July 30, 2008
Walmart Gains Ground on Walgreens and CVS
Walgreens and CVS still lead the pack when it comes to where adults go most often to get prescriptions filled. Both, however, must be hearing Walmart’s footsteps based on a new study from BIGresearch that shows the retailer and its $4 plan for generics cutting into drugstore’s share of market.
According to BIGresearch’s July Retail Ratings Report, Walmart increased its share of the store shopped most often for prescriptions by two percentage points from the same period a year earlier. The latest numbers show Walmart at 10.4 percent in 2008 versus 8.4 percent in 2007.
Walgreens’ share fell from 15.2 percent in July 2007 to 14.4 percent this year. CVS saw its market share slip four-tenths of a point, dropping to 13.2 percent this July.
Walmart is doing particularly well among consumers making $50,000 a year or less, according to the BIGresearch numbers. The chain’s share of this market was up 1.8 percent from last July while Walgreens (down 2 percent) and CVS (down 1.8 percent) both gave up ground. Today, Walmart and Walgreens are in a virtual dead heat for consumers in this economic demographic with a 13.8 percent share. CVS has 12.2 percent of the market.
Discussion Question: What is your takeaway from the BIGresearch numbers if you’re Walgreens, CVS and Walmart? Are the changes in shopping behavior being made by consumers now likely to stick when the economy improves?
[Author’s commentary] All three of these chains may need to look out for Holiday Pharmacy. The one-store independent in Holiday, Fla. is attempting to outdo the big guys by offering about 100 generic prescription medicines for $1 while selling 30-day supplies of 400 others for $4.
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Walmart’s move to develop more reasons to keep their core consumers with lower cost generics is likely to work. The convenience afforded by Walgreens and CVS is service plus location in many instances. As the number of shopping trips declines with higher fuel prices, either the drug chains are going to enhance the number of good value stock-up items that can be purchased in their stores and get the message out, or Walmart will improve service levels enough to keep them coming back.
Caution: market share increases don’t always lead to higher profits. Steve & Barry’s took market share away from the competition, but Steve & Barry’s went broke. Of course, compared to a year ago, Walmart’s stock price is up 25%, CVS is up 10% and Walgreen’s is down 20%. One thing’s for sure: $4 prescriptions get a lot better PR than labor law problems.
The cool thing about shopping in America is that you can go anywhere you want, any time, buy anything, and not have to justify your choices to anyone (except various illegal substances, of course). If you’ve got the money, honey, they’ve got the goods. Nothing is forever, and to heck with research companies. It’s a form of consumer anarchy we lovingly call “democracy.” Ain’t it great?!
So, we’re back to the age-old question of how to attract and hold customers. Contrary to the archaic opinions of pedants who teach that customers’ “value equations” consist only of a few elements and are static, they are instead complex and dynamic. (In chemistry class, “static” means stable or unchanging and “dynamic” means unpredictable and sometimes linearly or predictably modulated. That’s how I roll.) As the economy changes–including the price of pusholine–consumers will readjust their value equations. And then readjust them again. Sometimes several times daily. It’s impossible to stay ahead of a woman choosing a pair of shoes, and similarly impossible to stay ahead of consumer value equations. (They do tend to prefer red, however. That’s all I’ve got. Sorry.)
The answer for retailers and manufacturers is to be who you are and remain true to your vision. Ours is often a “boomerang economy.” Resist the temptation to REACT. Instead, ACT based on your accumulated institutional knowledge and experience and stay the course. Business, and customer value equations, will eventually return to you. That is, if you were right in the first place.
No surprises in the BIGResearch findings. Walmart started pushing pharmacy in a big way and they succeeded. That is the Walmart way. Think about how they went from zero to the #1 in the food retailing business in less than 20 years. We predict prescriptions will be harder for Walmart than some other categories, but given the segment’s growth potential Walmart will spend to win.
Walmart’s growth in prescriptions is so much more than just consumer response to challenging economic times. It is a byproduct of American’s changing the way we buy health care products. Consumer-based health care plays to all Walmart’s strengths–location, price, and one-stop shopping. CVS and Walgreens bring greater health care credentials and managed care organizations that position them well to defend.
