GROWING PAINS 2007

DAN ALAIMO

The law of supply and demand is catching up with the emerging retail health clinic business.

With high-profile chains like CVS, Walgreens and Wal-Mart projecting rapid growth for clinics in their stores, supermarkets that hope to keep up are finding it slow going.

While a constant flow of news stories attest to the public's interest in the concept, a combination of factors — including the capitalization of independent clinic operators, long periods before clinics break even and then turn a profit, a shortage of nurse practitioners, varying state laws and regulations, and opposition by physicians — hinder installation and expansion plans.

Last week, the American Medical Association, Chicago, said it would ask state and federal agencies to investigate potential conflicts of interest posed by joint ventures between store-based health clinics and pharmacy chains.

For all of those reasons, “it may not move as fast as everyone originally thought it would, but I think the concept is here to stay,” said Ron Peters, vice president of pharmacy at Minyard Food Stores, Coppell, Texas. “It's going to be widespread.”

CVS/pharmacy, Woonsocket, R.I., is continuing to increase the more than 170 locations it now has, stemming from its purchase last year of MinuteClinic, Minneapolis, and Walgreen Co., Deerfield, Ill., expects to increase its number of clinics from about 50 now to over 400 by the end of next year as a result of its May acquisition of Take Care Health Clinics, Conshohocken, Pa. Wal-Mart Stores, Bentonville, Ark., which now has 75 clinics operated by other companies, said it plans to open 400 within three years, and 2,000 in five to seven years.

Even for those chains, things could be better. At a recent conference, both CVS and Wal-Mart acknowledged that profits of their clinics are lagging, and a CVS/MinuteClinic executive said it couldn't open some clinics because of a lack of nurse practitioners and physician assistants. By acquiring Take Care and funding its expansion, a Walgreens spokesman said that the company would be able to move faster than if the clinic company had remained independent.

EXPONENTIAL GROWTH

There are now between 400 and 500 total in-store clinics, and there may be more than 1,000 by the end of the year, according to Lisa Loscalzo, executive vice president of the Little Clinic, Brentwood, Tenn., which operates in Publix and Kroger stores. This is up from 268 last year and 88 in 2005, she said. As many as 20 clinics in various parts of the country have closed for different reasons, she noted.

“As retailers are making a decision as to who they are going to partner with, they have to do a lot of research, and make sure that their partner has the same strategic vision as they do, and that they both understand it is going to take awhile to break even,” said Randy Heiser, vice president of pharmacy, Giant Eagle, Pittsburgh. Giant Eagle piloted one clinic, which closed, and is now looking for another partner to roll out 10 locations in a span of about 12 months, he said.

Save Mart Supermarkets, Modesto, Calif., is now evaluating clinics, said Michele Snider, senior director of pharmacy. “We want to make sure that when we pick a partner, it's somebody that is in it for the long haul, and that they will be financially viable, so that we won't have to change course midstream,” she said.

Scolari's Food & Drug Co., Sparks, Nev., is putting in two clinics initially, said David Chan, director of pharmacy. “We have 14 pharmacy locations and the company intends to move forward with it over time,” he said.

Bi-Lo, Greenville, S.C., had several clinics from Wellspot, Birmingham, Ala., ready to open, but a shortage of qualified nurse practitioners slowed that plan. “We had built out the space and we've got the clinics. We are ready and waiting for the nurses to be hired and to work,” said Curtis Hartin, senior director of pharmacy.

“You can't mass produce clinics,” said Anthea Jones, vice president of non-foods and pharmacy, Bi-Lo. “Where we might want to put in 12, we need to do three right. It's not an effort in quantity, it's an effort in quality,” he said.

“There's been a huge increase in demand for retail clinics over the past couple of years. The reality is it threatens to outstrip the capabilities and resources of the clinic providers,” said Web Golinkin, chief executive officer of Rediclinic, Houston.

Rediclinic has about 50 clinics in stores of H.E. Butt Grocery Co., San Antonio, and Wal-Mart, and the backing of AOL co-founder Steve Case's Revolution LLC, Washington.

Golinkin described many of the challenges facing clinics, such as the nurse shortage and physician opposition, as “tactical obstacles. My own view is those can be overcome through good management.”

Capital resources are another matter. “The business concept may be relatively simple, but it is not easy to implement on a large scale. You have to make that investment in basic overhead, which it makes the economies of the business very difficult if you are a small player,” he said.

To compete with clinics, supermarkets have to make the strategic decision to get in now, Golinkin said. “If they don't make that decision now, the chances are, the best operators are going commit to other retailers.”

Looking at CVS, Walgreens and Wal-Mart, “we knew that we would be competing for available nurse practitioner clinics, and the nurse practitioners themselves,” said Bob Mueller, director of pharmacy, Schnuck Markets, St. Louis. Schnucks chose another family-owned, St. Louis-based company, InstaClinic.

“I'm confident that we will at least hit the growth that we have set contractually. The question is whether we would be able to hit the growth that we would desire that's above and beyond the contractual agreement,” Mueller said.

