Drug_Stores_Industry_Snapshot

Drug Stores Industry Snapshot http://galenet.galegroup.com/servlet/BCRC'vrsn=unknown&locID=lfpl&srchtp=ind&ids=drug+stores&c=1&iType=sic&mode=i&ste=85&tbst=tsIS&cind=5912+-+Drug+Stores+and+Proprietary+Stores&tab=1024&docNum=I2501400751&bConts=16163 accessed 11/23/10 thru www.LFPL.org – the Louisville Free Public Library membership website. In 2006 drug stores posted retail revenues of $189.3 billion, a 7.9 percent growth rate over 2005, according to the National Association of Chain Drug Stores (NACDS). Chain drug stores, which account for about 35 percent of the industry's 61,200 stores, took in $144.8 billion, or 76 percent of the income. Total prescription sales in all types of stores (traditional chain, mass-merchandise, supermarket, independent, and mail order) in 2006 were $249.8 billion, up 7.7 percent from $232 billion in 2005. The retail volume of prescription sales was 3.4 billion prescriptions in 2006, an increase of 4.3 percent from 3.28 billion in 2005. [Addendum: ] The rapid growth in this industry toward the turn of the twenty-first century prompted powerful supermarket and mass-merchandise chains to enter traditional drug store markets, forcing the independent drug store industry to compete with these larger companies. In addition, the drug store industry faced narrowing profit margins due to the general push to reduce health-care costs in the United States; as a result, acquisitions and consolidation became prevalent. This combination of factors forced drug stores to concentrate on customer service, expand into niche markets, add products, form partnerships with suppliers and health-care providers, and automate operations for increased cost-efficiency. Drug stores in the mid-2000s faced a future with potential for significant growth and unique challenges. The average age of the U.S. consumer is increasing rapidly as the Baby Boomer generation grows older. An aging population has increased health-care and prescription needs, thus providing a growing customer base for drug stores. However, paper-thin profit margins on prescription drugs, a shortage of pharmacists, and challenges from grocers and discounters may make the road ahead perilous. In the mid-2000s, pain medication, particularly for headaches, was the top seller, accounting for nearly $955 million in sales. Nutritional supplements held the second spot, with $838.3 million in sales. Adult cold remedies sold $806.3 million in products, followed by women's hair coloring products with $596 million in sales, and facial products such as cleansers and lotions with $531 million in sales. The industry leaders were Walgreens, CVS, and Rite Aid, which held about two-thirds of the combined total market share. Organization and Structure As drug stores faced increasing competition from other retailers, chains and independents alike began to vary their store formats to differentiate themselves from competitors and strengthen their image as health-care providers. As a result, five main store formats emerged within the drug store industry: independents, chain drug stores, mass merchandisers, supermarkets, and mail order. The drug store industry relied on four core product categories for a large percentage of total sales: prescriptions, OTC medications, toiletries, and cosmetics. Other categories commonly sold in drug stores included tobacco, consumables, stationery, and housewares. In general, however, drug stores responded to competition by strengthening core product areas in the late 1990s. Background and Development The drug store industry originated in the mid-1800s, when Americans began using "patent remedies" to treat illnesses. Some early pharmacists operated out of village apothecaries, where they purchased chemicals in bulk and mixed them on the premises to fill prescriptions. Following the Great Depression, pharmaceutical companies grew rapidly and opened sophisticated research facilities. The number of patents issued for drug products increased from fewer than 100 before 1940 to more than 4,000 by the 1950s. Medicines began to be marketed in final-dosage form under a manufacturer's brand name rather than in bulk as generic ingredients. As a result, the number of drug stores increased, while pharmacists adopted a service-oriented role in dispensing prescriptions. The drug store industry more than doubled its sales volume during the 1990s, and several factors pointed toward continued growth into the next millennium. For example, the two demographic groups that used the greatest amount of medication were the fastest growing segments of the American population in the late 1990s and included adults over sixty-five and children under ten. In fact, the number of people sixty-five and older increased at twice the rate of the general population, while this age group received an average of twelve prescriptions per person compared to about five for the twenty-to-forty age group. A total of 39,754 traditional drug stores existed in the United States in 1998. There were 19,110 traditional chain drug stores and 20,644 independent stores. The drug store industry as a whole posted a sales volume of $106.7 billion in 1998. These figures included not only prescriptions and OTC drugs sales but also general merchandise. Prescription sales and OTCs had total sales of $103 billion in 1998 and made up almost 61.5 percent of all sales in a traditional chain store. Chain drugstores accounted for 40 percent of those sales, while independents took 26 percent of the market. Mass merchandisers and supermarkets claimed 21 percent of the market, and mail order totaled 13 percent. The number of retail prescriptions increased from 2.0 billion in 1992 to 2.7 billion in 1998. While this sector of the retail industry continued to