In-store pharmacies are to be seen as a desirable destination department. However, in some cases it is proving difficult to determine whether continued operation is a profitable option. This article looks at developments in supermarket pharmacies and gives a brief overview of the present state of employment and education in the pharmaceutical branch in the US.
Elsevier Food International, Vol. 6, Number 1, February 2003
Len Lewis

Supermarket pharmacies- profit centres and image builders for nearly four decades remain an integral part of new store development, with annual sales soaring past $20 billion in 2002, largely the result of drug prices that have skyrocketed nearly 50 per cent in the last five years.
Meanwhile, the "greying of America" bodes well for continued growth of in-store pharmacies. Moreover, pharmacies tend to boost sales in the high-margin health and beauty care department. This has helped supermarkets compete against the onslaught of chain drugstores like Walgreen and CVS, both of which have made inroads in food.

Challenges
However, the pharmacy business is not without significant challenges. A nationwide shortage of pharmacists (see accompanying story) is resulting in reduced pharmacy hours at some stores and sharply higher labour costs for licensed pharmacists, who often command higher salaries than store managers. At the same time, gross margins on prescriptions, which stabilised in the late 1990s, are declining once again. The reasons are greater power in the hands of health care insurers, legislation in some states, and a Federal government that is to slash Medicare and Medicaid reimbursement rates.
Pathmark Stores, Carteret, N.J, pioneered the supermarket pharmacy concept in the early 1960s. As Rich Savner, director of public affairs and government relations, puts it: "We see pharmacies as a destination department. But in some cases, we have to determine whether it's profitable to continue operating the department," says Savner.

Growing volume
Overall, supermarkets account for over a 14 per cent share of the total pharmacy business in the US, filling an average of about 125 prescriptions daily per store, according to the 2002 Supermarket Pharmacy Survey from the Food Marketing Institute, Washington, D.C. Mass merchandisers hold ten per cent of the business, with chain drug stores capturing the lion's share at 47 per cent. Mail order companies and independent pharmacies account for the balance.
In the past decade, the number of supermarket pharmacies has doubled to about 9,255 outlets.
Unit growth has been 31 per cent over the past five years, increasing an estimated 6.8 per cent in 2002. At present, about six out of every ten new supermarkets has a pharmacy department. At the same time, the number of independent pharmacies has dropped 40 per cent in the past ten years, according to figures from IMS/Health, a Connecticut-based research and consulting firm.
Average weekly pharmacy volume per store totalled $39,017 in 2001, only a 2.6 per cent increase over the previous year but an astounding 41 per cent gain over the past five years. Prescription sales accounted for approximately ten per cent of total store volume in 2001, versus 8.2 per cent a year earlier. However, it should be noted that the average prescription price rose 11.1 per cent in 2001 to a healthy $46.02, which is nearly 50 per cent higher than just five years ago, according to FMI's study.

Profitability
As noted, profitability is the main issue. Average gross margins have been about 19 per cent for the past two years. Gross margins on generics are far higher than on branded drugs, averaging 58-60 per cent during the same period. Generics only represent 43 per cent of the pharmacy market. However, with patents expiring on nearly 200 drugs in the next three years and a major emphasis on containing health care costs, more prescription volume will likely be shifting from brands to generics, according to IMS/Health.
With consumers citing pharmacies as a very important factor in their decision to shop at a store, their growth will continue, albeit at a slightly slower rate. "Current players are in it for the long haul," says Laurie Gethin, senior manager of pharmacy services and education for the Food Marketing Institute, Washington, D.C. "It's harder for companies who are not in the game to get into it at this point. Sales are being driven up by the high cost of medication. But profits are another matter. Pharmacy is a very complex and competitive industry due to government involvement and medicare reform, both of which ratchet down margins."

