Drug Store

Adapting to aging populations and the growing demand for health service

“As retail pharmacies and clinics expand, they have an opportunity to play a greater role in the healthcare ecosystem."

Two critical market trends continue to impact the growth of the drugstore category. First, is the world’s aging population, which is accompanied by rising levels of health consciousness. (In Japan, for example, sales of adult diapers have exceeded sales of baby diapers—and, globally, the probiotics market is on track to reach nearly USD $24 billion by 2017.) Second, there’s a rising demand for affordable and accessible healthcare worldwide.

For the past several years, top drugstore chains have been making the front-end of their stores more productive with fresh food, redesigned health and beauty departments, expanded photo services, more private labels, and exclusive offerings. Additionally, major investments have been made in health information technology (HIT) infrastructure. HIT is helping transform the pharmacy as it assumes a more central role in healthcare. In Latin America, older consumers and the growing middle class—an estimated 50 percent of the population—want more from their drugstores. In response, top brands such as Farmacia Benavides and Raia Drogasil are staying open 24 hours, conducting home deliveries, and offering outpatient services. Shoppers increasingly count on these retailers for information about medicines, living healthier, and new beauty products.

In the U.S., expansion plans for category leaders Walgreens and CVS/pharmacy, driven by the Affordable Care Act, are set to have a major impact on the drugstore retail market. With physicians expecting to see a surge in new patients—perhaps more than many clinics can handle—the convenience and transparent pricing of in-store clinics will present an attractive alternative for consumers seeking health care and solutions.

In Asia, Australia, France, and Germany, the drugstore sector is divvied up among smaller players and independently owned shops. Language barriers, cultural differences, and regulatory hurdles continue to keep many global brands from entering these markets and consolidating, but the presence of so few truly regional brands signals opportunity.

The U.K.’s Alliance Boots, in the midst of acquiring Walgreens, inked an agreement in early 2013 with generic drug wholesaler AmerisourceBergen—a deal that brought both companies purchasing power and cost savings. Similarly, in early 2014, McKesson Corp., a leading North American healthcare services and information technology company, acquired Celesio, a Germany-based wholesaler supplying 65,000 pharmacies and hospitals with up to 130,000 pharmaceutical products. The union enhances McKesson’s chances of becoming a global leader in drugs distribution. Reflecting a growing trend, these examples show how pharmaceutical producers and suppliers are intersecting with retail pharmacy.

As retail pharmacies and clinics expand, they have an opportunity to play a greater role in the healthcare ecosystem, support the healthier lifestyles of customers, and drive down the overall cost of healthcare.

Summary

While the traditional drugstore format continues to carry health and beauty products, the pharmacy is moving away from simple prescription dispensing to an active healthcare service function.


Drugstore Innovations and Opportunities

Opportunity in mobile

When it comes to effectively utilizing mobile applications, Walgreens and CVS/pharmacy lead the way. These brands makes it easy to fill a prescription, shop by smartphone, manage one’s rewards program, or send pictures to in-store photo centers for printing. Customers who engage with Walgreens online and via mobile applications spend six times more than those who only visit stores.

The end of the printed circular

To reach a younger demographic and prepare for a future without printed sales circulars, CVS/pharmacy took a big step forward in online personalization. Data gathered from loyalty cards generates a customized version of weekly sales, savings, and rewards. A potential downside to consider: With such personalized ads, some shoppers are concerned they might miss out on savings if they’re only able to see some, rather than all, deals.

No place for tobacco products

In many countries, it’s common for drugstores to sell cigarettes. But that practice may be coming to an end. It is already prohibited in most of Canada and in some parts of California and Massachusetts. CVS/pharmacy is removing tobacco from its stores to strengthen its image as a healthcare retailer.

A new retail category: specialty pharmacy

The use of specialty medications (which include injectables and biologic agents) for complex diseases such as cancer will continue to rise and outpace traditional (usually oral) drugs. Because patients taking specialty drugs face substantial risk for high out-of-pocket spending, collaborations between retailers, hospitals and manufacturers are likely to become more commonplace to reduce cost and make administering medications more convenient. Walgreens, for example, plans to have its retail clinics assist consumers in the management of chronic conditions.