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Top 3 US Retail Pharmacies: Are New Store Formats the Prescription for Success?

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It’s a race to the top in pharmacy retail. The top three pure play brick-and-mortar pharmacy retailers are choosing different but similar paths to get there.

In a new series, we’ll be taking a closer look at what Rite Aid, CVS, and Walgreens are doing in five pharmacy retail markers for success. Up first: new store formats. Each of the big three are playing with new iterations of their traditional store format—trying to own the rapidly growing health area.


It’s a tough market, though each is on the upswing. Rite Aid beat analyst expectations and saw double-digit revenue growth after losing $13.2 million in the second quarter of fiscal year 2020. That’s a marked improvement from last year, when Rite Aid was down $65.5 million. The growth was attributed to its pharmacy services in particular as well as stronger growth in retail pharmacies overall.


CVS also outpaced analysts’ expectations for Q2 2020, while Walgreen Boots Alliance noted it may grow in single digits in the coming year, a hopeful sign after a year of losses.

As CVS CEO Larry Merlo noted in the analysts call, it’s a changing time for traditional retail pharmacies. Speaking of his company: “Increasingly, the power of our assets is taking us into areas that provide greater choice as well as new areas for growth, ranging from diagnostic testing to B2B solutions, to the potential of clinical trial recruitment and enrollment.”

Small wonder, then, with so much packed into a relatively small retail space, that the top three are all making significant changes to their store designs. It is part of an overall strategy to better define the hallmarks of retail pharmacies.

 

A Focus on Retail Pharmacies

It wasn’t that long ago that retail pharmacies were trying to be something akin to a big box retailer in a smaller footprint: beauty, grocery, ready-to-eat food and housewares joined the traditional aspirins and first aid products.

The revamped stores have all put their focus back on health and wellness, though each took a slightly different approach. Rite Aid is focusing on pharmacy by mail (PBM) and giving their pharmacists center stage to be more consultative with customers. It calls the move RxEvolution. With plans to hire more pharmacy techs and revamp the workflow, pharmacists will spend their time discussing the health and wellness journey with customers.

CVS also is playing to its strength as a health center as part of its HealthHUB revamp. The pharmacy retailer is expanding into areas like durable medical products and chronic disease treatment for things like sleep apnea and diabetes care. The remodeled stores include community spaces with wellness rooms where CVS and partners can host group events, including nutritional and yoga classes.

Walgreens is thinking small, too, with a reduced store footprint but a heavy emphasis on pharmacy. It plans to build 30 of these 13,500-square-foot stores. This is part of a larger trend broadly impacting retail, with brands from Target to Nordstrom experimenting with smaller stores. The reason is simple: greater efficiency and the ability to open more stores closer to customers. Retail pharmacies have long had an advantage here: 71% of Americans live within five miles of a CVS store, for instance.

 

One Stop Shop for Wellness

The pharmacist isn’t the only health professional in these new concept stores. CVS’s HealthHUB also includes a dietitian who can provide one-on-one and group classes.

Walgreens has partnered with LabCorp, offering up to 600 co-branded locations where shoppers can get an easy blood draw and, in a joint effort with Village MD, will open full-service doctors’ offices in more than 500 Walgreens locations around the country. That last point is different than the clinics that each of the top three offer. In those settings, visitors can get a flu shot, testing for strep throat and other minor issues. The Village MD setting, however, is a full-service physician’s office.

Rite Aid has expanded by adding more alternative medicines alongside traditional medications as well. In branding for its RxEvolution, Rite Aid touts that its pharmacists are trained in alternative therapies as well as traditional medicine, a move to capture a portion of the anticipated $300 billion market in the U.S. by 2027.

 

Shifting Priorities

With more of an effort to focus on health and wellness, something is squeezed out of these new retail pharmacies. At CVS, HealthHUB locations have less space devoted to things like greeting cards, personal care and beauty. Aligning with health has pushed some of the snacks and beverage options out the door.

But for Rite Aid, wellness and beauty are linked to overall health, as the retailer aims to appeal to millennial and Gen X women’s “mind, body and spirit.” builds out spa-like destinations where customers can consult with a “beauty ambassador.” In line with Sephora and other leaders in the beauty biz, Rite Aid will spotlight more natural, chemical-free products.

But each of the top three remains committed to expanding into new areas. CVS continues to grow its CVS y mas stores, which now number more than 200. The stores include more than 1,500 grocery products from Hispanic brands like Iberia Foods, Fauloso, Tio Nacho and others. CVS bought insurer Aetna in 2018and Aetna has used its relationship as a selling point for its product. Aetna insured can access CVS services at HealthHUB and the Minute Clinic without a copay, and have access to a pharmacist 24/7.


Walgreens has aligned with grocer Kroger in a pilot that allows shoppers to choose from up to 2,700 grocery items in an area called “Kroger Express.” Launched in 2018 as a small test,  the relationship has expanded a couple of times. Walgreens stores were able to feature Kroger’s popular Simple Truth brand, as well as some Home Chef meal solutions, fresh meat, produce and dairy. The store assortments varied by location and some even featured a Kroger Pickup. In return, Walgreens’ branded products like No7 and Soap & Glory were featured in Kroger stores.


As Progressive Grocer noted in an analysis of the relationship: “Redefining Kroger as a private label manufacturer and distributor for groceries sold through someone else’s store network, with minimal capital investment, and aggregating procurement volume to improve leverage in weaker categories such as health, personal care and beauty, seems a positive step. For Walgreens, filling underperforming front end space with traffic-driving groceries purchased at volume, while gaining additional Walgreens-brand distribution, also seems appealing.”

 

Retail Pharmacies: Winning at Rx

No matter the strategy, each of the top 3 retail pharmacies is in the throes of reinvention—and not just in the store layout. It’s a pitched battle to earn more share of the expanding health and wellness dollar. And each is taking a different path to the mountain. Walgreens and CVS are both expanding in traditional healthcare settings, whether through clinics, lab services, or pharmacist expertise. Rite Aid is expanding into the alternative space. All three are looking at areas that drive more traffic into the store, whether that be through grocery or beauty.

Next up: we’ll explore more of how these retail pharmacies are expanding their turf in the health and wellness categories.

CB4 Insight: As retail pharmacies reconfigure into true health and wellness centers, getting the customer experience right—at every single store in your chain—is vital. CB4 helps pharmacy retailers capture opportunities for operational execution with weekly recommendations tailored for individual stores. Watch how it works.

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