Tuesday, September 13, 2011

The Pharmacy Industry's Evolution: 2000 to 2010

I thought it would be fun—well, my kind of fun—to dig back into The 2011-12 Chain Pharmacy Industry Profile and see how the pharmacy industry has changed this millennium.

Here’s the big picture summary:

  • Chain drugstores captured almost 40% of the pharmacy industry’s $121 billion growth since 2000. Mail-order pharmacies captured about one-third of the growth.
  • The average chain drugstore now dispenses about $4.7 million in prescriptions, more than any other pharmacy format. Outlet size have grown twice as quickly for chains vs. other formats.
  • Independent drugstores did pretty well over the past ten years, too.
  • Total industry gross profit dollars have increased along with revenue growth.
File this post under "Fancy factoids for pharmacy fans" (and then say that phrase four times, fast). Pretty pictures and more details below.

GROWTH BY DISPENSING FORMAT

The pharmacy industry grew by an impressive $120.8 billion from 2000 to 2010. Growth, however, was not evenly distributed among the various retail dispensing formats. From 2000 through 2010, chain drugstores and mail-order pharmacies captured 73% of the total increase in pharmacy revenues in the past ten years. Click the chart to enlarge.

The big jump in total revenues meant that every pharmacy format grew. Total prescription revenues at independent pharmacies, for example, increased by $11.3 billion (+34%) from 2000 to 2010.

Although chain drugstores captured the greatest share of revenue growth, the number of chain drugstores has increased much more slowly than that of pharmacy operations within mass merchants and supermarkets.

The total number of chain drugstores grew by only 11% from 2000 to 2010, while the number of non-drugstore locations grew by 13% (supermarkets) and 49% (mass merchants). See page 12 of Profile for the raw data. The pharmacy department within a non-prescription-dependent retail format typically accounts for 5% to 15% of total store revenues.

Meanwhile, independents held their own. The number of independent drugstores was essentially unchanged, from 20,896 locations in 2000 to 20,835 locations in 2010. As I noted last week, 2010 was another good year for independent pharmacies.

GROWTH IN PRESCRIPTION REVENUE PER STORE

Combining these two data series tells us a lot about the activity level at the average pharmacy outlet.

The chart below shows the average prescription revenue per location by dispensing format (excluding mail-order). As you can see below, drugstore chains have captured revenue share by increasing average location size faster than have all other community pharmacy formats. Click the chart to enlarge.

The average pharmacy of a chain drugstore filled $4.7 million of prescriptions per year in 2010, up 62% from the roughly $2.9 million per year filled in 2000.

Average revenues at other primary dispensing formats—independent drugstores, mass merchants with pharmacies, and supermarkets with pharmacies—each grew at about half the rate of chain pharmacies. That was a still-impressive 32% to 34% increase in prescription revenue per location.

Another interesting factoid: Chains are the only format that significantly increased prescriptions filled per location over this period, although scripts per store only grew by 18% from 2000 to 2010.

WHAT ABOUT PROFITS?

The drugstore industry’s average gross margin has been remarkably stable over the past 17 years. See Drugstore Margins Jump in New Gov’t Data. (The NACDS doesn’t report anything about margins or profits.)

As a result, gross profit dollars—total and average per pharmacy location—have increased by an equivalent amount as revenue growth. All in all, the industry has had a pretty decent run.

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