Tuesday, June 25, 2013

Drugstore Industry Profits Rise Again in Latest Gov't Data

Time once again for my annual look at the U.S. Census Bureau’s Annual Retail Trade Report. These government-collected data provide the most complete picture of revenues at all store-based retail drugstores, not just the larger public companies.

Once again, the Census data show that retail drugstores’ financial position looks better than you may expect. Highlights:
  • In 2011, total drugstore gross profits were $54.6 billion in 2011, up $1.5 billion (+2.8%) vs. 2010. Since 2000, drugstore’s gross profits have increased by $21.2 billion.
  • Gross margins (gross profits as a % of sales) averaged about 26% from 1993 through 2006, and averaged about 24% from 2007 through 2011.
As we enter the last major phase of the generic wave, how long will the good news last for the pharmacy industry? Feel free to add your prediction in the comments.


NAICS (North American Industry Classification System) is the standard used by federal statistical agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy. Pharmacies and drugstores are classified in NAICS 446110.

The U.S. Census Bureau reports gross profit and margin data annually as part of the Annual Retail Trade Report. On May 31, 2013, revised 2011 data were released and can be downloaded in Excel spreadsheets from the Census site.

A few comments:
  • The drugstore data include retail revenues and gross profits from both prescription and non-prescription products. Chain drugstores such as CVS' retail business (NYSE: CVS) and Walgreens (NYSE: WAG) generate about one-third of their revenues from non-prescription, front-end items. Independent drugstores, meanwhile, generate less than 10% of their revenues from non-prescription sales.
  • NAICS 446110 excludes non-drugstore retail outlets (supermarkets and mass merchants) and mail pharmacies.
  • The Census Bureau defines gross profit to be "Sales minus Purchases," i.e., cost of goods. This definition may not correspond precisely to definitions used in public company accounting reports, although I believe it's close.
For a primer on pharmacy profits, see Chapter 7 of the 2012-13 Economic Report on Retail, Mail, and Specialty Pharmacies.


The drugstore industry’s overall average gross margin, as reported by the U.S. Census Bureau, has remained fairly stable throughout the past 19 years, averaging 25.3%. In 2011, drugstore gross margins were 23.6%, equal to the 2009 figure.

This stability is consistent with pharmacy owner surveys showing that overall gross profit margins for independent drugstores have remained stable—ranging from 22% to 24% over the past 10 years. See Pharmacy Ownership: Getting Less Profitable.

Notably, public company retail drugstore gross margins are higher, averaging 28% to 30%. These public chain figures include higher gross margin front-end products and reflect slightly better drug acquisition costs.

In 2006, drugstore margins dipped. I attribute this one-time decline to three factors:
Although gross margin has remained stable, total gross profit dollars increased during this period along with total drugstores revenues. In 2011, total drugstore gross profits were $54.6 billion in 2011, up $1.5 billion (+2.8%) vs. 2010.

Due to generic substitution, drugstore revenues are slowing down. See Drugstore Sales Drop Along with Drug Trend: Implications for Retail Pharmacy. Tune in next year to see if generic prescriptions’ higher profits offset the revenue drop.


  1. These are the results of year 2011. Much has happened since then. More generics, reduced Medicare D limits, increased mail order, etc. For 2012 you will see lower sales, same gross margins and many pharmacies going out of business. Making 25% gross margin on a $1.00 MAC cost does not pay the bills!

  2. Dr. Fein:

    Regarding the Drug Store Profitability figures from US Census Bureau, it seems the data are also an indicator of drug stores focusing on merchandising the "front of the store". The margins there can be favorable, as well.

    When you are already at the pharmacy counter waiting for adjudication and perhaps feeling poorly, why drive another mile to save $0.90 on shampoo ? Or, in Walgreen's case, why not pick up a 12-pack of beer with yet another beach cooler ? In the end, I'm glad the class is achieving profit growth in retail,,,we need all the pharmacies we can get to help cover the Primary Care Physician shortage that is looming.