Serious Threats, Big Opportunities

Retail pharmacies are in a precarious position and are struggling to generate profits: they are understaffed, losing money on prescriptions and, in the case of big drug chains, have an overall store model that appears to be in trouble. Consequently, they are cutting pharmacy hours and closing stores.

In the past, problems were the bane of independent pharmacies, many of which have disappeared. But poor PBM reimbursements and other financial challenges are now taking their toll on larger chains, particularly drugstores. 

Rite Aid is in bankruptcy and CVS is closing 900 stores, representing about 10% of the chain. And last summer, Walgreens announced it would shutter 150 U.S. locations. Front ends also face challenges, with online shopping redefining convenience.

“The economic model is broken,” said Rodey Wing, partner in health and retail practices, Kearney. “That’s the biggest challenge. They’re changing hours and closing stores. There’s labor problems and the front end is struggling. There’s competition from mail order and online. They’re failing due to prevailing trends in reimbursement. How do you make retail pharmacy relevant?”

“At Wendy’s, if the price of beef goes up, they can raise prices. But we don’t set prices or reimbursements. You can negotiate contracts to a point, but most big PBMs say ‘take it or leave it.’”

— Drew Masey, director of pharmacy operations, Fruth Pharmacy
Bill Ladwig, SVP pharmacy, Lewis Drug in Sioux Falls, S.D., believes the situation is unprecedented. “The big boys have always been strong while many regionals were wiped out,” he said. “But when you see problems across the whole front, it’s apparent there’s a critical concern.”

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