As with the rest of the U.S. retail sector, the current environment for retail pharmacies is marked by competition, consolidation and challenges to maintain margins. In the midst of an evolving healthcare landscape wrought with the pressures of an aging population and transformative new regulations, the pharmacy space is often dominated by news of the “Big Three”—CVS, Walgreens Boots Alliance and Rite Aid—as well as a handful of other significant big box players like Wal-Mart and Target, which have been increasingly pursuing opportunities to expand their in-store clinics
But as the U.S. population continues to age, demand for prescriptions will also continue to grow at a steady rate, meaning all pharmacies—be they big box retailers with pharmacy departments, chain drug stores or independent pharmacies—are competing in the same market. As such, pharmacies of all sizes have been reinventing themselves to align with shifts in patient needs and consumer preferences, while simultaneously transforming their business models to survive in an era of rising costs.
Still, outside of the largest chain drug stores and retail behemoths that have ventured into the space, there are real opportunities for independent pharmacies to excel in the current marketplace. With that in mind, here are a number of strategic areas for independents to focus on in the months and years ahead as they look to provide superior service, convenience and access while improving health outcomes and lowering costs:
For all pharmacies, but especially for independents, innovation and financial savvy are critical when it comes to competing in today’s environment. While independent pharmacies often have smaller resource bandwidths at their disposal, their ability to be flexible is a major advantage. By tailoring their offerings to their communities’ health needs, independents can offer services that many chains cannot, such as medication therapy management, durable medical equipment sales and convenient offerings like prescription delivery and prescription compounding.
Despite the scale and reach of the major retail pharmacy brands, the critical role of independent pharmacies and community pharmacists cannot be understated, as they provide a significant amount of access both to medication and medical consultation. Aside from the medical necessity of these services, the degree to which independents can more intimately understand their communities and their unique health needs can offer a powerful competitive advantage in terms of customer service and retention.
Independent pharmacies face a constant balancing act when it comes to managing their inventories and costs, particularly given the skyrocketing prices of generic drugs and lagging reimbursement rates paid to community pharmacies. To more effectively manage cash flow and preserve their margins, independents should be taking a deliberate, strategic approach to their financial planning, which will help them anticipate shifts in patient and consumer demands, as well as plan for upswings in the acquisition costs of generics.
Growth through consolidation:
Pharmacies of all sizes are increasingly considering mergers and acquisitions—from the recent talk
about a potential acquisition of Rite Aid by Walgreens Boots Alliance, to small independents looking to extend their reach with multiple locations. From gaining market share, to boosting geographic coverage and increasing profitability, acquisitions can provide independent pharmacies with attractive opportunities for growth in today’s market. But before venturing into buy-sell arrangements, it’s critical that all parties understand their risks and liabilities, as well as the right pricing and exit strategies.
What additional challenges and opportunities do you foresee in the year ahead for independent retail pharmacies?