low prices. For many consumers, this is even more important than ever given current and forcasted energy prices. While it is difficult for retailers to do battle with Wal-Mart on price, there are a number of other areas or strategies that can be employed quite successfully. The question is…who will accept and execute against the formidable challenges being placed by Wal-Mart?
THE ANSWERS ARE IN THE NUMBERS.
Think about this…”those who are content to do what they always done will now get less than they have always gotten.” Want to explore deeper? Give me a ring.
Just when I’ve worked up a raging distrust of WM, they go and do something wonderful like this. Now, if they will just expand their in-store clinics to accommodate the healthcare needs of all of their employees and their families, they’ll really be making a statement. This is not a new idea, of course, keeping in mind that Kaiser Permanente began as in-house healthcare for Kaiser Aluminum employees–thus proving the concept.
Wal-Mart is committed to a broad range of initiatives to become a significant influence in healthcare. With nearly 1.5 million US employees, Wal-Mart has a large stake in improving efficiency and driving costs out of the system. The $4.00 prescription drug plan is one of the clearest examples of these initiatives and according to company spokespeople, the program has saved American consumers $1 billion in drug costs since its launch in September, 2006.
This latest announcement to offer $10.00 generic 90 day prescriptions and $4.00 OTC medications represents a significant expansion of this initiative. The $4.00 program includes offerings in most major OTC categories including analgesics, allergy, laxatives, antacids and vitamins. The $4.00 price point will represent significant consumer savings versus today’s marketplace pricing. For example, in the allergy category, $4.00 30 count Loratadine will save consumers $7.49 over the typical $11.49 private label drug store price.
Private Label OTC medications have high consumer appeal and can represent 15-30% of unit sales depending on the category. This widening price gap of between Private Label and branded OTCs represents significant sales risk to branded manufacturers and a significant profit loss to competing pharmacy retailers should they choose to follow–as was the case with $4.00 Rx offerings.
The extension of the program to include OTC products will potentially appeal to more consumers than the original Rx program. One could argue the $4.00 Rx program has the most appeal to the minority, cash pay audience. As Greg Wasson, President and COO of Walgreens states in the 2007 annual report, “more than 95% of our patients pay only the co-pay required by their insurance,” and cites that convenience and service are more important factors in retailer choice. Without lower or equivalent co-pay options in the OTC world, $4.00 OTC offerings may offer a value large enough to influence the purchase decision. Stay tuned!
Great news for consumers!
However, some time ago Costco came out with their own $4.00 version of a 30 day supply of generic drugs by first stating that it costs them more than $4.00 to fill it.
Costco being Costco says if you’re willing to help us, we’ll help you. Have your generic prescription filled for a 100 day quantity for $12.00 or less (depending on the medication).
By having the prescription filled four times per year instead of twelve, Costco reduces its expense to refill prescriptions every 30 days, and you receive savings with an extra 10 day supply of medication.
With Wal-Mart and Sam’s moving to a 90 day option, this tells me that they are trying to reduce their refill expense by promoting savings at the 90 day level.
Sam’s has quietly offered a lower price already for 90 day refills to compete with Costco’s 100-day offering. It’s not published on the Sam’s Club site, but pharmacy staff will give you the 90 day price at the counter, which is lower than the $4.00, 30 day price.
Will Wal-Mart under phase 4 eliminate the $4.00, 30 day supply of generics and move to a 90 day supply for $10.00? This would be a smart move on their part to reduce refill expense and give a sigh of relief to their competitors that are matching who may not have the same purchasing power and expense structure as Wal-Mart.
For the most part, many of the $4.00 generic drugs are maintenance drugs and patients should not encounter difficulty in receiving a 90 day prescription from their physician.
With the cost of a loaf of bread up 20% and gas approaching $4/gallon the American consumer could use a break! Thank you Wal-Mart! We have been hearing about pharmaceutical companies and big oil for years. Wal-Mart would seem to be the only retailer in the USA who is trying to help. Let all those “blue blood” Target shoppers pay higher prices. What does Target do for you? What does Sears do for you? I don’t see anyone doing anything but Wal-Mart.
You know, Wal-Mart seems to give a rip about the public. Maybe Congress should pay attention to this. Can we nominate Wal-Mart for President?
Wal-Mart’s pattern is to learn how to do something effectively, then efficiently and then expand it. The $10 program is a warning shot that they have this process in Rx and OTC pretty well cold.
Watch for Wal-Mart to expand price crushing into other highly visible areas where they can come close to locking down costs in the supply chain. It will be undifferentiated products with frequent buys. The marketing will be different, but the positioning will be the same–low price leader. Pure speculation, but some food and paper products seem like low hanging fruit. Some TBA may fit.
Discount drugs drive traffic into Wal-Mart. Incentivizing customers to use 90 day supplies instead of 30 day supplies cuts traffic. Interesting how Costco led the way with 100 day supplies, but Wal-Mart got the publicity credit.
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Wal-Mart has announced that they want to be a leader in the health care area. The $4 generic price was a major step. Now that competitors are matching it, they are expanding the program. When competitors match them, I would expect to see more innovation from Wal-Mart to maintain their leadership in this area.
This is not really a surprise, is it? Wal-Mart is a one-of-a-kind retailer with one-of-a-kind resources. When this retailer decides to tackle an issue or a competitor, they can and often do unleash strategic and tactical weapons that are outstanding. These folks are great merchants!
