The drugstore industry consists of large chains and small pharmacies that provide retail drug prescriptions, over-the-counter medications, health and beauty products, and often many other general merchandise product categories. The industry is heavily concentrated and has experienced significant competition from discount store and food chains as of publication.
While local and regional drugstores do get their share of the market, the drugstore industry is defined in large part by its heavy concentration. According to its 2012 overview of the industry, "Drug Channels" noted that five major chains control 63 percent of industry business. Walgreens, CVS and Rite Aid are commonly referred to as the "big three" of drugstore. Express Scripts is also among the top five chains. Walmart, though not actually a drug store, is one of the five chains that control pharmaceutical revenue.
The fact that Walmart has infiltrated the list of the top five drugstore dispensers is evidence of increased competition the sector faces from general merchandise and food retailers. Walmart, Target and Hy-Vee are among the prominent discount and supermarket chains that have gained market share in the pharmacy business. Many regional and national supermarket chains have significant pharmaceutical departments. This competition has forced the industry leaders to adjust over time.
One of the first innovations used to combat non-drugstore competitors was the drive thru, but some retail chains have simply copied this effort. Leaders like Walgreens and CVS have expanded significantly into general merchandise and food categories to compete. These stores also provide specialty services such as photo processing and photocopying. Loyalty programs have also become popular ways to capture and retain customers. Large and small chains have worked diligently with manufacturers and wholesalers to offer discount drug programs to compete on price as well.
Small Store Pros and Cons
Smaller local and regional shops do have some relative strengths in the industry. Some small-town consumers like to support local businesses, and feel more comfortable getting to know pharmacists and techs at a local store. In small towns, pharmacies may also benefit from close relationships with area doctors and facilities. Buying power, limited promotional budgets, and less general merchandise inventory are common challenges faced by small chains relative to industry giants.
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