While the economy ails, in-store health clinics for supermarkets may be headed for the hospital — literally.
The concept started in 2000 in Cub Foods stores in the Twin Cities, and entrepreneurial operators led the way, using private investment capital. This type of business model prevailed until recently. Two big drug chains bought up successful operators; others attracted high-profile investors; and many shut down when venture capital firms grew impatient with clinics taking longer to attain profitability than had been initially predicted.
In 2006, CVS/pharmacy, Woonsocket, R.I., purchased MinuteClinic — the company that had started the concept with Cub as QuickMedx — and in 2007, Walgreen Co., Deerfield, Ill., bought Take Care Health Systems. Revolution Health, Washington, owned by former AOL co-founder Steve Case, has invested in RediClinic, Houston, which operates in H.E. Butt Grocery Co., San Antonio, and Wal-Mart Stores, Bentonville, Ark.
Last spring, Kroger Co., Cincinnati, made an investment in the Little Clinic, Louisville, Ky. In addition to Kroger, Little Clinic is in stores of Publix, Lakeland, Fla.
With the economic situation slowing credit availability for clinic operators, other retailers, including Wal-Mart and most supermarket chains, have been left to find new health clinic partners. Increasingly, they are looking to hospital systems to fill the void.
“Once the economics play out, that may be where you see the growth,” said John Beckner, director, pharmacy and health services, Ukrop's Super Markets, Richmond, Va. “All these people are looking for access to patients.” Ukrop's has one clinic, with no plans to put in any more this year, he said.
In terms of new operators establishing clinics, hospital systems have been the most active group, said Tom Charland, chief executive officer of Merchant Medicine, Shoreview, Minn., which consults on clinics and puts out a newsletter. “I attribute that to hospital systems realizing that they have some things to gain from this beyond operating profit,” he said.
For example, large hospital systems and their affiliated medical groups could use the clinics as a platform to do a better job of chronic disease management, he said. Also, existing health care providers see the rapidly expanding drug chain clinics as a potential competitive threat, he added.
Wal-Mart and Rite Aid, Camp Hill, Pa., have made local and regional hospitals the cornerstone of their clinic strategies, he said, and so far Rite Aid has been more aggressive in moving forward.
But supermarkets also are a good fit for health system clinics. “The hospital systems don't have locked-up relationships, nor do grocery stores in general,” Charland said.
“Just as hospital systems are the next frontier of operators getting into this business, I think the last retail hosts to get into it in a big way will be the grocery stores,” he said.
“The in-store clinic is fundamentally a very good and powerful idea,” said Bill Bishop, president of Willard Bishop, Barrington, Ill. “The problem is that it really hasn't found its business model yet. So many of them are vulnerable, because they are not profitable and they don't have the volumes necessary to become profitable.”
Experts say that clinics need to see 20 patients a day to achieve profitability, and getting to this point can take as long as two years.
There is a shakeout happening among the clinic operators, said Bishop, “but I don't think there is any chance that this will signal the demise of in-store clinics. They are powerful. They are value-creating to the customer as well as the retailer, and they tie in with other things the food retailers are trying to do.”
Hospitals and other health systems are going to find supermarkets a cost-effective way to get into the retail health business, and this represents a trend that is emerging now, he said. A number of supermarket executives have confirmed to SN that they have held discussions with health systems to put in clinics.
“If Kaiser or Blue Cross or somebody like that really started to get into this — and there are lots of reasons why — you will see this concept take off, and it will take off with a lot more sophistication and energy than the first generation of clinics,” Bishop said. With many people going without health insurance, and with insurers paying less while requiring higher co-pays, “there is a huge market for it” that fits into the “new, more frugal American lifestyle,” he said.
“During bad economic times, the consumer will look for a value,” said Bob Dufour, former pharmacy executive with Wal-Mart and now a consultant with Ernst & Young, New York. “These clinics offer that value, and as they continue to grow, it is ultimately the consumer who will decide and the consumer who will win by it.”
“Clinics are capital-intensive and, like pharmacies, build volume over a long period of time — six to 18 months to break even,” said Curtis Hartin, senior director of pharmacy, Bi-Lo, Greenville, S.C. “Hospitals, as a sponsor, make a lot of economic sense, because they can use clinics to offload emergency room volume, and [they] give instant name recognition in the community to help build credibility and traffic.”
There's always going to be room for entrepreneurs, and there's a history of successful entrepreneurs being absorbed by larger corporations, such as CVS and MinuteClinic, Dufour said. Meanwhile, “there are huge advantages for the hospitals and the health systems in integrating the care” with the retailer and local physicians.
Supermarkets offer a unique advantage in this setting. “They have the convenience of nutrition in a food location, which is something that would be a huge benefit for clinics down the road,” Dufour said.
“We certainly have more health systems that are interested in this business model,” said Tine Hansen-Turton, executive director, Convenient Care Association, Philadelphia. “For a while, they were observing it — but now they are actually doing it, which presents a very unique opportunity for supermarkets.”
“The clinics will continue to be a good source of health care,” said John Fegan, vice president, pharmacy, Winn-Dixie Stores, Jacksonville, Fla. “But it will be a slow grow. There will be some folks who will fall out of the marketplace just because of the economy, and people who were considering getting into it will be more cautious, both on the clinic side and the retailer side.”
While supermarket chains initially preferred to have one clinic brand across their entire operating areas, many retailers have to adjust to new realities.
“Once there may have been four, five or six different operators vying for a retailer's attention, but that situation doesn't exist anymore,” Fegan said. “Now we have to be a little more concise in our choice, and be sure that the clinics are going to be around, while the clinic operators are going to have to be assured that they are going with the right partner because of the expense” of a slow-growing enterprise.
Major players such as the hospital systems are considering supermarket clinics, but cautiously. “They are looking at it closely, but very conservatively,” he said.
Meanwhile, a number of smaller local health providers may be the way to go for chains. “So the challenge to retail, in my opinion, is: How do you work with multiple smaller partners, rather than one larger partner?” Fegan said.
Promotion and marketing are keys to making clinics work, as a “very slow start-up can dramatically impact the financial health of these units,” said Robert Gorland, vice president, Matthew P. Casey & Associates, Harrisburg, Pa., a real estate research consulting firm. An obscure location in the store will hinder traffic flow and awareness of the clinic, he added.
“It is highly unlikely that clinics are going to get to the scale that they deserve without a whole lot more marketing and promotion than we've done up until now,” Bishop said.