Why Supermarkets Are Closing Their Pharmacy Counters

Summary

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WSJ Your Money Briefing

Episode Title: Why Supermarkets Are Closing Their Pharmacy Counters
Date: January 27, 2020
Host: J.R. Whalen
Guest: Sharon Terlep, Wall Street Journal Reporter

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Episode Overview

This episode explores the reasons behind the rising trend of supermarkets closing their in-store pharmacy counters. J.R. Whalen and WSJ reporter Sharon Terlep discuss the changing retail landscape, the competitive dominance of large drugstore chains, evolving consumer habits, and the impact of market power consolidation on grocery chains and their pharmacies.

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Key Discussion Points & Insights

1. The Early Appeal of Grocery Store Pharmacies

• Low Barriers to Entry:
  Sharon Terlep notes that for a long time, in-house pharmacies were a strategic move for supermarkets:

  “Not only did they bring in shoppers, they were relatively easy to start up. There was low capital costs...didn’t require a lot of employees.” (01:28)

• Revenue Driver:
  Pharmacies served as an additional revenue stream and a way to attract steady foot traffic.

2. The Rise of Major Drugstore Chains

• Industry Consolidation and Expansion:
  Large chains such as CVS and Walgreens began expanding, acquiring smaller competitors and broadening their reach:

  “Not only did they have new competitors as these big chains...CVS and Walgreens bought up smaller chains, they became bigger, they got more market power.” (01:43)

• Vertical Integration:
  CVS, for example, owns the insurer Aetna and its own pharmacy benefit manager, giving it significant leverage in price negotiations and service offerings.

3. Becoming a “One Stop Shop” For Patients

• Service Expansion:
  CVS and Walgreens now offer a growing slate of health services targeting patients with chronic illnesses. Sharon describes:

  “Not only can you get your drugs and get a blood pressure test...you might be able to get your annual eye test...advice, diagnostics. And this has only begun. These services are expanding...” (02:18)

• These expanded offerings further differentiate them from supermarkets with limited pharmacy capabilities.

4. The Impact of Changing Shopping Habits

• Shift to Online Shopping:
  Consumers increasingly purchase goods online, including groceries, which was once resistant to the shift but is now catching up:

  “Consumers are getting more and more of their goods online. Grocery is one of the last things to shift...but it is shifting to online.” (02:49)

• Prescription Fulfillment Trends:
  Longer prescription supplies mean fewer trips to brick-and-mortar stores:

  “Consumers are getting their prescriptions more and more in 90-day chunks. So they just aren’t going to physically pick them up as much.” (02:49)

5. Market Power and Winners Among Grocery Chains

• Advantages of Scale:
  Large grocers like Kroger fare better than smaller regional chains due to negotiating power:

  “Kroger is the biggest grocer in the country and one of the biggest pharmacy chains. The bigger chains...can negotiate deals to be preferred providers and can shut out entire regional grocery chains.” (03:13)

• Small Chains Disadvantaged:
  Regional or smaller grocery chains (with, for example, just 30 stores) struggle to compete at the negotiation table.

6. Consumer Expectations vs. Reality

• The Intimacy Gap:
  Consumers value the personal service of mom-and-pop pharmacies, which contrasts with the anonymous feel of large chains. Supermarket pharmacies fall awkwardly in between:

  “You’ll find a lot of loyalty to the hundred-year-old chain on Main Street...grocery chains fall a little bit in the middle ground...a lot of people just aren’t really that attached to their grocery store pharmacy.” (03:56)

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Notable Quotes & Memorable Moments

• On Large Chains Encroaching the Market:
  “That changed everything. Not only did they have new competitors...they became bigger, they got more market power...”
  — Sharon Terlep (01:43)

• On the One-Stop Shop Strategy:
  “Lately, particularly in the last year or so, both CVS and Walgreens have been working to make their drugstores a one stop shop for patients, really, and particularly for patients who have chronic diseases.”
  — Sharon Terlep (02:18)

• On the Disadvantages Facing Grocery Store Pharmacies:
  “Grocery chains in particular are disadvantaged, even to independent mom-and-pop drugstores. Now, these independent stores have been closing in legions as well, but you’ll find a lot of loyalty...Whereas these grocery chains fall a little bit in the middle ground.”
  — Sharon Terlep (03:56)

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Timestamps for Key Segments

• 01:28 – The initial appeal and economics of grocery store pharmacies
• 01:43 – How CVS and Walgreens transformed the competitive landscape
• 02:18 – The expansion of services at major drug stores for patients with chronic diseases
• 02:49 – The impact of changing consumer shopping and prescription habits
• 03:13 – How national chains like Kroger manage to survive vs. regional grocers
• 03:56 – The relevance of consumer loyalty and the personal touch in drugstore business

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Conclusion

This episode reveals how the closure of supermarket pharmacy counters is rooted in competitive pressures from dominant drugstore chains, evolving consumer behavior, and the increased negotiating power of large retailers. The discussion provides a nuanced view of how shifts in the marketplace can make once-valuable business strategies—like in-store pharmacies—less viable, especially for smaller grocery chains.