see gains, consolidation swept through drug store chains towards the late 1990s, leaving a handful of strong players. CVS acquired Revco and Arbor Drug; Rite Aid purchased Thrifty Payless, Marco, and K&B; and J.C. Penney bought Eckerd Drug, merging it into its Thrift Drug operations. This merger activity was caused by increased competition to offer a variety of merchandise at low costs and the availability of convenience in terms of pharmacy outlets. The drug store industry also benefited from the trend toward self-medication, and a healthier attitude among consumers in the late 1990s. Drug stores controlled 44 percent of the vitamin market in 1999, and the baby boom generation, which some experts called the most informed in history, often purchased OTC medications, vitamins, and herbal remedies to treat their own symptoms. In addition, the increased availability of generic substitutes for expensive, brand-name drugs expanded the overall market for pharmaceutical products. The continuing success of OTC products prompted regulators to get involved in that segment. According to a March 1999 NACDS press release, "Vice President Al Gore announced a new federal regulation by the Food and Drug Administration designed to make OTC labeling easier for consumers to understand. The new regulation also requires OTC medicine manufacturers to revise product labeling to reflect the importance of consumers consulting with physicians and pharmacists on proper OTC usage." This action also pointed to the trend of enhanced consumer care in pharmacies and the involvement of pharmacists in consumer purchases. The NACDS reported that with "fewer hospitalizations leading to more and more procedures being performed on an out-patient basis, as well as the continued discovery of new and more complex drug therapy, there will be an increasing reliance on community pharmacy to educate and monitor patient therapy." Another factor that continued to affect the drug store industry into 1999 was the growing emphasis on controlling U.S. health-care costs. In 1999 only 8 percent of health-care costs were pharmacy related. National health-care policies insured more Americans and expanded the market for drugs, but they also increased the pressure on drug stores to reduce costs and operate more efficiently. While traditional chain and independent drug stores were dominant in the late 1990s, supermarkets, mass merchandisers, and warehouse clubs posted gains in prescription sales. Attracted to the industry's growth, competition from these stores presented significant challenges to drug stores and led to a shakeup among independents and regional chains, evident by the merging or buying out of thirty-five chains since the early 1990s. Supermarkets continued to hold an important advantage over drug stores in consumer exposure, since the average person visited a supermarket 2.2 times per week compared to once per month for a drug store. Many supermarket chains began competing aggressively for sales of HBAs by cutting prices, increasing advertising, and emphasizing the convenience of one-stop shopping. In addition, supermarket chains opened in-store pharmacies, which they felt increased store traffic and provided a community service. Mass merchandisers such as Wal-Mart, Target, and Kmart entered traditional drug store categories, supported by their superior distribution networks and technology, and claimed a 10 percent share of prescriptions in 1998. Drug stores also faced a growing challenge to their profitability as third-party payment accounted for a larger percentage of prescription sales in the late 1990s. Third parties included health maintenance organizations (HMOs), preferred provider organizations (PPOs), unions, government programs (Medicare and Medicaid), and other systems that covered costs by prearranged agreement with health-care providers. Prescriptions represented the largest out-of-pocket expense for consumers, so third-party payment increased substantially as part of the drive to control health-care costs. This trend affected drug store profitability since third parties typically applied a discount of 20 percent to the average wholesale price of a drug, plus allowed dispensing fees, which covered administrative and labor costs of only $3.00 per prescription as opposed to the actual cost of $4.50. Drug stores struggled with the low margin sales and costly paperwork but appreciated the large prescription volume that third-party systems could provide. Consumer demands for lower health-care costs also affected drug stores' ability to raise prices. In the past, prescription prices generally increased at twice the rate of the Consumer Price Index, and drug stores turned this trend to their advantage. Drug stores would often forward-buy inventory of pharmaceutical products at low prices and usually passed along price increases to consumers with little negative effect on sales. In 1998 brand-name prescription costs increased 8 percent while generic increased by 2 percent. The average cost for a prescription was $34.43 in 1998, with 74 percent of cost going to the manufacturer, 3 percent to the wholesaler, and 23 percent to the retailer. Stores also had to remain price competitive in HBAs. Many stores focused on a policy of "everyday low pricing" and beefed up advertising to lure customers. Another challenge to the drug store industry was the advent of Internet drug stores. While Internet sales represented only 1 percent of industry sales in the late 1990s, that number was forecast to grow along with other retail sectors. These sites, such as DrugEmporium.com, offered prescription and nonprescription drugs, cosmetics, and health and beauty aids. Many offered e-mail access to pharmacists as well. Large drug chains followed suit, and