The only safe bets are that the battle will be fierce, prices will be forced down and all retailers in the Rx market will have to get creative to maitain their pharmacy margins.
The challenge here is the quality of generics. The profits in drug production (vs. R&D plus production) are so compelling that many people see it as a way to make a quick profit. There are lots of regulations on the pharmaceutical distribution channel and I am sure no retailer would want to have a headline heralding that they had poisoned their customers, but the fact remains that huge profits can be made by someone willing to introduce counterfeit products in the distribution channel.
If price were the only factor, I think Walmart would have seen even greater success up to now. Walgreen and CVS must continue to emphasize their unique understanding of the pharmaceuticals channel and position their generics as something “better” than Walmart’s, yet still cheaper than the brand names.
Second in price sensitivity only to gasoline, drugs are very price sensitive, especially generics, and it’s hardly a surprise that Walmart is gaining ground. Keep in mind though that Walmart has a different business model than most supermarkets and drug chains so it can easily do the $4 Rx to lure consumers in that will buy a full shopping basket of other good while in the store.
In contrast, supermarkets and chain drug depend on pharmacies for greater profitability, especially chain drug. Chain Drug needs to be relentless in its approach to making the Rx experience efficacious and much more convenient. At present the lines and the wait are too long in many pharmacies. The drive up windows are a definite convenience.
Supermarkets have a major advantage in that consumers are in their stores more constantly than any other type of channel. Some supermarket chains are doing a great job attracting Rx consumers while others are not. Best advice: think like a consumer and act accordingly.
When Walmart launched its $4 generic program they directly challenged the supremacy of Walgreens and CVS. It worked. Now most major retailers, including drug chains, offer low cost generics. Look for WM, Target and Costco to keep up the pressure on the drug chains. And why not? Prescription drugs in America are overpriced and if there is significant savings to be had, consumers will be willing to drive a little further to purchase their medications.
In today’s economy, Walmart is in a position of strength–obviously. And this cuts across categories. To stay alive, CVS and others must bundle specific benefits around their retail clinics. Retail clinics that offer enhanced services, as well as ones that focus on specific health-related problems: diabetes, hypertension, depression. Workshops, seminars and “free information” days, maybe even hosting support groups, could enhance the value of shopping for medications in these other outlets. Seminars could also feature swag bags of complementary OTC products and brochures as take-aways for consumers, and plus-ups for manufacturers. First-mover status is key.
Price vs. convenience. In an economy where the consumer is watching every dollar, the price benefits that Walmart pharmacy can provide is creating more switch by consumers over the convenience that is offered by Drug Chains. I would suspect this trend will continue as more penny pinched shoppers and retirees/downsized-outsized-rightsized families turn to the shopper savings that Walmart offers.
Now, if Walmart can elevate their level of personal attention and service in the shopping experience, they have an economy situation that offers them an excellent chance to win over many swing shoppers to more frequent shoppers!
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Walmart’s move to develop more reasons to keep their core consumers with lower cost generics is likely to work. The convenience afforded by Walgreens and CVS is service plus location in many instances. As the number of shopping trips declines with higher fuel prices, either the drug chains are going to enhance the number of good value stock-up items that can be purchased in their stores and get the message out, or Walmart will improve service levels enough to keep them coming back.
Caution: market share increases don’t always lead to higher profits. Steve & Barry’s took market share away from the competition, but Steve & Barry’s went broke. Of course, compared to a year ago, Walmart’s stock price is up 25%, CVS is up 10% and Walgreen’s is down 20%. One thing’s for sure: $4 prescriptions get a lot better PR than labor law problems.
The cool thing about shopping in America is that you can go anywhere you want, any time, buy anything, and not have to justify your choices to anyone (except various illegal substances, of course). If you’ve got the money, honey, they’ve got the goods. Nothing is forever, and to heck with research companies. It’s a form of consumer anarchy we lovingly call “democracy.” Ain’t it great?!