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Transcript

[A]

Deal replaces fragmented payroll vendors with one global system. No third parties. Hire, manage and pay teams in 150 countries. Operate like a local everywhere. Visit d e l.com WSJ.

[B]

Here's your Money briefing. I'm J.R. whalen at the Wall Street Journal in New York. Supermarket chains used to rely on pharmacies inside their stores to attract shoppers and and drive revenue. That is until the big drugstore chains came to dominate the market and encroach on the grocery store's turf.

[A]

Lately, particularly in the last year or so, both CVS and Walgreens have been working to make their drugstores a one stop shop for patients, really and particularly patients who have chronic diseases.

[B]

That's Wall Street Journal reporter Sharon Terlep. She'll explain how changing shopping habits have contributed to the widespread closing of of supermarket based pharmacies. That's next. It used to be easy enough to pick up medication and prescriptions at the pharmacy inside the grocery store. But more grocery chains are closing their pharmacy counters as they lose the battle with large drugstore chains. And Wall Street Journal reporter Sharon Terlep is here with some details. So Sharon, for a long time, grocers saw in house pharmacies as a way to bring in shoppers.

[A]

Not only did they bring in shoppers, they were relatively easy to start up. There was low capital costs there, you know, didn't require a lot of employees. So they were a really good way to bring in shoppers and generate some more revenue.

[B]

But then the big boys in the form of the big drugstore chains came to town.

[A]

Yes. And that changed everything. Not only did they have new competitors as these big chains, and we're talking about CVS and Walgreens bought up smaller chains, they became bigger, they got more market power. And then CVS in particular started buying other pieces of the health care industry. CVS now owns the insurer Aetna. It has its own pharmacy benefit manager which is a company that negotiates prices. So these big chains have a lot of power now.

[B]

And so these individual drugstores as part of the larger chains have really become one stop pharmacy shopping places for consumers.

[A]

Lately, particularly in the last year or so, both CVS and Walgreens have been working to make their drugstores a one stop shop for patients, really, and particularly patients who have chronic diseases. So not only can you get your drugs and get a blood pressure test, you might if you're diabetic, you might be able to get your annual eye test. You can get advice from at clinics where you can get medical advice, diagnostics. And they're only, this has only begun. These services are expanding, but it's also

[B]

a sign of consumers changing shopping habits as well.

[A]

Consumers are getting more and more of their goods online. Grocery is one of the last things to shift to online, but it is shifting to online. And also consumers are getting their prescriptions more and more in 90 day chunks. So they just aren't going to physically pick them up as much.

[B]

But grocery chains like Kroger have fared a little better than some other regional grocery companies.

[A]

Sure. Because a lot of this is really about market power. So Kroger is the biggest grocer in the country and it's one of the biggest pharmacy chains. So one of the things that happens with the bigger change, cvs, Walgreens, even Kroger, they can negotiate deals to be preferred providers and they can shut out an entire regional grocery chain. In this type of deal. Kroger has a little bit more heft than a regional chain with 30 stores.

[B]

You know, there's a really tough balance here because consumers want very intimate service. They want that mom and pop feel and they had that in the smaller drugstores. But then we just talked about the changing shopping habits and something has to give.

[A]

Yeah. And I think this is an area where grocery chains in particular are disadvantaged even to independent mom and pop drugstores. And now these independent stores have been closing in legions as well. But you'll find a lot of loyalty to the hundred year old chain on Main Street. Whereas, you know, these grocery chains fall a little bit in the middle ground. I mean, they're a little more personal, a little homey, but I mean a lot of people just aren't really that attached to their grocery store pharmacy.

[B]

All right, that's Wall Street Journal reporter Sharon Terlip with us. Sharon, thanks for coming on the show.

[A]

Thank you.

[B]

And that's your money briefing. I'm JR Whalen in New York for

[A]

the Wall Street Journal deal replaces fragmented payroll vendors with one global system. No third parties. Hire, manage and Pay teams in 150 plus countries. Operate like a local everywhere. Visit D E-L.com WSJ.