customers could refill prescriptions on store Web sites such as CVS.com. This industry, however, was expected to see advantages from the Internet as well. In aDrug Store News editorial, Anthony Cuti, chairman and CEO of Duane Reade, stated that "the bottom line is that personal medical consultations will grow more toward the individual pharmacist and less toward impersonal, less responsive communication vehicles such as the Internet. The Internet, however, will be a great provider of increased general health information that will probably promote a greater number of visits to both physicians and pharmacists to interpret and apply the technical information retrieved from the Internet." Grocery stores and discounters were eagerly entering the market for prescriptions and other health-care products. In 2002 the mega-discounter Wal-Mart operated 2,977 pharmacies. In addition, at least five supermarket chains reported pharmacy revenues over $1 billion. Traditional drug stores were starting to give ground to grocers and discounters. According to the NADCS, prescription volume growth slowed for drug stores, increasing by 5.8 percent in 2001, compared to 10.4 percent in 2000. At the same time, discounters and grocers increased prescription counts in 2001 by 5.9 and 7.3 percent, respectively. Current Conditions The American population is aging. Those fifty-year-old or older group was expected to surpass 95 million by 2010, compared to 75 million in 2002. In the mid-2000s, people aged sixty-five and over totaled approximately 35 million, or 12.6 percent of the U.S. population. By 2030 that number was expected to double, and by 2050 almost 90 million Americans were projected to be 65 and older, representing 30 percent of the U.S. population. The significant increase in older consumers meant a rapidly growing customer base for drug stores. According to NACDS, a projected 3.4 billion prescriptions were filled in 2006 in retail drug stores, an increase of 4.3 percent over 2005. These sales amounted to $249.8 billion, up 7.7 percent from 2005. Retail revenues for drug stores in 2006 were $189.3 billion, a growth rate of 7.9 percent over 2005, according to NACDS. Chain drug stores accounted for about 35 percent of the industry's 61,200 stores and took in $144.8 billion, or 76 percent of the income. Increased prescription sales have not left drug stores unchallenged, however, as reimbursement by third-party prescription administrators, which came to dominate the market, were cut drastically. The biggest hit came in Medicaid-funded prescriptions, in which the profit margin might be as low as 2 percent. "The demand is going up and up, and we're keeping pace and delivering services, but we keep on getting squeezed because no one wants to pay for the service," Crystal Wright of the NACDS told Supermarket News. One bright spot for pharmacy departments was the impending end to patent protection by a number of widely used drugs. Once the patent protection period expires, generic brands are available, which usually provide a higher profit margin. Other problems for drug stores were related to drugs being illegally imported from Canada via mail order. In addition, counterfeit drugs created by sophisticated production labs were circulating sham pharmaceuticals on the market. In 2004 digital tracking systems and other such protective measures were widely promoted in the industry. To compete with mass merchants and grocery chains, drug stores marketed themselves as uniquely equipped to service the "quick-trip" shoppers. According to Chain Drug Review, the average trip to a drug store takes ten minutes, or eight minutes if the customer is not picking up a prescription. Drug stores are also adding food items such as milk, frozen foods, and other staples to bring in time-pressed women and older shoppers who buy for smaller households and may not need to stock up at the grocery store as often but may run low on basic food items. A study from the National Association of Chain Drug Stores, reported by Chain Drug Review in 2003, found that more than 60 percent of shoppers would go to drug stores more often if the beverage and food sections were better laid out and stocked. Industry Leaders Walgreens, the number-one drug chain in overall revenue, operated almost 6,000 stores in 48 states and Puerto Rico and posted sales of $53.76 billion in 2007. The chain filled 583 million prescriptions that year, or 16.7 percent of the U.S. retail market. The company expanded into new areas, both geographically and with products. In addition to adding photo-finishing departments to its stores, the company started its own pharmacy benefit management firm, which is actually run through the chain's mail order business, Healthcare Plus. The store offered an online pharmacy and had 226,000 employees in 2007. CVS Corp., the number-two drug chain, reported sales of $43.8 billion in 2006. The company grew with its purchases of Revco, Arbor, and Soma, an online pharmacy, and had more than 6,200 stores in operation in 2006. Its subsidiary, PharmaCare Management Services, provided managed care drug programs to its customers. CVS had more than 176,000 employees in 2004. RiteAid Corp., the number-three drug chain, had sales of $17.5 billion in 2007. With the acquisition of the Brooks and Eckerd chains, the company added 1,800 stores in 2007 and increased its operations to more than 5,000 stores in 28 states across the United States. Workforce Pharmacies and drug stores employed 771,000 people in 2004, according to the U.S. Census Bureau, reflecting an increase over the 680,000 employed in 2000. The industry's total payroll in 2004 was $18.4 billion. While chain drug stores employed almost 96,000 pharmacists in 2001, the major concern for this industry