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Drug Stores: Walmart PowerPoint Presentation
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Drug Stores: Walmart

Drug Stores: Walmart

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Drug Stores: Walmart

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  1. Drug Stores: Walmart Eric Biro

  2. Industry Trends • 30 million Americans will gain health coverage by 2018 • By 2020, 20% of consumers will directly choose their own health plan • By 2020, there is an estimated 45,000 physician shortage • Many drug stores are diversifying their services as margins compress • Offering flu shots, quick clinics in-store • Time of transformation in the healthcare industry, trickles down into drug store industry Source: http://www.drugstorenews.com/article/cvs-caremarks-ability-and-agility-key-focus-2014-analyst-day

  3. The Industry - drug stores • Well-known, established specialty chains • Walgreens, CVS, Rite Aid • Pharmacy a main draw • Sell health & beauty products, over-the-counter drugs, photo-finishing services • Operations: merchandising (which items to stock), advertising, inventory management, billing, personnel management • High-inventory, moderate receivables • Challenge: margins decreasing rapidly • In-store pharmacies • Retailers that have added pharmacies onto their product offerings • Growing source of competition for traditional pharmacies • Walmart, Kroger Source: http://corp.bankofamerica.com/publicpdf/products/industries/sampleprofile.pdf

  4. The Industry - Pharmacy Benefit Managers (PBMs) • Pharmacy purchases drugs from supplier • Insured patient buys drugs from pharmacy • Must purchase at a pharmacy that has contract with insurer’s PBM • Patient pays part of total upon receipt • Pharmacy bills patient’s insurance for remainder of payment • PBM negotiates lower reimbursement for insurer to pharmacy • Possible through size of PBM and bargaining power that comes with size • Insurer pays less to pharmacy because of PBM negotiation • PBM takes part of this profit for its services • Pharmacies have contracts with several PBMs • Walgreens and CVS Caremark

  5. The Industry - Pharmacy Benefit Managers (PBMs) • Traditional PBMs • 60 major in the U.S. • Largest Express Scripts (just purchased one of the other top 3) • Intense competition and huge barriers to entry • Combination PBM/Drug Stores • CVS Caremark

  6. Comparable Firms • Walgreens Co. • 2013: $72.2 B in sales, $45.5 B in prescription sales • CVS Caremark • 2012: $123.0 B in revenue (including PBM revenue) • Walmart • 2013: $37.0 B in Health & Wellness net sales • Express Scripts • 2012: $93.9 B in revenue

  7. Walmart background • Saving people money to live better through everyday low prices • Mass merchandiser of consumer products • 3 business segments (U.S., International, Sam’s Club) • Supercenters, discount stores (4,005 stores) • $466.1 billion in net sales in fiscal 2013 (59%/29%/12%) • 11% of U.S. /5% of Sam’s net sales attributable to health & wellness (pharmacy, optical services, over-the-counter drugs) • Broad distribution networks (81%/64% of purchases through Walmart owned facilities) • 2.2 million employees serving 200 million customers each week Source: Walmart 2013 10-K

  8. Walmart pharmacy • Expanded into pharmacy in 1977 • $4 generics program started in 2006 • Average was $29, used mass distribution tactics to sell at a profit still • Reduced America’s drug bill by $1 billion in under 2 years • Gingerly stepping into PBM role • Offering businesses ability to buy low-price drugs if it buys directly from Walmart’s in-store pharmacies (Caterpillar, 400 others) • Has the potential to fundamentally change the way PBMs operate/price • Added walk-in clinics in over 400 stores in 2010 Sources: http://www.npr.org/templates/story/story.php?storyId=6119292 http://www.managedcaremag.com/archives/0804/0804.walmart.html http://online.wsj.com/news/articles/SB124138786561981235

  9. SWOT Analysis – Internal Factors • Strengths • Supply chain • Bargaining power • Brand name recognition, association with low prices • Strong culture for health (save money, live better) • Weaknesses • Legal issues • Negative brand name association (workers, importing) • Tendency to aim larger than it should

  10. SWOT Analysis –External Factors • Opportunities • PBM model facing margin crunch (generics) • Renewed focus on American healthcare from ACA • Shady practice of PBMs, can build on better parts of their model • Threats • Overextension into an unfamiliar market • What does failure lead to?