Supermarket pharmacies recorded a median 20 percent gross profit margin in 1999, matching 1998’s results and suggesting an end to erosion in margins, down from 50 percent over a decade ago, according to the survey. Gross profits have been squeezed by the increasing prevalence of managed care prescription plans and the lower reimbursement rates and generic drug substitution requirements.
Supermarket pharmacies have adapted, however, by handling more volume and capturing a larger share of the market. The 357 million prescriptions filled in supermarkets last year represent the highest level of growth among retail formats since 1995, according to data from IMS Health.
Coupled with escalating prescription costs, the higher volume helped pharmacies ring up weekly sales increases of almost 80 percent in the past five years ¯ to a median of $38,321 in 1999. Since 1995, generic prices have risen by about 35 percent while brands have jumped 72 percent, perhaps attributable to rising manufacturer costs and the introduction of innovative new products, the study suggested.
Third-party Sales Dominate
Managed care prescription plans have captured the majority of prescription dollars, especially in supermarkets, according to the survey. These plans now account for 77 percent of supermarket prescription sales, a 47 percentage point increase in the past decade. Third-party supermarket pharmacy sales seem to have stabilized last year, reporting a one percentage-point increase.
Even though third parties continue to require less profitable generic substitutions, dollar sales of generic drugs in supermarket pharmacies hit a new low last year, slipping to 17 percent from a median of 22 percent in 1998, perhaps due to the introduction of expensive drugs without generic alternatives, the study said.
Supermarket Pharmacies Gain Market Share
An increase of approximately 62 percent in supermarket pharmacy volume since 1995 clearly outstripped gains made by other formats. Only mail order prescription services enjoyed comparable success, fulfilling 55 percent more prescription orders in the last five years. While chain drug stores and mass merchandisers increased volume by 36 and 25 percent, respectively, in that five-year period independent pharmacies filled 4 percent more prescriptions, the study noted.
Supermarkets also experienced greater market share growth in the number of prescriptions dispensed in the last five years – gaining three percentage points to 13 percent – according to data from IMS Health. Meanwhile, chain drug stores increased two percentage points to 44 percent, mass merchandisers remained steady at 11 percent, and mail service edged upward one percentage point to 5 percent. Only independent drug stores lost ground, falling from 33 to 27 percent of prescriptions filled.
Also, supermarket pharmacies represented a greater proportion of retail outlets in the last five years, increasing from 12.7 percent in 1995 to 16 percent last year. Chain drug stores also posted notable gains, from 33.2 percent to 36.5 percent, and mass merchandisers increased slightly. Independent pharmacies continued to decline, according to the report, although they remain the most common format with 37.3 percent of retail pharmacy outlets.
Disease State Management Programs and In-Store Health Offerings Grow
Forty-nine percent of supermarkets are offering some type of disease state management program in at least one in-store pharmacy, compared to 40 percent last year, according to the survey. Diabetes, hyperlipidemia, asthma, hypertension and smoking cessation programs were the most popular programs.
The report also finds that supermarket pharmacies are also offering more in-store health services to customers. Programs offered by more than half of the companies surveyed include blood pressure testing (90 percent), flu shots (86 percent), cholesterol testing (61 percent), blood glucose monitoring (53 percent), and store “wellness” tours (53 percent).
2000 Report of the Supermarket Pharmacy Survey is available for $10 to FMI members and $25 to non-members from FMI Publications and Video Sales at (202) 220-0723 or www.fmi.org/pub.