So, we’re back to the age-old question of how to attract and hold customers. Contrary to the archaic opinions of pedants who teach that customers’ “value equations” consist only of a few elements and are static, they are instead complex and dynamic. (In chemistry class, “static” means stable or unchanging and “dynamic” means unpredictable and sometimes linearly or predictably modulated. That’s how I roll.) As the economy changes–including the price of pusholine–consumers will readjust their value equations. And then readjust them again. Sometimes several times daily. It’s impossible to stay ahead of a woman choosing a pair of shoes, and similarly impossible to stay ahead of consumer value equations. (They do tend to prefer red, however. That’s all I’ve got. Sorry.)
The answer for retailers and manufacturers is to be who you are and remain true to your vision. Ours is often a “boomerang economy.” Resist the temptation to REACT. Instead, ACT based on your accumulated institutional knowledge and experience and stay the course. Business, and customer value equations, will eventually return to you. That is, if you were right in the first place.
No surprises in the BIGResearch findings. Walmart started pushing pharmacy in a big way and they succeeded. That is the Walmart way. Think about how they went from zero to the #1 in the food retailing business in less than 20 years. We predict prescriptions will be harder for Walmart than some other categories, but given the segment’s growth potential Walmart will spend to win.
Walmart’s growth in prescriptions is so much more than just consumer response to challenging economic times. It is a byproduct of American’s changing the way we buy health care products. Consumer-based health care plays to all Walmart’s strengths–location, price, and one-stop shopping. CVS and Walgreens bring greater health care credentials and managed care organizations that position them well to defend.
The only safe bets are that the battle will be fierce, prices will be forced down and all retailers in the Rx market will have to get creative to maitain their pharmacy margins.
The challenge here is the quality of generics. The profits in drug production (vs. R&D plus production) are so compelling that many people see it as a way to make a quick profit. There are lots of regulations on the pharmaceutical distribution channel and I am sure no retailer would want to have a headline heralding that they had poisoned their customers, but the fact remains that huge profits can be made by someone willing to introduce counterfeit products in the distribution channel.
If price were the only factor, I think Walmart would have seen even greater success up to now. Walgreen and CVS must continue to emphasize their unique understanding of the pharmaceuticals channel and position their generics as something “better” than Walmart’s, yet still cheaper than the brand names.
Second in price sensitivity only to gasoline, drugs are very price sensitive, especially generics, and it’s hardly a surprise that Walmart is gaining ground. Keep in mind though that Walmart has a different business model than most supermarkets and drug chains so it can easily do the $4 Rx to lure consumers in that will buy a full shopping basket of other good while in the store.
In contrast, supermarkets and chain drug depend on pharmacies for greater profitability, especially chain drug. Chain Drug needs to be relentless in its approach to making the Rx experience efficacious and much more convenient. At present the lines and the wait are too long in many pharmacies. The drive up windows are a definite convenience.
Supermarkets have a major advantage in that consumers are in their stores more constantly than any other type of channel. Some supermarket chains are doing a great job attracting Rx consumers while others are not. Best advice: think like a consumer and act accordingly.
When Walmart launched its $4 generic program they directly challenged the supremacy of Walgreens and CVS. It worked. Now most major retailers, including drug chains, offer low cost generics. Look for WM, Target and Costco to keep up the pressure on the drug chains. And why not? Prescription drugs in America are overpriced and if there is significant savings to be had, consumers will be willing to drive a little further to purchase their medications.
In today’s economy, Walmart is in a position of strength–obviously. And this cuts across categories. To stay alive, CVS and others must bundle specific benefits around their retail clinics. Retail clinics that offer enhanced services, as well as ones that focus on specific health-related problems: diabetes, hypertension, depression. Workshops, seminars and “free information” days, maybe even hosting support groups, could enhance the value of shopping for medications in these other outlets. Seminars could also feature swag bags of complementary OTC products and brochures as take-aways for consumers, and plus-ups for manufacturers. First-mover status is key.
Price vs. convenience. In an economy where the consumer is watching every dollar, the price benefits that Walmart pharmacy can provide is creating more switch by consumers over the convenience that is offered by Drug Chains. I would suspect this trend will continue as more penny pinched shoppers and retirees/downsized-outsized-rightsized families turn to the shopper savings that Walmart offers.
Now, if Walmart can elevate their level of personal attention and service in the shopping experience, they have an economy situation that offers them an excellent chance to win over many swing shoppers to more frequent shoppers!