was the shortage of qualified pharmacists. In 2003 there were 5,500 jobs available in this sector. Of 96,000 employed pharmacists, 80,000 worked full time. More than half of those full-time pharmacists were men. According to the U.S. Department of Labor, Bureau of Labor Statistics, the mean annual salary for a pharmacist in 2001 was $73,060. A pharmacy technician earned a mean annual salary of $20,530. Research and Technology Faced with managed care and an aging population with increasing needs for prescriptions, drug stores turned to technology to increase productivity. According to Drug Store News, "Drug chains are turning increasingly to pharmacy technology to automate the workflow, speed the filing process, and take the guesswork out of nearly every aspect of prescription dispensing. In the process, they have poured tens of millions of dollars into high-speed pill and tablet counters, new prescription tracking software, robotic devices, work-station terminals and interactive voice response systems (IVR) for phone-in refills." IVRs became increasingly popular in the late 1990s. With the growing number of prescriptions, these systems allowed the pharmacy staff to concentrate on filling prescriptions and talking with in-store customers instead of taking orders over the phone. CVS, for example, implemented these systems throughout the company's chain stores. Other new technologies emerging included AutoScript III, which integrated robotics, labeling, and pill counting into a touch-screen system; QuickScript System, used for automating the entire filling process including labeling, filling, and capping, and streamlined the paperwork and inventory process to allow ninety prescriptions to be filled per hour; and RX-90 by Condor Corp., which simplified the inventory process. In addition to these technological advances, many stores instituted a satellite network to allow prescriptions to be filled anywhere in the United States. Drug store chains also began using electronic data interchange (EDI) systems to share information with suppliers. Although relationships between drug stores and suppliers were traditionally somewhat adversarial, intensified competition in the industry led to the formation of alliances. Further Readings * "Analysts: Outlook Optimistic for Drug Stores." Drug Store News, 23 March 2003, 4. * Baker, Deborah J., ed. Ward's Business Directory of U.S. Private and Public Companies. Detroit: Thomson Gale, 2003. * "Consumables Excite Drug Store Shoppers." Chain Drug Review, 17 February 2003. * "Drug Chains' Ethical Image Catalyst for Rx Sales." Chain Drug Review,24 May 2004. * Eder, Rob. "Fuller's Communication Focus Strengthens Industry's Position on Most Serious Challenges." Drug Store News, 17 January 2005. * Frederick, James. "Walgreens Steers Solid Course in Weak Economy."Drug Store News, 7 April 2003, 1-2. * ------. "New Proposals Are Formulated in War Against Counterfeit Drugs."Drug Store News, 19 January 2004. * "Hoover's Company Capsules." Hoover's Online, 2008. Available from http://www.hoovers.com. * "Industry Facts-at-a-Glance." National Association of Chain Drug Stores,28 January 2008. Available from http://www.nacds.org. * Johnsen, Michael. "Pharmacist Shortage Continues, Though Trend May Be Leveling Off." Drug Store News, 18 August 2003. * Lazich, Robert S., ed. Market Share Reporter. Detroit: Thomson Gale, 2005. * Loughran, Stephanie. "The Squeeze on Pharmacy." Supermarket News,10 March 2003, 21. * "Small Drug Chains Hold Their Own." MMR, 10 February 2003. * U.S. Census Bureau. The 2008 Statistical Abstract: The National Data Book, 2008. Available from http://www.census.gov. * U.S. Department of Labor. Industry-Specific Occupational Employment Statistics, 17 February 2005. Available from http://www.bls.gov. * Walden, Geoff. "Drug Chains Intent on Winning Larger Share." Chain Drug Review, 3 March 2003, 41. Source Citation: "Drug Stores and Proprietary Stores." Encyclopedia of American Industries. Online Edition. Gale, 2009. Reproduced in Business and Company Resource Center. Farmington Hills, Mich.:Gale Group. 2010. http://galenet.galegroup.com/servlet/BCRC Document Number: I2501400751 Datamonitor Industry Market Research, Annual 2000 pNA US PHARMACIES. (Industry Overview)(Statistical Data Included)(Brief Article) http://galenet.galegroup.com/servlet/BCRC'vrsn=unknown&locID=lfpl&srchtp=ind&ids=drug+stores&c=23&iType=naics&mode=i&ste=87&tbst=tsIS&cind=44611+-+Pharmacies+and+Drug+Stores&tab=2048&docNum=A83590946&bConts=2306 Accessed 11/23/2010 thru www.LFPL.org – the Louisville Free Public Library membership website Full Text: COPYRIGHT 2000 Datamonitor EXECUTIVE SUMMARY US Pharmacies (SIC 5912) NAICS 446110 Market Value The US pharmacies market grew by 2.2% in 1999, to reach a value of $89.9 billion. Market Sectors Pharmacy Chains is the largest sector of the US pharmacies market, representing 73.3% of the market in value terms. Walgreen In 1998, revenues for Walgreen grew by 9.1% on the previous year's level, to reach $13,989.6 million. American Stores In 1998, revenues for American Stores declined by 1.5% on the previous year's level, to reach $17,697.3 million. Market Forecasts In 2004, the US pharmacies market is forecast to reach $101.5 billion, an increase of 12.9% since 1999. MARKET VALUE The US pharmacies market grew by 2.2% in 1999, to reach a value of $89.9 billion. The compound annual growth rate of the market in the period 1994-1999 was 2.9%. The strongest growth was in 1997, when the market grew by 4.9%. Table 1: US Pharmacies Market Value: US$Bn, 1994-1999 Market Value US$Bn % Growth 1994 78.0 1995 80.0 2.6% 1996 82.0 2.5% 1997 86.0 4.9% 1998 88.0 2.3% 1999 89.9 2.2% CAGR, 1994-1999 2.9% MARKET SECTORS Pharmacy Chains is the largest sector of the US