It is drug chains and mass merchants racing past them in a whole-hearted bid to court health consumers on-line.
While supermarket giants remain glued to the starting block, the likes of Walgreen, CVS, Rite Aid, Phar-Mor and Wal-Mart are lapping them in the early stages of the pharmacy/health care cyberspace race.
They've sprinted past Kroger, Albertson's and countless other food-combo operators to brand themselves on the Internet as the ultimate convenience and education destinations for prescription drugs, over-the-counter medicines, nutritional supplements and related toiletries.
"A lot of people are ahead of supermarkets on this one," said Bill Bishop, president of Willard Bishop Consulting, Barrington, Ill. "Look at the alliances compounding daily with retail and the remote disbursement of pharmacy, tying in medical and pharmacy dotcoms. I don't see supermarkets with anything parallel to that."
From the drug-channel perspective, the Internet strategy is clear. They have the critical mass of pharmacies to make it worth their effort, say industry observers, leveraging their name equity in so many markets earned from their physical stores. For most major drug chains, pharmacy alone accounts for 50% or more of their total sales, so they must protect the franchise. There's also the matter of managed care plummeting retail pharmacy's margins from 30% down to the 20% range over the past decade.
For the drug-chain leaders who've established an Internet presence that meant leaping into the virtual world in 1999 even if they lacked the internal resources and talent to create excellent Web sites.
CVS, Rite Aid, Phar-Mor and Drug Emporium all sought first-mover advantage -- and sprinted ahead with a wide array of support alliances for education content; the ability to link doctors, pharmacists and managed care payers; claims adjudication and financial transactions; emergency medical services, and more. Their resourcefulness in bringing added value to their sites shows how strategically important they believe this is.
Woonsocket, R.I.-based CVS, for instance, snapped up soma.com, the world's first Internet drug store, for $30 million to give itself an on-line platform for the eventual sale of most categories it displays in its more than 4,100 physical stores. In so doing, CVS immediately brought on board a proven team of cyber-experts to drive its high-profile site, which offers refill prescriptions and a wide array of health and beauty care products for sale.
Not to be outdone, Rite Aid, Camp Hill, Pa., acquired a 25.3% interest in drugstore.com -- the pure play that Internet pundits regard as having the best name equity for drug sales on-line -- for $7.6 million. Visitors to riteaid.com can order refill prescriptions and access specialized areas on its site, such as Cough & Cold Advisor, Pregnancy & Infant Center, and Breast Health Center.
Rite Aid's recent fiscal troubles are well-documented, but that doesn't diminish the deft marketing choreography that brought together General Nutrition Cos., drugstore.com and Rite Aid in a collaborative on-line venture.
The chain banks heavily on nutraceuticals. GNC will open 1,500 stores-within-a-store in selected Rite Aids by the end of calendar 2001. Meanwhile, the drugstore.com site is being used to advance sales of the private-label PharmAssure brand, which GNC produces exclusively for Rite Aid.
For its part, Phar-Mor, Youngstown, Ohio, created an electronic-commerce management post and offers a wide array of educational information on pharmaceuticals and vitamins -- two areas in which its physical stores are especially productive sellers. It sells nutritional supplements, replacement eyeglasses and many other products on-line, many through partnerships. In January, the chain announced an expansion of its e-commerce initiative through an exclusive alliance with more.com, an on-line health, beauty and wellness store. The alliance, in which Phar-Mor makes an equity investment in the on-line retail company, will enable Phar-Mor to offer its customers hundreds of thousands of products and low-price prescriptions on-line.
Drug Emporium, Powell, Ohio, hired an outside expert to run drugemporium.com and uses drkoop.com as a health care content provider.
By contrast, Walgreen, Deerfield, Ill., crafted its Web site using internal talent, and delayed its launch by several weeks, until October, when it debuted the first drug-chain site to accept original prescriptions. At the time, others only accepted refills.
Walgreen's patience allowed it to come to market with a site that cost it $20 million to develop, and gives it several competitive advantages:
It is fully integrated with its Intercom Plus pharmacy management system, which links the chain's 2,800 stores and mail-order facility, and lets consumers access their prescription history at a secure password-protected area.
It enables consumers to order new prescriptions and refills at the Web site for same-day home delivery.
It gives details on potential drug interactions, and health and wellness information from the Mayo Clinic.
It gives e-mail reminders for new and refill scripts, or anything else, such as a doctor's appointment.
At Walgreen's, prescriptions account for 53% of total sales, yet it gets just 2,000 on-line refill requests a day. It's a start, and it will build as a convenience, observers said.
As for Wal-Mart, Bentonville, Ark., it operates more than 2,300 pharmacies and leverages its national brick- and-mortar presence with the January relaunch of walmart.com, which it will spin off into a public stock offering. Yet it doesn't pursue pharmacy sales on-line; rather it offers limited HBC categories such as nutritional supplements, antacids/laxatives, foot care, eye care, incontinence products, first aid and family planning. A search for "pharmacy" or "prescription drugs" takes a site visitor to listings of specific books it offers for sale through its collaboration with distributor Books-A-Million.
By contrast, pharmacy and health care account for 6% or less of the typical food combo's volume, so it's not surprising that the cyber-marketing or actual e-commerce of these categories remains a low priority for the food trade class. Nonfood continues as a stepchild in the supermarket on-line world.
There's still no denying a great deal is at stake. By 2004, predicts Forrester Research, Cambridge, Mass., about $22 billion worth of retail health sales, or about 8% of volume, will occur on the Internet. Prescription drugs will account for about $15 billion of that predicted total.
Such figures have gotten some of the brightest minds in supermarketing at least thinking about the potential of Internet marketing.
Bishop was part of a Whole Health meeting this month with members of the General Merchandise Distributors Council, Colorado Springs, Colo. "It's obvious from our talk that this trade sees Internet systems as being wonderfully equipped to provide tailored products and services at a high level. However, it looks like other brick-and-mortar retailers are moving pretty quickly to take full advantage of the synergy between the Internet's high-touch selling and the more practical executional efficiency of having a store to pick up or drop off from."
However, Bishop said he sees solid opportunities for supermarkets in maintaining a comprehensive health care inventory online.