Thursday, April 15, 2010

Chains Win Big in 2009

The pharmacy market continued to undergo structural changes in 2009 that shifted market share between dispensing channels, while overall growth in retail prescriptions remained modest.

Chains were the big market share winners in 2009, while all other formats—independents, supermarkets with pharmacies, and mail-order pharmacies—lost share. The mail-order results are especially surprising. My summary analysis and interpretation appear below.

And from the Department of Shameless Self-Promotion, I note the 2009 data are consistent with the predictions in my pharmacy industry economic report.

The chart below was created from IMS Health’s 2009 Channel Distribution by U.S. Dispensed Prescriptions (published on April 6, 2010). Note that I present the data differently than IMS to facilitate insights into retail pharmacy industry dynamics. Click the table to enlarge it.

  • Chains continue to gain share. The three largest chains—CVS Caremark (NYSE:CVS), Walgreen (NYSE:WAG), and Walmart (NYSE:WMT)—are winning the battle for prescriptions. The chain pharmacies are capturing share with new store openings (although less so than in the past), organic growth from larger and busier pharmacies, and acquisitions of regional chains. In contrast, Walmart’s growth has been almost entirely organic as generic drug discount programs and cost-plus deals increase traffic at their pharmacies.
  • Independents lost market share (again). Independents' share of prescriptions is down 170 basis points since 2005. While I believe independent pharmacy will remain a viable channel, I also expect ongoing market share losses to alternate pharmacy formats. Don’t forget that the big 3 drug wholesalers are investing substantial resources in business services designed to support their smaller, more profitable wholesale customers.
  • Mail order lost significant share for the first time. Mail-order pharmacy growth is lagging the overall market due to increased competition from retail store-based pharmacies. Walmart and CVS Caremark (with Maintenance Choice) are now both pursuing strategies that eliminate the traditional out-of-pocket cost difference for consumers between mail and store-based pharmacy. If this trend continues, then 2009 will mark a negative turning point for mail at Pharmacy Benefit Managers (PBMs) such as Medco Health Solutions (NYSE: MHS) and Express Scripts (NASDAQ:ESRX).
  • Supermarket's share was flat for the third year in a row. Supermarkets are losing prescription growth to Walmart and chain pharmacies. The supermarket industry is also consolidating—the number of pharmacy supermarkets has declined from 10,163 in 2006 to 8,884 in 2008 (per the 2009-10 NACDS Chain Pharmacy Profile).
Please post your thoughts and predictions in the comments below.

Happy Tax Day! Click here if you’re curious to know why it falls on April 15.


  1. Thanks for the interesting data. Although not mentioned, I believe that the numbers of pharmacies are growing at a much slower pace. At the same time, the number of pharmacy schools are increasing rapidly in all part of the country. I would expect to see a large number of pharmacists looking for jobs in the retail market in the very near future.
    Do you have any thoughts on this trend?

  2. Thoughts on the train wreck re the quick reversal of the pharmacist shortage?
    Survival of the fittest.

    I'd imagine that we'll see a slight resurgence of independent pharmacies....which is shocking.

    RP's will need jobs and are willing to go out on their own, for possibly a lower salary...and clearly for an increase in the amount of stress and time on the job.

  3. You mention that the Big Three are focusing on expanding generic programs to the independent pharmacies. I am confused why they have allowed second tier distributors to take business from them for so long? It seems that it would be easier to simply demand that customers purchase 100% of all pharmaceuticals from them.

  4. Did everyone miss this one? I'm sure Alan has seen it.

  5. Hmmmm, that's how you improve margins.