Tuesday, September 06, 2011

2010: A Good Year for Independent Pharmacies

The NACDS just released The 2011-12 Chain Pharmacy Industry Profile. (Free to members; $375 for everyone else, including me). As always, it’s chock full o’ useful facts about the pharmacy industry.

The data for 2010 show that independent pharmacies are doing better than you might think. Here’s what I found while rummaging around this year’s profile:
  • Independents are not vanishing. For the second year in a row, more new independent drugstores opened than closed.
  • Revenues at independent drugstores were up by $1.1 billion last year.
  • Average revenues at independent pharmacy outlets were the highest they have been in the past five years. I suspect the data are starting to reflect entrepreneurial pharmacy owners going after the specialty market.
  • Despite this growth, independents are a shrinking part of the prescription pie. But the biggest threat comes from large chain pharmacies, not from mail-order pharmacies.
Read on for more details. As always, I welcome your feedback in the comments below.


Here’s a surprise—independent drugstores added 43 locations (+0.2%) in 2010 after adding 474 last year. The number of independent pharmacy locations in 2010 (20,835 outlets) is almost exactly the same as in 2000 (20,896 outlets). So much for the myth of the disappearing independent pharmacy!

BTW, this is good news for drug wholesalers such as AmerisourceBergen (NYSE:ABC), Cardinal health (NYSE:CAH), and McKesson (NYSE:MCK) because independent pharmacies are strategically important and profitable to wholesalers, despite representing only 15% of wholesalers’ total sales.

Oddly, the National Community Pharmacy Association (NCPA) prefers to trumpet bad news. Here’s a recent example from the NCPA’s blog in July: Independent Pharmacy Closures Illustrate Need for Pro-Patient, Pro-Pharmacy Policies. Gee, what a super way to promote your industry. (?)

Note that the NACDS changed their methodology for counting independent pharmacies, leading to the massive upward revision that I described in Surprise! Independents Not Vanishing.


Total retail prescription growth was only 1.2% in 2010. Chain drugstores and mass merchants gained market share of prescriptions again in 2010. All other retail formats—independents, supermarkets with pharmacies, and mail-order pharmacies—lost share.

In 2010, independent pharmacies lost both absolute number of prescriptions (down 0.1%) as well as market share (-23 basis points). As a result, independents’ share of prescriptions has declined from 37.1% in 1992 to 17.3% in 2010—a drop of nearly 20 percentage points.

But the data suggest that independents have more to fear from big chains. I know that mail order is the big bogeyman, but pharmacy owners should open their eyes to the true competitive threat. The biggest retail chains—CVS Caremark, Walgreens, and Walmart—are winning the battle for prescriptions. The 2010 data are a rerun of the 2009 growth patterns that I discuss in my economic report.

Note that these data are not directly comparable to the IMS prescription data that I discussed in April’s Chains in 2010: Winning. NACDS transfers certain franchise sales—primarily Cardinal's Medicine Shoppe franchise—from IMS’ independent pharmacy to chain category. The wholesaler-owned marketing/franchise groups, such as McKesson’s Health Mart or AmerisourceBergen’s Good Neighbor Pharmacy, are counted as independents in NACDS data. NACDS also splits the IMS “chain” category into Chain drugstores and Mass merchants with pharmacies.


Total revenues at independent pharmacies increased by an impressive $1.1 billion (+2.5%) in 2010, which translated into a comparable increase in average revenues per independent pharmacy outlet. In fact, average revenues at independent pharmacy outlets were the highest they have been in the past five years! Certainly not what many people were expecting given the ever-increasing generic dispensing rate.

This increase in average revenues is consistent with another trend that I’ve discussed on Drug Channels—the emergence of high-growth, privately-owned, independent pharmacies focused on specialty drugs.

I’ve come across these pharmacies in my consulting work on specialty pharmacy network design. I met many of these business owners at the Armada summit last May. As I wrote then:
“I was especially impressed by conversations with entrepreneurial pharmacy owners and regional pharmacy chain executives who are targeting growth with specialty drugs. The pharmacy and pharmaceutical industry of tomorrow will be about expensive specialty drugs for small patient populations and inexpensive generic drugs for large populations. If you are a business owner, you can certainly choose to spend your days trying to pass anti-competitive laws against PBMs or mail order as a way to protect a 1950s-era business model. Or you could figure out how to evolve and adapt. The independent pharmacy owners that I met at Armada are the prospective winners, not the whiners.”
Pay attention to this trend. These up-and-coming community pharmacies are likely to be part of groups such as ASPN (Armada Specialty Pharmacy Network) or CSPN (Community Specialty Pharmacy Network).

The NACDS Industry Profile sheds no light on the specialty issue. Unfortunately, the very brief discussion of specialty pharmacy on page 71 contains both inaccurate and incomplete information.

So, the facts suggest good news for the independent pharmacy industry. Nothing wrong with that news, right?


Check out the latest Health Wonk Review, curated by Avik Roy at Forbes. Drug Channels gets a shout-out on page 3.


  1. Interesting report and certainly Medicine Shoppes should be included as Independent but I do disagree that the greatest threat is large chain. The greatest threat in the PBM industry. Low rates of distribution and forced mail order are the top two in my opinion. In CT, the State employees are now forced to get their maintenance meds through the mail (or the non Caremark pharmacies can give full service for the unsustainable mail order reimbursement) or lose up to 80% of their volume in certain college towns. I owned an independent pharmacy for 35+ years and if I open another, it will be right across the street from the busiest large chain. I will be filling hundreds a day in no time and the overworked chain pharmacists will be thrilled.
    I don't know your background but assume that chain and industry is your bread and butter. I look forward to continuing to read your viewpoint. Thank you for bringing this report to my attention.
    JP RPh

  2. Just so you know, my primary consulting clients are pharmaceutical manufacturers. I do not provide business consulting to pharmacies.

  3. Dr Fein,
    It's not chain competition affecting the finances of indepenndents, it's the PBMs.
    In the mid-atlantic market, all the federal, state and county employees are forced to go to mail-order (via punitive copay differentials, which they conveniently manage).
     So much for "shop locally" when area governments ship business out of state.

  4. I have 2 major 24 hour stores near my independent and they are ferocious in retaining prescriptions.  I dont even bother trying to get prescription transfers from them.  I can see why chains are worse than PBM.  PBMs reimburse so little anyway, its probably cheaper than dispensing/ delivery.