Drugstores
Buy This Industry Report
Get more in-depth industry information with a First Research industry report containing business challenges, trends, executive insight, call prep questions, and so much more!
Get Information Now
Rest assured, your information will not be shared with anyone else (see our privacy policy for details).
Industry Overview
In the US, about 40,000 drugstores have combined annual revenues of about $160 billion. Large companies include Walgreens, CVS/Caremark, and Rite Aid. The industry has become more concentrated: the 50 largest companies hold close to 70 percent of the market. A typical drugstore has 30 employees and $6 million of annual revenue.
Competitive Landscape
Demand is driven by the aging of the US population and advances in medical treatment. The profitability of individual companies depends on access to medical insurance groups. Large companies have economies of scale in purchasing and in access to large groups of customers. Small companies can compete effectively through convenient location or special merchandising. Average annual revenue per employee is close to $200,000.
Products, Operations & Technology
Drugstores sell two types of products: prescription drugs, and "front-store" products, including over-the-counter (OTC) drugs, health and beauty aids, greeting cards, photo-finishing services, and general merchandise. Prescription drugs draw customers to the store, and stores focus their efforts on the number of new prescriptions they fill. The average store fills around 1,000 prescriptions per week. However, higher margin front-store merchandise sales often account for more than half of sales and an even larger percentage of profits.
The operations of drugstores focus on merchandising (which items to stock), advertising, inventory management, billing, and personnel management. Many are freestanding, about 12,000 square feet, and have a drive-through window to more easily accommodate elderly customers. Because older, and often sicker, customers buy most prescription drugs, many drugstores offer free home delivery. To use (expensive) pharmacists more efficiently, drugstores use various aids in medicine dispensing.
Drugstore chains generally buy drugs and other products directly from manufacturers or large wholesalers like AmerisourceBergen, Cardinal Health, and McKesson, and distribute them to their stores through a warehouse system. Independent stores usually buy from a local distributor or may participate in buying co-ops that purchase from manufacturers.
Computer and other technology is becoming more important in dispensing prescription drugs, driven by demands of large third-party payers and the greater likelihood of errors or drug interactions as the number of drugs increases. Computer systems point out potential drug side effects or drug interactions and aid in billing; pill-counting machines are more accurate than humans; and 24-hour telephone lines allow customers to refill prescriptions automatically. Electronic prescriptions eliminate problems with reading doctors' handwriting, allow pharmacies to search databases for drug interactions, and let them bill third-party payers electronically.