pharmacies market, representing 73.3% of the market in value terms. Independents is the smallest sector of the US pharmacies market considered, attributable for 26.7% of the market in value terms. Table 2: US Pharmacies Market Segmentation by Value: % Share, 1999 Sector % Share Pharmacy Chains 73.3% Independents 26.7% Total 100.0% WALGREEN In 1998, revenues for Walgreen grew by 9.1% on the previous year's level, to reach $13,989.6 million. Over the same period, operating profit grew by 10.0% to reach a value of $726.8 million. This yielded a operating margin of 5.2%, compared to 5.2% in 1997. Table 3: Walgreen Company Performance, 1993-1998 US$Bn Revenues Operating Profit Operating Margin 1993 8,294.8 406.2 4.9% 1994 9,235.0 455.6 4.9% 1995 10,395.1 520.0 5.0% 1996 11,778.4 604.1 5.1% 1997 12,828.6 661.0 5.2% 1998 13,989.6 726.8 5.2% AMERICAN STORES In 1998, revenues for American Stores declined by 1.5% on the previous year's level, to reach $17,697.3 million. Over the same period, net profit grew by 3.3% to reach a value of $739.7 million. This yielded a net margin of 4.2%, compared to 4.0% in 1997. Table 4: American Stores Company Performance, 1993-1998 US$Mn Revenues Net Profit Net Margin 1993 19,051.2 631.3 3.3% 1994 18,763.4 641.9 3.4% 1995 18,355.1 650.1 3.5% 1996 18,308.9 706.8 3.9% 1997 17,960.9 716.2 4.0% 1998 17,697.3 739.7 4.2% MARKET FORECASTS In 2004, the US pharmacies market is forecast to reach $101.5 billion, an increase of 12.9% since 1999. The compound annual growth rate of the US pharmacies market over the period 1999-2004 is predicted to be 2.5%. Table 5: US Pharmacies Market Value Forecasts: US$Bn (1998 Prices), 1999-2004 Market Value US$Bn (1998 Prices) % Growth 1999 89.9 2.2% 2000 92.2 2.6% 2001 94.6 2.5% 2002 96.9 2.4% 2003 99.2 2.4% 2004 101.5 2.3% CAGR, 1999-2004: 2.5% Article A83590946 * Datamonitor Industry Market Research, March 17, 2010 pNA * Global - Drug Retail. * http://galenet.galegroup.com/servlet/BCRC'vrsn=unknown&locID=lfpl&srchtp=ind&ids=drug+stores&c=1&iType=naics&mode=i&ste=87&tbst=tsIS&cind=44611+-+Pharmacies+and+Drug+Stores&tab=2048&docNum=A225480151&bConts=2306 * Accessed 11/23/2010 thru www.LFPL.org – the Louisville Free Public Library membership website Full Text: COPYRIGHT 2010 Datamonitor MarketDefinition * The drug retail sector consists of the total revenues generated through the sales of all prescription drugs and over the counter medicines via outlets for which drug retail is the primary revenue source. The sector is valued at retail selling price (RSP) with any currency conversions calculated using constant 2009 average exchange rates. * For the purposes of this report, the global market consists of North America, South America, Western Europe, Eastern Europe, and Asia-Pacific. * ResearchHighlights * *The global drug retail sector generated total revenues of $1,551.2 billion in 2009, representing a compound annual growth rate (CAGR) of 3.6% for the period spanning 2005-2009. * *The cardiovascular segment proved the most lucrative for the global drug retail sector in 2009, generating total revenues of $145.7 billion, equivalent to 9.4% of the sector's overall value. * *The performance of the sector is forecast to decelerate, with an anticipated CAGR of 2.5% for the five-year period 2009-2014, which is expected to drive the sector to a value of $1,755.2 billion by the end of 2014. * MarketAnalysis * The global drug retail sector has posted fluctuating rates of growth over recent years. A slight deceleration of growth is expected in 2010, followed by a steady growth throughout the remainder of the forecast period. * The global drug retail sector generated total revenues of $1,551.2 billion in 2009, representing a compound annual growth rate (CAGR) of 3.6% for the period spanning 2005-2009. In comparison, the European and Asia-Pacific sectors grew with CAGRs of 4% and 2.7% respectively, over the same period, to reach respective values of $433.8 billion and $374.8 billion in 2009. * The cardiovascular segment proved the most lucrative for the global drug retail sector in 2009, generating total revenues of $145.7 billion, equivalent to 9.4% of the sector's overall value. In comparison, central nervous system segment generated revenues of $137.3 billion in 2009, equating to 8.9% of the sector's aggregate revenues. * The performance of the sector is forecast to decelerate, with an anticipated CAGR of 2.5% for the five-year period 2009-2014, which is expected to drive the sector to a value of $1,755.2 billion by the end of 2014. Comparatively, the European and Asia-Pacific sectors will grow with CAGRs of 2.7% and 1.9% respectively, over the same period, to reach respective values of $494.7 billion and $411 billion in 2014. * Value * The global drug retail sector grew by 3.8% in 2009 to reach a value of $1,551.2 billion. * The compound annual growth rate of the sector in the period 2005-09 was 3.6%. * Global Drug Retail Market Value * Unit: USD * * * Year Value * Segmentation * Cardiovascular segment is the largest segment of the global drug retail sector, accounting for 9.4% of the sector's total value. * The central nervous system segment accounts for a further 8.9% of the sector. * Global Drug Retail Market Segmentation * Year: 2009 * * Category Percentage * Segmentation * Americas accounts for 42.1% of the global drug retail sector value. * Europe accounts for a further 28% of the global sector. * Global Drug Retail Market Segmentation * Year: 2009 * * Geography Percentage * Share * CVS is the leading player in the global drug retail sector, generating a 3.6% share of the sector's value. * Walgreens accounts for a further 2.9% of the sector. * Global Drug Retail Market Share * Year: 2009 * * Company Percentage * CompetitiveLandscape * The drug retail