Why are there so many pharmacies?

[Baalzeebub]

This is a serious question, mainly geared towards the old-timers or the business-savvy pharmers out there. Why is there a seemingly vast oversupply of pharmacies? Walgreens went from around 1,000 stores to almost 10,000 in just over a decade. Another example is a small town in Georgia is sometimes visit. This is a very rural town of around 6,000 people, yet there is a Walgreens, CVS, Rite Aid, Walmart, Freds, 2 grocery store and 2 independent pharmacies. There are more pharmacies than red lights. I don't see how any are profitable. This is obviously the situation across the country as well.

What happned in the 80's/90's to cause this explosion of pharmacies? Cheap money? Real estate bubble? I feel like it's a game of Monopoly, and once CVS/WAGs finish eating all the competition then the bubble will burst. I'm thinking some insight into what caused the bubble in the first place could help us make a better guess about the future of retail pharmacy.

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[njac]

Real estate was a big driver in the late 90s/early 00s.


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[SoylentGreen]

Wow - here in NM a town of 6000 would not have a pharmacy at all. What kind of script counts do they do there?

 

[PharFromNormal]

Many of the above reasons yes. Some would argue with the sheer number of pharmacies and competition with each other they've lost leverage against the other parts of the system. More peer competitors means less leverage with your payer or supplier. This means you truly must either excel in meeting the consumers needs or undercut the other guy to have the payor drive traffic. Part of the cause of pressuring reimbursement is pharmacies themselves but from a holistic healtheconomic perspective some argue this as good, as competition can drive down cost and drive up service (as defined by the consumer, not the pharmacist).

 

[Momus]

Aging population, population growth, subscription based business model (come back every month), increased opioid addictions, prescription growth (2 meds to 6+ as you age).

In another word, traffic. You get traffic you get money no matter how small it is. True in retail, true on the web... Simple.

 

[sosoo]

over prescribing is another factor. a dentist wrote for vicodin that i purchased but never use. ER doctors writing for percocet that some pts were shocked n afraid to use n get addicted! a minute clinic wrote for bromfed dm that i also purchased but never use. i told her i did not have runny nose or congestion. the computer tells them what to prescribe n some nurses will write for everything on the list! like a maniac. pts would come in n say oh i dont need this. i dont need that. ah that too!

 

[maria1oh]

In small town lancaster ohio they have 24/7 cvs, 24/7 walgreens, and 24/7 pharmacy inside krogers. The cvs did 4400/week last time I checked last year. Not to mention all the other nearby competition meijers, target, giant eagle, few independents, walmart with pharmacy drive through, non-24/7 walgreens.

 

[Amicable Angora]

There must be a need otherwise these stores would have all closed down. Our society is incredibly medicated, if not the most medicated in the world.

It's significantly easier to label problems as diseases and throw medications at them. It's a sign of the times....

 

[lord999]

Everyone, Especially Classical Pharmacy Companies:
This is commented on a different thread about how Certificate of Need and how that plays into zoning. Part of it is real-estate investment (and denial to competitors). Part of it is the commitment to a growth model (what is driving CRW-RTA's merger). The order actually is that the industry acquired the sites for other reasons then advertised to create a demand. Also, to take advantage of Medigap and Tricare contracts which require broad access.

Discount Merchandisers (Wal-Mart, Target)
A pharmacy lets the store ignore quite a number of local zoning rules when building somewhere. In Walmart's case, the expansion of pharmacy was also partly due to trying to get pricing advantages from the pharmaceutical companies that had significant consumer product matters (McNeill now OrthoMcNeill, J&J, etc.). Walmart's did not necessarily have pharmacies until the late 90s.

Groceries
For the same reasons as discount merchandisers, but partly to serve as the island of discounts in the sea of profits.

I'd describe it as discount merchandisers playing a game of Risk (territory acquisition and retention) against the classical pharmacy companies playing Monopoly (all prescriptions belong to us). What I'm always surprised about is how little any of the major players consider pharmacy margins to be useful at all as the side businesses are more useful than the profession.

Opening a pharmacy is like opening a restaurant in this economy. Most restaurants do not have a goal of making money (it's nice but not necessary), they have other aims such as ego and money laundering as part of the business model. If you need to make money, not only you have to be good, but the businesses that don't have to make money can't be accidentally too detrimental to your goals. And when competing with the restaurants that do aim to make money (McDonald's), you can't imitate their business model as McDonald's always does a better job at driving efficiency over a single site.

But it's not a straightforward consumer demand strategy although access is one of them. There's all sorts of tax matters, finance matters (easy to get capital for growth, what else do you do with it), real estate games, and other occupations that drove the market. If any of those pillars fall (and they have), it either cripples growth or even causes contraction. Both Osco and RiteAid went through periods where the model sputtered out for them. Eckerd got swallowed before they became a major threat to CVS, but their shareholders cheated the hell out of Woonsocket with the premium over strike price for the buyout. If you actually understand what the competition immediately wants, then you can take advantage of the short-term horizons to make a buck off the expectations.