Services and technology
"But supermarkets have been the fastest growing sector of the retail pharmacy business for the last decade," says Gethin, noting that growth is coming from the big players like Kroger and Albertsons that have been in the business for over 20 years, as well as from regional operators like Wegmans and H.E. Butt Grocery Co., which are either building new stores with pharmacies or retrofitting old ones to include them.
Nearly half of the companies surveyed in FMI's study offered some type of disease management programme in at least one store. For instance, 86 per cent of retailers had a diabetes programme and 59 per cent had asthma information programmes. Approximately 41 per cent offered smoking cessation programmes, while nearly one-third dealt with hypertension and 27 per cent were involved in weight management. The latter is becoming increasingly important, since recent research has indicated that some 61 per cent of adults in the US are overweight.
Pharmacies are promoting a wide array of other health offerings, including: blood pressure testing, flu shots, osteoporosis screening, blood glucose monitoring, cholesterol testing, nutrition counselling, health seminars and computer kiosks. Some of the latter have been done in conjunction with local hospitals and private companies to provide health care information and counselling to supermarket shoppers.
At several Cub stores in Minnesota, clinics have been opened with nurse practitioners offering testing, diagnosis, prescriptions and other health services.
Pharmacies are also benefiting from technology in other ways. The FMI study reported that 86 per cent of supermarket companies include the pharmacy as part of their website. In response to chain drug and other competition, pharmacies are also promoting their services through the web to keep consumers informed, and more than six out of ten pharmacy websites include health information and links to health-related sites.

Big issues
Additional services had little, if any, effect on the size of pharmacies. "You have to meet certain state mandates about the size of the pharmacy, but it's not been a big issue," says Gethin, observing that size has remained constant at about 500 square feet. "A bigger pharmacy doesn't necessarily get you anything. It's just another box that has to be locked when it's not in use."
Pathrnark's Savner agrees that the minimum is about 500 square feet. However, for him, the big issue is location within the store. "We prefer to put it in an alcove at the front. This way, customers have to walk across at least half the store, giving us the opportunity to sell some impulse items. Also, it's usually across from the cough, cold and vitamin section, which is a natural merchandising tie-in."
Several supermarkets have experimented with drive-through pharmacies and Walgreens offers it in a number of locations. "Some stores feel it's a good service for loyal customers who may just want to pickup the cough medicine without bothering to get out of their cars with a sick child," says Gethin. "But it can preclude the purpose of having a pharmacy, which is to get people inside the store."

Supermarket pharmacies are facing an issue that may be bigger than drug chain competition and government interference: a chronic shortage of pharmacists to fill the sharp rise in prescriptions.
An estimated 7,744 pharmacy jobs were unfilled in the US at the end of 2001 (the latest report available), an increase of 1,000 over the previous year, according to the latest report by the National Association of Chain Drug Stores. But this only represented drugstores and may be closer to 10,000 if outlets like supermarkets are included.
Additionally, the Food Marketing Institute's 2002 pharmacy survey notes that nearly four out of ten companies have cut back on pharmacy hours due to a labour shortage.

"It's a real challenge and we're constantly recruiting," says Rich Savner, director of public affairs and government relations for Pathmark Stores, which has pharmacies in all but 12 of its 144 stores. "We're probably down six to ten pharmacists from where we should be. We prefer having a minimum of two or three per store and the ability to move them between supermarkets."
Savner notes that pharmacists can often make more money than store managers can, a fact that is underscored by recent statistics. Graduates just out of pharmacy schools are commanding salaries of more than $50,000, and experienced pharmacists can make $100,000 per year or more, according to a number of observers. Even part-timers doing 15-20 hours per week, an increasingly large part of the workforce, can make $40,000-$50,000 because of unusually high demand.
Dr. J. Douglas Bricker is associate dean of the Mylon School of Pharmacy at Duquesne University in Pittsburgh, Pa., one of the nation's top pharmacy schools. "It's not necessarily a shortage of people. We've been at full capacity for a while. And over the past ten years, the number of pharmacy schools in the US has increased to 83 from 72," he says.

At the same time, the number of retail pharmacies has increased dramatically and some schools shifted to Doctorate programmes in pharmacy, which upped the length of the programme by two years, he says.
"As far as I know, all schools are now at or near capacity," says Bricker. "Word has gotten out that pharmacy is an excellent career," he says. But, while enrolments are up, schools are also becoming more selective and denying admission to some people, he notes.
"It looks as though we'll have to cap enrolment at about 185 students next year. We are trying to expand. But we don't want to dilute the quality of the programme. It all depends on our resources," he says.