market will be analyzed taking retailers of prescription drugs and over the counter (otc) medicines as players. The key buyers will be taken as end-users, and drug manufacturers, large wholesalers and local distributors as the key suppliers. * The global drug retail sector is highly fragmented with large incumbents (Walgreens, CVS and Rite Aid) accounting for only a small proportion of global revenues. * Drug retail stores tend to operate on national rather than global levels. Within varying geographical markets, the drug retail sector is experiencing increasing consolidation, which tends to boost rivalry between players. Whilst some buyers may be large organizations, such as government/state-assisted plans, they tend to account for less than 10% of players' total revenues. This, along with the large number of potential buyers reduces buyer power. Suppliers in this sector are experiencing increasing pressure, as brand loyalty is weakened and players display instances of backwards integration. Drug retailers face competition from other retailers who have begun to diversify and expand into this sector. * In a number of countries, i.e. the US, major buyers of drugs are third-parties, such as insurance companies, healthcare facilities, managed care organizations or other sponsors of health benefit plans. However, buyers within this sector are mostly individual end-users and players have a large number of potential buyers. The fact, players do not usually rely on any one buyer for the majority of their revenues, weakens buyer power considerably. For example, no single buyer accounts for more than 10% of Walgreens' consolidated net sales, with state assisted plans accounting for approximately 5.8% of total sales in FY2009. However, the majority of buyers experience negligible switching costs and can therefore switch retailers if prices become too high. Moreover, many drug retailers tend to stock similar products with little differentiation, strengthening buyer power further. Brand loyalty is unlikely to be highly significant, but where it does exist it is more likely to be to the manufacturer of drugs rather than to the retailer. However, trade names have helped to create a strong reputation for a number of leading drug retailers. Buyer power in this sector is moderate overall. * Large drug retailers generally buy drugs directly from manufacturers or large wholesalers. Smaller, independent drug retailers tend to buy from a local distributor. Large retailers tend to use a number of suppliers, both nationally and internationally. As a result, for a number of the larger players, the loss of any one supplier would be unlikely to have a material effect on the business. However, this is not always the case. During fiscal 2009, Rite Aid purchased brand and generic pharmaceuticals that together amounted to approximately 93.7% of the dollar volume of their prescription drugs from a single wholesaler (McKesson Corporation), under a contract that runs through to April 2010. Under the contract, Rite Aid is required to purchase all of its branded pharmaceutical products from McKesson. In cases such as this, supplier power is disproportionately high. Price competition from low-cost imitators threatens the profits of brand-name manufacturers, who are struggling to differentiate their products. This puts pressure on a number of leading manufacturers, reducing supplier power as cheaper alternatives for market players become viable. Furthermore, a number of leading market players, such as Walgreens, manufacture and sell their own private brand OTC products, putting significant pressure on suppliers. Overall, supplier power is moderate in this sector. * Larger companies in this sector generally benefit from significant scale economies, in terms of volume, purchasing, breadth of products, and effective merchandising and marketing. However, small companies may compete effectively through i.e. convenient location or special merchandising. As consumers become more educated, with regard to certain drugs, such as paracetamol, they have come to view OTC drugs as commodities. Consumers, particularly in the US, have recently begun to lean towards self-medication techniques, promoting major growth within the US OTC sector. Moreover, the global drug retail sector as a whole has experienced moderate, steady growth in recent years, which is expected to continue in the nearest future, increasing the risk of newcomers. Furthermore, a surge in the export of firs and foremost generic drugs from low cost manufacturing environments, such as India and China also provides opportunities for new entrants. Barriers to entry within this sector are relatively low, particularly with the growth of online trading sites. However, as a participant in the healthcare industry, drug retail businesses in a number of countries are subject to government and state laws and regulations that govern the purchase, sale and distribution of prescription drugs and related services. The likelihood of new entrants to this sector is moderate overall. * The threat of substitution for drug retail stores comes from general merchandise stores, supermarkets and hypermarkets. In a number of countries, these retail outlets have begun to diversify aggressively into the drug retail sector. Such retailers offer the convenience of selling a range of products in one location, which may appeal to end-users. Substitutes for prescription and branded drugs exist in terms of counterfeit products. Aging populations, particularly in the US and Japan and increasingly demand for low-cost prescriptions has increased the presence of counterfeit drugs in the marketplace. In the US, the Medicare prescription drug benefit, Medicare Part D, became available on January 1 2006: Medicare favors