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    Big-Box Pharmacy on the Rise

    Big-box merchandisers, including supermarkets, employ thousands of pharmacists and offer higher-than-average salaries.

     

    Follow the Money

    Table 1

    Fein’s 2017 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers shows five big box chains among the top 15 prescription retailers by dollar value.

    Mass merchant Walmart is number four and Costco Wholesale is number 13. On the grocery side, Kroger is number seven, Albertsons number eight, and Ahold USA number 14.

    Between them, the five big boxes account for 10% of the $412 billion spent on prescription products in the United States in 2016.

    Related article: Walmart ordered to pay pharmacist $31 million for wrongful termination

    That’s only a quarter of the prescription revenues racked up by the top three sellers—CVS, Walgreens, and Express Scripts—which accounted for 47.8% of 2016 Rx sales in the US, $197.1 billion.

    So why are big boxes paying bigger bucks or offering larger salary increases than traditional pharmacy chains? It’s all about economics.

    “Big boxes, grocery chains, and mass merchants, are growing pharmacy because that’s where the money is,” explained industry consultant Gary Ellis, president of Ellis Management Consultants. He has been helping grocery chains add pharmacy operations for more than 20 years.

    “The pharmacy itself isn’t a huge money maker, it just has to break even,” Ellis continued. “But if you’re a grocery store, every new script is worth $43 in additional sales in other departments. It’s the same reason CVS and Walgreens have been expanding their front ends. The profit is all in front-end sales and every prescription that walks in the door means more front-end sales.”

    Large front-end sales give big boxes more flexibility in pharmacist compensation than their pharmacy chain or independent competitors. In 2016, pharmacy wholesaler McKesson noted that the typical independent gets 90% of revenues from pharmacy sales, compared to 65% to 70% for a pharmacy chain.

    Related article: Walgreens/Rite Aid Merger Scrapped

    Pharmacy contributes about 11% of total revenues for warehouse clubs and supercenter mass merchants, according the market researchers Mazzone & Associates.

    The Food Marketing Institute (FMI), the nation’s largest grocery trade association, reported that pharmacy sales accounted for just 3.1% of channel sales in 2014, plus another 3% from health and beauty care (HBC) products. For grocery chains with a heavy pharmacy presence like Kroger, Albertsons, Ahold, Publix, and H-E-B, pharmacy provides 6% to 9% of store revenues.

    That doesn’t mean big boxes can use pharmacy as a loss leader. Pharmacy has to turn a profit, but not a huge profit.

    “If our pharmacy profits were half of what they are, we would still have a very viable operation,” said Victor Curtis, RPh, Senior Vice President of Pharmacy at Costco Wholesale. “The most important driver for the pharmacy department is growth. Our CEO wants to see prescriptions growing in a healthy fashion. Top line prescription growth is directly related to the value that we provide to the company.”

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