Retail pharmacists faced an unexpected challenge from President Bush's administration in July when the newly elected Republican proposed a prescription-drug discount scheme that reached right into their pockets.
The story was one of several news events that affected the nonfood categories of supermarkets this year. Others included the addition of pharmacies to several regional food chains, the partnerships between leading toy retailers and some supermarkets, the addition of one-hour photo labs, and the increased focus on making health and beauty care a destination in supermarkets.
While none of these trends or events had the world-changing impact of the Sept. 11 terrorist attacks, they each potentially shaped to some degree the future of supermarkets' nonfood departments.
Bush's discount-card plan, which has since been taken back to the drawing board, called for seniors to purchase prescription cards from third parties -- presumably the pharmacy benefit management companies (PBMs) that helped come up with the plan -- who would buy drugs in bulk and pass the discounts on.
Or would they? The retail pharmacy industry was concerned that retailers wouldn't pay any less for drugs under the new plan, leaving pharmacists to either subtract the discounts from their own profits or decline to accept the cards. With PBMs issuing the cards, retailers also feared that consumers would be encouraged to use the mail-order pharmacies that the PBMs themselves provide.
The matter quickly shifted from the president's purview to that of the Centers for Medicaid and Medicare Services (CMS), and the industry's attack on the initiative vilified politics and bureaucracy rather than its Republican friend who proposed the idea.
The National Association of Chain Drug Stores and the National Community Pharmacists Association, both based in Alexandria, Va., filed suit to block the drug-card initiative, saying the administration did not have the authority to back it without Congressional approval and that the plan would unfairly harm retail pharmacy.
Although the associations won an initial court victory in September when a federal judge scuttled the Bush plan, CMS in November won the right to pursue a new plan, provided that it followed the federal procedures for implementing a new rule by filing it with the Federal Register for public comment.
Ron Sims, president and chief executive of the drug division at Marsh Supermarkets, Indianapolis, and chairman of the Pharmacy Committee at Food Marketing Institute, Washington, stressed the importance of the retail pharmacist in any new discount plan.
"They need to use the distribution system that is already in place, based on the relationship that the community pharmacists have with their patients, rather than trying to circumvent that... process," he said.
Retail pharmacy took another hit in August when the Health and Human Services Office of Inspector General issued a report concluding that retail pharmacies purchase drugs at the discount rate of average wholesale price minus 21.84%. Pharmacists feared that the number might be used to calculate their reimbursement rates for providing drugs to Medicaid patients.
Despite these attacks on pharmacy profits, supermarkets continued to roll out prescription drug offerings at a rapid-fire pace.
Regional New England supermarket stalwart Big Y, Springfield, Mass., installed its first four pharmacies during the past few months, putting it on more even footing with local supermarket rivals. Big Y said it plans to add 10 to 12 more in the next year, as it hopes to garner 1% of sales from prescriptions.
Meanwhile Genuardi's, Norristown Pa., also launched a pharmacy initiative in 2001. The 38-unit chain, acquired by Safeway earlier in the year, opened its first two pharmacies in the fall and was planning to open a total of six in the coming months, sources said. Safeway, Pleasanton, Calif., was directing the prescription initiative by acquiring local independent pharmacies, where possible, and hiring their staffs to Genuardi's.
Retail analysts like the combo concept.
"Once you have the pharmacy, it adds legitimacy to all the related merchandise, and I think that extends a lot further than people give the pharmacy credit for," said Chuck Cerankosky, managing director, McDonald Investments, Cleveland. "[It extends] not only to the over-the-counter products but also to first aid and to some of the health and beauty care items. Some of the rub-off effect should carry into some of the seasonal general merchandise categories, because that exactly parallels what stand-alone drug stores are doing."
Along those lines, some supermarket chains that already had pharmacies made some investments in 2001 to make themselves more like drug stores. Giant Food, Landover, Md., remodeled several stores with a circular health-and-beauty care department in the center of the store connected to the pharmacy through themed signage. Spokesman Barry Scher said the format would be incorporated into all new and remodeled stores.
Albertson's, Boise, Idaho, also took steps to make its health-and-beauty care departments into destinations in Reno, Nev., and Tucson, Ariz., by combining its traditional supermarkets with either its Osco or Sav-on drug store formats, a strategy modeled after the chain's Jewel-Osco combo units in the Chicago market.
"Supermarkets need a way to differentiate themselves and attract greater consumer loyalty to drive top-line sales, and one way to do that is to enhance their offering in the GM and HBC areas," said Jon Hauptman, vice president, Bishop Consulting, Barrington, Ill.