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Why North America’s health and wellbeing could be the next big retail pharmacy battleground

As we reach the final months of 2020, it's impossible not to reflect on what an unprecedented year it's been. As we continue to navigate the pandemic, so many facets of business have been dramatically impacted. Industries such as travel, hospitality, and restaurants have experienced dramatic declines and halting recoveries, while on the opposite end of the spectrum, home improvement, real estate, and digital businesses have boomed as the population seeks safety, having shifted office work and recreation to their homes.

The retail sector has experienced both of these extremes, with some seeing strong sales while others have been forced into bankruptcy and liquidation.

What we have seen is an acceleration of trends that were in motion prior to the pandemic but are now even more essential for success. One such trend is, understandably, the enhanced focus in retail on health and wellness. This is not a new phenomenon especially within Retail Pharmacy as "buy and build" expansion pushed the market towards saturation. More savvy competition, both within the sector, as well as grocery, mass merchant, and ecommerce began to expand into Health & Beauty (H&B) and prescriptions.

Prescription benefit managers (PBMs) grew increasingly powerful and began demanding lower reimbursement terms and restricted access to customers. Some even set up their own mail order prescription businesses and became direct competitors. This direct attack on the pharmacy business model, combined with the erosion of the convenience advantage forced chains to find other ways to extend their reach. For many, the answer lay in diversification and, specifically, the integration of products and services that had previously sat with dedicated medical providers.

Faced with limited development prospects, retail pharmacies once again needed to re-examine their offering and carve out a distinctive customer proposition.

Clinical decisions

In the US, prescription medicines account for around two-thirds of retail pharmacy revenues¹. As a result, repeat business is vital. Clinical services – a longer-term, more consultative offering than pure dispensary – can help to encourage ongoing business by building a stronger relationship between pharmacist and patient.

With that in mind, it's little wonder that for many retail pharmacies in the mid-2000s, the decision to expand into clinical services seemed like a natural evolution.

CVS, Walgreens and others went through a flurry of acquisitions, purchasing small health service companies up and down the US. In-store facilities were rolled out to capture new clinical business and commence the shift into a wider "health services" offering.

Certain activities, such as immunizations, had successful starts. But the growth of these clinics and their services rapidly dropped off and it soon became apparent that success would not be as readily won as those retailers may have hoped.

One major problem lay deep in the complex inner workings of US healthcare. Limited by their insurance plan benefit structures, customers would often find themselves unable to access the full range of services offered in-store. Clinical service costs, while usually lower than those available at a hospital or doctor's office, would likely be higher than the insured co-pay price paid by the consumer at the latter.

Retailers quickly learned that in order to integrate into the healthcare industry, they would need to learn how to influence and control it as well.

Playing a long game

CVS, which made the strongest initial investment into in-store clinics, has spent more than a decade in pursuit of that goal. Major product decisions, such as the removal of tobacco from stores (itself a $1bn annual business) were executed in the name of a slow repositioning towards healthcare.

Strategic acquisitions have only helped to further that ambition. With its first major vertical healthcare purchase – that of PBM Caremark in 2006 – CVS gained control of the levers of customer access and prescription reimbursement for millions of lives. 13 years later, with the acquisition of Aetna, the company added the ability to provide health, dental, vision and other insurance plans to customers.

Taken to its logical conclusion, this trajectory could lead to the eventual formation of an integrated healthcare system supported by some 10,000 points of service.

There is growing evidence that an empire of that kind is firmly in the retailer's plans. CVS has already announced its intention to evolve clinics into more expansive "Health Hubs", bringing enhanced services to 1,500 locations by 2021. Health Hubs include more space devoted to clinical services and a broader focus on proactive wellness and nutrition alongside extensive health services.

That wider remit is immediately evident in an enhanced product assortment, one that includes numerous specialized items and categories for maintaining health and preventative wellness products –. And, perhaps influenced by insights delivered by Aetna, CVS has also chosen to put significant emphasis on chronic condition management, an area that can provide a pharmacy with some of its most valuable customers.

While CVS is playing a highly strategic game, though, it is by no means the only player to watch.

Save money, live better 

As the world's largest retailer, just about anything Walmart does is reason for the competition to pay attention. It may have taken more than a quarter of a century for Walmart to start selling groceries after all, but the retail behemoth now holds top position in that segment in North America by an overwhelming margin.

With that precedent in mind, and in light of Walmart now holding the position as the nation's third largest retail pharmacy provider, it seems likely that another fierce battle for the future of retail pharma is about to begin.

Launched in fall 2019, the Walmart Health Care Clinic serves as a good indicator as to the strength of the company's ambitions.

Staffed to deliver an expansive set of services that range from primary care and disease management through to dental, hearing, nutrition and fitness, these sleek, modern facilities offer the same one-stop-shop approach as Walmart's core store.

Moreover, Health Care Clinics also employ the company's "everyday low pricing" model, something that makes for a compelling proposition regardless of insurance coverage. Medicare and Medicaid are both accepted too, encompassing what is likely a significant number of customers.

The battle within

Similar at their core yet, subtly different, these offerings from CVS and Walmart represent a dramatic shift in healthcare delivery in the US.

While the scale of each remains too small at this point to draw many conclusions, those small differences could carve out room enough for both to flourish. CVS' focus on providing specialist-level health and chronic condition care is different enough from Walmart's "low price, one-stop shop" approach to appeal to a distinct group of customers.

Rather than between each other, the biggest challenges ahead for CVS and Walmart may actually be found within. As both companies make fundamental changes in order to facilitate a future in which healthcare is a significant part of their offering, they will need to focus on evolving their relationships with their long-term customers too.

CVS, for instance, will need to ask customers to reconcile the idea that a company that continues to dominate in snacks and candy is now an active participant in their healthcare. And Walmart, famed for its leadership in building highly efficient operations, will need to scale and sustain a healthcare business rooted in flat, affordable pricing, as well as build the credibility as a viable provider of quality healthcare.

Neither challenge is easy. But if history has taught us anything, it's that when companies of this size decide to redefine an industry from the ground-up, they tend to succeed.

The arrival of Covid-19 also introduces a new reality unthinkable less than a year ago. Health and wellness permeates all aspects of our lives and vigilance is essential to protect ourselves and our loved ones.

  • PPE has become a category in its own right with massive and sustained demand across such items as masks and sanitizers.
  • Hospital capacity is being tested repeatedly with infection surges and unable to address lower level and elective procedures
  • Vaccination is now a global necessity requiring a distribution network capable of rapidly reaching billions of people
How this all plays out in the future remains to be seen, but all of the factors above strongly support retailers playing a increasing pivotal role in the Health & Wellbeing of their customers. In the face of the pandemic, the retailer which can most effectively provide quality care and a clear path for the customers through the complexities of the healthcare system will emerge with a far greater and valuable role in their customers' lives.



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Retail leaders must objectively understand how their business currently considers Customers before trying to set a more Customer-centric direction and focus. There are some formal assessment methodologies, like dunnhumby's Retail Preference Index (RPI) and Customer Centricity Assessment (CCA), which offer detailed evaluations of a business' capabilities, strengths and weaknesses based on Customer perceptions (RPI) or global best practices (CCA).

The approach outlined below is not intended to replace these formal tools; rather, these observations are intended as a kind of 'toe in the water' to help retail leaders form early hypotheses and points of views. These are rules of thumb, heuristics culled from global experience. Later, leaders might use these observations to informally check progress from time to time as a way of assessing whether the "program in the stores matches the program in our heads".

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