generics, which tends to reduce prices. Generic products, which mimic branded predecessors at significantly discounted prices, have become more common and accessible in recent years. Overall, the threat of substitutes is strong. * The drug retail sector is highly competitive and has experienced increasing consolidation in recent years (although this tends to be on a national rather than a global level). The continued consolidation of the sector, opening of more and more new outlets, increased mail and internet orders, rising competition from internet based providers, drug importation and mergers between retailers and pharmaceutical services companies will further increase competitive pressures in the sector. The use of mail or internet orders boosts the competition further more, as players compete on the basis of convenience, as well as customer service, production selection and price. Market players tend to face competition from drug retail chains, independent drug stores, mail-order prescription providers and various other retailers such as supermarkets, convenience stores and mass merchants, many of which are aggressively expanding in this sector. A number of market players have diversified to sell other products, such as convenience foods and beauty products, which may slightly ease rivalry in this sector; however, the major business of such companies is still drug retail. For example, Walgreens' and CVS' sales of general merchandise, personal care and beauty products accounted for only a fifth of their total revenues in FY2009. Diversification helps ameliorates competition in any individual market. Overall rivalry level is assessed as moderate in this sector. * This section contains brief overviews of the leading companies in the Global drug retail sector. * Company * CVS * CVS Caremark is a provider of prescriptions and related health care services in the US. The company is headquartered in Woonsocket, Rhode Island and employs about 215,000 people; this figure includes part-time employees. * CVS Caremark is one of the largest providers of prescriptions and related health care services in the US. As of December 2008, the company operated 6,923 retail drugstores, 58 retail specialty pharmacy stores, 19 specialty mail order pharmacies and 7 mail service pharmacies in the US, Puerto Rico and the District of Columbia. * The company operates in two business segments: pharmacy services and retail pharmacy. * The pharmacy services business provides a range of prescription benefit management (PBM) services including mail order pharmacy services, specialty pharmacy services, plan design and administration, formulary management and claims processing. Its customers are primarily employers, insurance companies, unions, government employee groups, managed care organizations and other sponsors of health benefit plans and individuals. In addition, CVS Caremark is a national provider of drug benefits to eligible beneficiaries under the Federal Government's Medicare Part D program. * The retail pharmacy segment includes 6,923 retail drugstores, of which 6,857 operated a pharmacy, an online retail website, CVS.com and retail health care clinics. The retail drugstores are located in 41 states and the District of Columbia operating primarily under the CVS/pharmacy, or Longs Drug names. CVS/pharmacy stores sell prescription drugs and an assortment of general merchandise. Existing stores range in size from approximately 8,000 to 25,000 square feet, although most new stores range in size from approximately 10,000 to 13,000 square feet and typically include a drive-thru pharmacy. As of December 2008, CVS Caremark operated 560 retail health care clinics in 27 states under the MinuteClinic name of which 534 were located within CVS/pharmacy stores. The clinics utilize nationally recognized medical protocols to diagnose and treat minor health conditions and are staffed by board-certified nurse practitioners and physician assistants. * The company recorded revenues of $98,729 million in the fiscal year ending December 2009, an increase of 12.9% compared to fiscal 2008. Its net income was $3,696 million in fiscal 2009, compared to a net income of $3,212 million in the preceding year. * The pharmacy services segment generated revenues of $51,065 million, whilst the retail pharmacy segment accrued revenues of $55,355 million in fiscal 2009. * Company * Rite Aid * Rite Aid Corporation (Rite Aid) is a retail drugstore chain operator that sells prescription drugs and other merchandize. It operates 4,091 drug stores in 31 states across the US and in the District of Columbia. It is headquartered in Camp Hill, Pennsylvania and employs 103,000 people. * The company primarily operates through retail drug segment. The company sells prescription drugs and a wide assortment of other merchandise called ''front-end'' products. It provides 28,000 different types of front-end products including over-the counter medications, health and beauty aids, personal care items, cosmetics, household items, beverages, convenience foods, greeting cards, seasonal merchandise, photo processing as well as everyday and other convenience products. The company offers approximately 3,300 products under the Rite Aid private brand. Rite Aid has an alliance with GNC to co-market a line of vitamins and nutritional supplements called PharmAssure that are sold in Rite Aid and GNC stores. * The average selling area of each Rite-Aid store is 10,000 square feet, while the average total area of each store is 12,500 square feet. The company operates larger stores in western US which have an average selling square feet of 15,400 square feet and an overall average total square feet of 19,800. Approximately 57% of Rite Aid's stores are freestanding (single retail