In this case, the timing is interesting. While traditional pharmacy is competing very well (particularly at the top), there are a number of opportunities that face all players industry wide. Chief among those are attracting, serving and maintaining the all important health care consumer. This is easier said than done. More and more, a better educated consumer refuses to stick to traditional shopping models. Cross channel, format mixing and changing loyalty are now all very common among the “new consumer.” This consumer positioning has been developing for quite some time. It is now enhanced with the current challenges with energy (gasoline) cost and the pending presidential election. Simply put, all consumer concerns and positioning is amplified.
Wal-Mart’s action here continues to help consumers clearly understand what Wal-Mart stands for…low prices. For many consumers, this is even more important than ever given current and forcasted energy prices. While it is difficult for retailers to do battle with Wal-Mart on price, there are a number of other areas or strategies that can be employed quite successfully. The question is…who will accept and execute against the formidable challenges being placed by Wal-Mart?
THE ANSWERS ARE IN THE NUMBERS.
Think about this…”those who are content to do what they always done will now get less than they have always gotten.” Want to explore deeper? Give me a ring.
Just when I’ve worked up a raging distrust of WM, they go and do something wonderful like this. Now, if they will just expand their in-store clinics to accommodate the healthcare needs of all of their employees and their families, they’ll really be making a statement. This is not a new idea, of course, keeping in mind that Kaiser Permanente began as in-house healthcare for Kaiser Aluminum employees–thus proving the concept.
Wal-Mart is committed to a broad range of initiatives to become a significant influence in healthcare. With nearly 1.5 million US employees, Wal-Mart has a large stake in improving efficiency and driving costs out of the system. The $4.00 prescription drug plan is one of the clearest examples of these initiatives and according to company spokespeople, the program has saved American consumers $1 billion in drug costs since its launch in September, 2006.
This latest announcement to offer $10.00 generic 90 day prescriptions and $4.00 OTC medications represents a significant expansion of this initiative. The $4.00 program includes offerings in most major OTC categories including analgesics, allergy, laxatives, antacids and vitamins. The $4.00 price point will represent significant consumer savings versus today’s marketplace pricing. For example, in the allergy category, $4.00 30 count Loratadine will save consumers $7.49 over the typical $11.49 private label drug store price.
Private Label OTC medications have high consumer appeal and can represent 15-30% of unit sales depending on the category. This widening price gap of between Private Label and branded OTCs represents significant sales risk to branded manufacturers and a significant profit loss to competing pharmacy retailers should they choose to follow–as was the case with $4.00 Rx offerings.
The extension of the program to include OTC products will potentially appeal to more consumers than the original Rx program. One could argue the $4.00 Rx program has the most appeal to the minority, cash pay audience. As Greg Wasson, President and COO of Walgreens states in the 2007 annual report, “more than 95% of our patients pay only the co-pay required by their insurance,” and cites that convenience and service are more important factors in retailer choice. Without lower or equivalent co-pay options in the OTC world, $4.00 OTC offerings may offer a value large enough to influence the purchase decision. Stay tuned!
Great news for consumers!
However, some time ago Costco came out with their own $4.00 version of a 30 day supply of generic drugs by first stating that it costs them more than $4.00 to fill it.
Costco being Costco says if you’re willing to help us, we’ll help you. Have your generic prescription filled for a 100 day quantity for $12.00 or less (depending on the medication).
By having the prescription filled four times per year instead of twelve, Costco reduces its expense to refill prescriptions every 30 days, and you receive savings with an extra 10 day supply of medication.
With Wal-Mart and Sam’s moving to a 90 day option, this tells me that they are trying to reduce their refill expense by promoting savings at the 90 day level.
Sam’s has quietly offered a lower price already for 90 day refills to compete with Costco’s 100-day offering. It’s not published on the Sam’s Club site, but pharmacy staff will give you the 90 day price at the counter, which is lower than the $4.00, 30 day price.
Will Wal-Mart under phase 4 eliminate the $4.00, 30 day supply of generics and move to a 90 day supply for $10.00? This would be a smart move on their part to reduce refill expense and give a sigh of relief to their competitors that are matching who may not have the same purchasing power and expense structure as Wal-Mart.
For the most part, many of the $4.00 generic drugs are maintenance drugs and patients should not encounter difficulty in receiving a 90 day prescription from their physician.
With the cost of a loaf of bread up 20% and gas approaching $4/gallon the American consumer could use a break! Thank you Wal-Mart! We have been hearing about pharmaceutical companies and big oil for years. Wal-Mart would seem to be the only retailer in the USA who is trying to help. Let all those “blue blood” Target shoppers pay higher prices. What does Target do for you? What does Sears do for you? I don’t see anyone doing anything but Wal-Mart.
You know, Wal-Mart seems to give a rip about the public. Maybe Congress should pay attention to this. Can we nominate Wal-Mart for President?
Wal-Mart’s pattern is to learn how to do something effectively, then efficiently and then expand it. The $10 program is a warning shot that they have this process in Rx and OTC pretty well cold.
Watch for Wal-Mart to expand price crushing into other highly visible areas where they can come close to locking down costs in the supply chain. It will be undifferentiated products with frequent buys. The marketing will be different, but the positioning will be the same–low price leader. Pure speculation, but some food and paper products seem like low hanging fruit. Some TBA may fit.
Discount drugs drive traffic into Wal-Mart. Incentivizing customers to use 90 day supplies instead of 30 day supplies cuts traffic. Interesting how Costco led the way with 100 day supplies, but Wal-Mart got the publicity credit.