“Any store we remodel that has a pharmacy, we will be looking to drop a clinic into that store,” said Minyard's Peters. “Then if we remodel a store that doesn't have a pharmacy, and a pharmacy fits into that location, we will look at putting a pharmacy and a clinic into that store.”

PARTNERSHIPS

Minyard's works with MedBasics, Irving, Texas, and put the first Dallas clinic in its flagship Hispanic Carnival store there. MedBasics, which has an arrangement with Baylor Health Care System, Dallas, is putting clinics into Ball's Food Stores, Kansas City, Kan., and USA Drug, Pine Bluff, Ark.

“We're all realizing that it takes a significant amount of capital to roll out this expansion, and to do it at the level that some of the retailers are looking for,” said Brian Jones, chairman and CEO of MedBasics.

“The [clinic] industry is still learning about the model, where it works, and trying to identify if there are any formats that it doesn't work in,” he said.

If a retailer want to roll out a very large number of clinics, like the hundreds Wal-Mart is planning, but isn't inclined to buy a clinic company, they should align with multiple partners, said Steven Jones, president and chief operating officer, MedBasics. “If the supermarkets are looking for a large expansion, then it would be wise to look at alternates to fulfill the markets,” he said.

Part of the success of clinics inside a store is the operator working together with the retailer to educate consumers about them, Brian Jones said. For instance, this may involve bag stuffers and the chain's circular. “That kind of joint marketing effort has really helped education. We're bringing in a new product to the consumers that is foreign and the more that we can educate, the more opportunity for success with the clinic within a grocery store.”

Promotional activity like this is another challenge for supermarkets with clinics, said Tine Hansen-Turton, executive director of Convenient Care Association, Philadelphia. “The opportunity to be a strong partner in marketing together is critical. The supermarkets need to think about this, even though it is a landlord-tenant relationship,” she said.

There is also a big opportunity for supermarkets and clinics to work together to educate shoppers on health and wellness issues, said Roy White, vice president of sales at the Food Institute, Elmwood Park, N.J. “Clinics are complex and the clinics that do more in terms of intervention, and do more in terms of education are that much more difficult to put together,” he said.

“There's the issue of staffing. There's the issue of space within the store. There's the issue of what kind of management organization or what kind of management techniques do you need to have in place so that the clinic and the store management and pharmacy management are all integrated because, unless they're integrated, half the power of it evaporates,” he said.

Waiting Out Profits

Convenient care clinics are like pharmacies in that it takes significant time for them to break even, and then reach profitability, said Curtis Hartin, senior director of pharmacy, Bi-Lo, Greenville, S.C.

When there are multiple clinics, consumer awareness comes more quickly than with single “outpost” locations. “It is a slow ramp-up, but not too dissimilar from pharmacies. It can probably take one to two years for these clinics to become profitable,” he said.

“This is not a business where you are going to make money out of the gate,” said Anthea Jones, Bi-Lo's vice president of non-foods and pharmacy. “You have to build an infrastructure, a foundation and then the fruits of the labor will come later. Anyone who is in this for quick profits is not going to be in it long term. So therein lies the opportunity and the challenge.”

Although the clinics typically lease space, nearly all retail executives polled by SN said the financial viability of the clinic operators over the long period it takes to turn a profit is a concern. “They're going to have to make money to survive,” said Ron Peters, vice president of pharmacy, Minyard Food Stores, Coppell, Texas.

Lisa Loscalzo, executive vice president of the Little Clinic, Brentwood, Tenn., said it takes two to three years to build a clinic to profitability. “They'll start out seeing maybe five patients per day when they first open, ramping up to the 10 patients per day by the end of the first year. Then it will be about 20 patients by the end of the second year, which is typically about the break-even point at the clinic level. By the end of the third year, they'll be up in the 30-plus patient range and that's usually enough to cover the corporate overhead and the management costs,” she said.
— D.A.

Numbers of Nurses

While the shortage of nurses may be affecting other players in the field, this has not been the case for MedBasics, Irving, Texas, said Brian Jones, chairman and chief executive officer. “There are many benefits that nurse practitioners see in the concept.”

Often coming from offices where they worked directly under a doctor, the in-store clinics offer the appeal of autonomy, even though all states require some level of supervision by physicians, he said. Texas is among the most stringent.

Although there's a nursing shortage at the bachelor's degree level and the registered nurse level, there is not one yet with nurse practitioners, Tine Hansen-Turton, executive director, Convenient Care Association, Philadelphia. “We know that we are going to need about 10,000 nurse practitioners over the next few years,” and that will create more demand. “But it hasn't necessarily been an issue to this point,” she said.

Recruiting and retaining nurse practitioners is still a challenge, said Lisa Loscalzo, executive vice president of the Little Clinic, Brentwood, Tenn. “Most clinic providers are using family-certified nurse practitioners and, of course, everyone is out there competing for the same limited pool,” she said.
— D.A.