outlets) and around 49% include a drive-thru pharmacy. Around 42% of Rite Aid stores also have one-hour photo shops and about 35% include a GNC store-within-Rite Aid-Store. * In addition to the above, the company offers prescription refills and other products over the Internet through riteaid.com, powered by drugstore.com. The company sells a range of products under categories such as health, beauty, vitamins, personal care, pharmacy, and household and pets through drugstore.com (its partner for online business). Further, the company has also installed 1,034 automated pharmacy dispensing units that are linked to the company's pharmacists' computers that fill and label prescription drug orders. * The company recorded revenues of $26,289 million in the fiscal year ending February 2009, an increase of 8.1% compared to fiscal 2008. Its net loss was $2,915 million in fiscal 2009, compared to a net loss of $1,079 million in the preceding year. * Pharmacy sales reached $17,604 million in fiscal 2009. * Company * Walgreen * Walgreen Co. (Walgreen) is the largest retail pharmacy chain in the US. Walgreen is also the largest independent specialty pharmacy provider in the US. The company is headquartered in Deerfield, Illinois and employs around 238,000 people. * Walgreen operates a chain of drugstores across the US. The product offering at the drug stores include prescription drugs, non-prescription drugs and general merchandise. Walgreen sells pharmacy products, home care services, such as home medical equipment and respiratory therapies, and specialty pharmacies for chronic diseases. The general merchandise products include beauty care, personal care, household items, candy, photofinishing, greeting cards, convenience foods, and seasonal items. The company sells its private label products under the Walgreen and W brand names. * Walgreen operates in a single reportable segment. As of August 2008, Walgreen operated 6,934 stores located in 49 US states, the District of Columbia, Puerto Rico and Guam. Walgreen's major US markets include Florida, Illinois, Texas and California. In FY2008, Walgreen operated 781 stores in Florida, 631 in Texas, 549 in Illinois and 525 in California. Approximately 5.3 million shoppers walk into Walgreen store daily. * Walgreen's customers can be classified into three major categories: third-party payers, mail-order customers and over-the-counter customers. Third party sales form a major portion of the prescription drugs (approximately 95.3%), where the reimbursement is received from managed care organizations, government and private insurance players. No single customer accounted for more than 10% of consolidated sales in FY2008. Customers can also fill their prescriptions at the drugstore counter, as well as through the mail, by telephone and through the Internet. Walgreen uses product catalogues as well as direct sales teams to market its products and services. The company filled approximately 617 million prescriptions in FY2008. * Walgreen's health & wellness division constitutes in-store clinics and worksite health centers. Take Care Clinics, a wholly subsidiary of Walgreen, operates 217 convenient care clinics in Walgreens drugstores across 29 markets. The clinics offer accessible and affordable services including treatment of minor illnesses and injuries, school and sports physicals, and immunizations to customers. The company has rolled out additional vaccinations and men's and women's health evaluations, focusing on prevention and wellness. * The company, through the acquisitions of I-trax and Whole Health Management, now operates worksite health centers in big corporations including Capital One, Scotts Miracle-Gro, Sprint and Continental Airlines. In FY2008, the company also operated clinics on 364 employer campuses. In clinics, the company provides on-site fitness, nutrition, primary care, urgent care, occupational health and physical therapy services to the employees and their family members. Walgreen operates 73 medical center pharmacies in hospitals and clinics, where the patients can fill their first dose of medication and later refill it in the nearby Walgreen store. * The company, under its "Walgreens Prescription Savings Club", offers prescription discount cards to uninsured and underinsured patients. The card members can avail discounts on over 5,000 brand name and generic medications through the usage of the card. In addition, the members can also receive rebates on private brand purchases throughout the stores and get access over 400 plus generic medications that cost less than a dollar. * Walgreen purchases its merchandise from various domestic and foreign suppliers. The company's retail drugstore operations are supported by 13 major distribution centers, covering approximately 11 million square feet of floor space, of which the company owned 7 million square feet. In addition, the company uses public warehouses to handle certain distribution needs. Walgreen also owns 31 principal office facilities, two mail service facilities for online refills and mail order prescription refills and 22 strip shopping malls to cater to its business needs. * The company ventured into the digital photo service business in 2005. Walgreen also offers services such as printer cartridge refills and "Redbox" DVD rentals at more than 6400 of its retail stores. * The company recorded revenues of $63,335 million in the fiscal year ending August 2009, an increase of 7.3% compared to fiscal 2008. Its net income was $2,006 million in fiscal 2009, compared to a net income of $2,157 million in the preceding year. * ForecastValue * Global Drug Retail Market Value Forecast * Unit: USD * * * Year Value * MacroeconomicData * Exchange Rate * Exchange Rate * * Year Value * Article A225480151